On Sunday, the global crypto industry heaved a sigh of relief when Finance Minister Nirmala Sitharaman categorically ruled out a much-feared blanket ban, promising to allow a window for people “to do certain experiments” using distributed ledger technologies, Bitcoin and other virtual currencies, she said at an India Today conclave.
But before the ink could dry on the congratulatory press releases from entrepreneurs, Reuters cited an official with direct knowledge of the plan as saying that the new law will “criminalize possession, issuance, mining, trading and transferring crypto-assets.”
That will be nothing short of a second existential crisis in three years. India’s crypto evangelists fought a brave legal fight — a couple of them even went behind bars for a short while — against the monetary authority’s 2018 diktat to banks, telling them not to allow anyone dealing in digital assets to operate an account. Last year, the nascent blockchain industry won when the country’s highest court set aside the Reserve Bank of India’s order.
Optimism started to rebuild, and surging Bitcoin prices began to lure millennials. When it comes to transferring Bitcoin and other digital assets, India is of late providing more volume than China on popular peer-to-peer platforms.
The risk that India would hit back with a new law to make criminals out of crypto professionals and investors was always present. So practitioners tried to educate policymakers, appealing for sensible regulation starting with definitions for what is a utility token, which digital asset is to be viewed as a security, and which is to be treated as a currency.
The trouble is with bureaucrats. They say they want blockchain, but not cryptocurrencies. It’s as silly as wanting airports with duty-free shops but no flights. From the Reuters story, it doesn’t appear that the final regulation will be much different from what a draft bill had recommended in 2019. A government panel report, which had provided the backdrop for the draft legislation, said that authorities would be fine with distributed ledger technologies for delivery of any services, or “for creating value,” without involving cryptocurrencies “for making or receiving payment.”
Such a dichotomy will be messy in practice. Take international money transfers, where costs pile up because of payment messages that have to laboriously jump national borders by using correspondent banks. To provide value, the service provider will need to employ virtual payment tokens, something that the Philippines and Bangladesh are already allowing. India, the world’s largest recipient of…