The government dropped a bomb on crypto enthusiasts earlier this week by releasing a list of bills that will be presented in the winter session of Parliament. The list includes the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which seeks a ban on all private cryptocurrencies. The government came up with a similar bill last year but had put it on hold to initiate discussions with industry experts and stakeholders. A committee was also formed to provide further recommendations on the matter. All signs suggested that the government may not ban cryptocurrecnies but look to regulate them.
However, the new draft bill confirms that the stance hasn't changed entirely. The only probable relief is the mention of certain exceptions to promote the underlying technology of cryptocurrency, which is blockchain. Yet, the description of this bill doesn't define private cryptocurrencies and hasn't provided any clarity about the mentioned exceptions. This has resulted in a panic among investors with a lot of them selling their crypto investments over the past 48 hours.
In case you missed the details of the crypto bill or still have some confusion around it, here is everything you need to know in 7 simple points.
Point 1 - The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will be tabled in the winter session of Parliament and seeks to ban all private cryptocurrencies with 'few exceptions', the official document shared by the government says. The Indian government had a strong stance against cryptocurrencies at the beginning of this year and suggested that it can even go on to impose a blanket ban. Since then, the finance minister showed the intent of regulating crypto and even classifying it as a digital asset. However, the new bill description is very similar to last year's bill.
Point 2 - The investors need to understand that this is just a proposal though. The bill will be up for discussion after it is introduced in the Parliament and the final draft can be completely different. Don't be surprised if the current draft is entirely scrapped.
Point 3 - There is a major confusion around the definition of private cryptocurrencies as well. The government is yet to classify them. If you go by a simple technical definition, transactions happening in most cryptocurrencies can be traced or linked to the wallet addresses, which makes them public cryptocurrencies. Then, there are also the kind of cryptocurrencies that offer anonymous blockchain transactions. These coins hide a user's real wallet balance and address, and at times they also mix multiple transactions with each other to elude chain analysis. These are referred to as private cryptocurrencies.
"There are currently more than 11,000 crypto currencies in the market. The classification of private cryptocurrencies is not yet clear. More than 99.9% of all cryptocurrencies are created by developers or companies or individuals, and not by the government. Hence these should inherently all be private cryptocurrencies. However, cryptos such as bitcoin, Ether, etc., are not under the ownership of any team or company. So they cannot be directly called private cryptocurrencies. However, the controlling power to implement any changes to either bitcoin or Ether rests with the developers and the miners. If we were to consider this aspect, then neither bitcoin or Ether can be called totally public cryptos," Edul Patel, CEO & Co-founder of Mudrex explained.
Point 4 - The only catch here is what if the government classifies the cryptocurrencies on the basis of their ownership. In that case, all the cryptocurrencies not issued by the government will be recognised as private cryptocurrencies. This means Bitcoin, Ethereum and other cryptocurrencies may also face a ban.
"In my understanding, bitcoin, ethereum, and other popular cryptocurrencies are not controlled or managed by any private entities, transactions are on the public ledger, and they are recognized as public cryptocurrencies in every major economy. But on the other hand, there are a good number of cryptocurrencies being promoted by MLM companies, private companies in the country right now, these kinds of cryptocurrencies have been subjected to a couple of huge scams in the past. So if the government is looking to ban such privately owned cryptocurrencies then it's a good move," Hitesh Malviya, founder, itsblockchain.com said.
Point 5 - One thing that the bill confirms though is that cryptocurrencies will probably never become a legal tender in India. The initial idea behind crypto was to provide an alternative to the existing fiat currency. The crypto enthusiasts have always been talking about its open nature and believe that decentralised transactions are the way ahead. El Salvador has already embraced Bitcoin as a legal tender. However, in an economy like India, Bitcoin or any other cryptocurrency will not be able to replace the fiat currency.
Point 6 - The Reserve Bank of India is definitely bringing a digital currency of its own. The RBI governor Shaktikanta Das has also been very critical of cryptocurrencies. Only a couple of weeks back, he highlighted that cryptocurrencies are a big threat to any economy. The RBI has also shown its intent of introducing a digital currency in the past. It is yet to provide any details about it though. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, however, once again highlights that a RBI-backed digital currency may be introduced soon.
Point 7 - The proposed ban on private cryptocurrencies is also to promote the RBI-backed crypto. A few experts believe that the government may only allow crypto exchange through platforms and exchanges officially recognised by the government. There may even be a new regulatory body or cryptocurrencies may be brought under the ambit of the Reserve Bank of India (RBI).
There have been multiple reports over the past 24 hours suggesting that the government may still not ban cryptocurrencies despite presenting the bill and will only look to prohibit them. At this point, the investors need to remain calm, wait for further clarity on the bill and then decide what they need to do with their investments.
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