RBI issued a press release debarring controlled financial institutions to deal in with companies or individuals associated with buying and selling of virtual currencies with immediate effect.
However, they are given a timeframe of 90 days to handle the massive number of grievances that is to come.
Well, many see this as an opportunity for pocketing larger profits by finding it the correct time to invest as the markets fall down by 20% within 2 hours of the news.
While most of the others are in the sheep race to sell off their portfolios as they see the apocalypse of cryptocurrencies in India. And they are suffering losses up to 75 percent by selling their coins at whatever prices.
RBI, on 5th April 2018 stated that
“Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.
Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated with dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”
Finance Minister Mr Arun Jaitely has spoken on the issue in his budget speech.
“The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities or as part of the payments system,” Jaitley said.
Internet was taken on the storm.
People explained that what Mr Jaitely means by that is cryptocurrencies are just like petrol which can’t be used as a legal tender i.e way to exchange goods and services. You cannot pay Big Bazaar in petrol for your groceries bill.
But in a logical way, it’s not prohibited to trade in petrol. People buy, store and sell crude oil as a commodity in the exchanges.
However, the statement issued by RBI is completely different.
What I understand from it is that you cannot use any India debit card, credit card or bank account to deposit money into the exchanges like Zebpay, Koinex and bunch of others to sell and buy cryptocurrencies which you used to do before.
Moreover, banks may block the account services provided to these digital asset exchanges debarring you to withdraw your current portfolio of money. However, you can do so within 90 days.
Why the Government has issues with Virtual Currencies
Although I don’t see a point in having an issue with cryptocurrencies, there are some litigations if you analyze it from the point of view of those in powers. And certainly, a handful of issues when you look it from the Government’s point of view.
Let me touch some of them.
The Money Laundering Angle
I completely understand that virtual currencies are the new port for money launderers, which they use to ship their black money out from and into the country. Well if you are into money laundering (probably not) and transfer your tax evasions to Swiss bank accounts, here’s what you do.
You contact someone (a lot of people are into it) and pay him in cash. He uses his wallet to transfer virtual currencies into your wallet. Just like any other “Hawala” modus operandi.
And since cryptocurrency transactions are decentralized and encrypted with peer-to-peer encryptions, there’s no way a government body can dig into the details.
Even somehow, they got to know about the transaction, they cannot prove that you did it as cryptocurrency wallets are anonymous with absolutely no names associated. And court needs evidence to convict you as a culprit.
The Tax Evasion Angle
We all know that any nation runs on taxes (except the oil giants). Cryptocurrency’s anonymity had raised challenges on the way the government collects taxes.
If I own a company that sells laptops and some customer buys one and pays me in bitcoins, how the government will know about the transaction. And if they can’t figure it out, why will I pay taxes?
Some firms like KFC Canada, Virgin Galactic and Reddit are accepting bitcoins since 2017.
Of course, when compared to investing in the stock market or even real estate, cryptocurrency ICOs are much more volatile. Issues such as hacking incidents can cause investors to lose all of their investment quickly. Granted, such drastic incidents are rare, but major drops in ICO value are not unheard of.
The real value of any cryptocurrency relies on building a strong product that a significant network of users will want to use. However, if these networks either fail to attract users or never get users to actually utilize the platform, then the currency will likely see a drop-off in price. Many of the recent ICOs that failed to perform after launching did so due to a lack of network engagement.
Just as startups can run out of resources and be unable to continue operations, if a cryptocurrency ICO does not raise enough money or the startup spends more money than expected, the doors close and the network really takes off. Many cryptocurrencies are doing pre-ICO raising in order to have firm commitments of resources and demonstrated demand for the currency.
Ultimately, every cryptocurrency is a startup and has a team of founders running it. In order for the cryptocurrency to effectively navigate from ICO phase to mass-market levels, it needs a solid founding team. Before choosing to invest in a cryptocurrency ICO, make sure to look into the team’s background and evaluate whether they have the skill sets and capabilities to execute the project.
Amidst all the debates and opinions, a thought has intoxicated my mind.
Is this ban on using bank accounts to trade in cryptocurrencies actually snatching away the financial freedom?
Yes! I am talking about the financial freedom virtual currencies promise to bring in.
Or does it?
Satoshi Nakamoto with the introduction of Bitcoin showcased that the blockchain-technology is decentralized and transfers the control over money from a handful of rich individuals into the hands of people.
Banks would not be able to decide who you send money, how much you send and for what you send money. The government will not know whom you deal with. You are your own boss. But freedom doesn’t come for free.
And that applies to cryptocurrencies as well. If someone defrauds you and steals your money in whatever way, there’s no way to reverse the transaction. Nor there is any way to identify the person behind.
I don’t know whether decentralization is a good move.
Or will it create a mess?
But to think off all this as a futurist, I speculate that the RBI statement will slow down the penetration of cryptocurrencies in the economy and the poor will have to depend on the rich for a more longer period of time.
I also firmly believe that there’s no way to stop cryptocurrencies from taking over the world.
We the people of India are on our way to see our country the way we never imagined. Welcome to the future.