- The Indian government has listed its new crypto bill on the agenda of the upcoming Winter Session of Parliament, which starts on November 29.
- The description calls to “prohibit all private cryptocurrencies,” but has not defined what it means by ‘private’.
- Experts are divided on whether this means all cryptocurrencies that aren’t controlled by the government, just
privacy coinsor in reference to cryptocurrencies not being deemed as ‘currencies’.
Not every blockchain is the same, and neither is every cryptocurrency. And, the term ‘
And, therein lies the conundrum. In India, the government is planning on introducing its new proposed
cryptocurrency laws to the politicians for approval in the lower house of Parliament — the Lok Sabha — during the Winter Session, which kicks off on November 29.
The reference to “prohibit all private cryptocurrencies,” has caused panic in the crypto markets with the rate of exchange between Tether (USDT) and the rupee dipping to ₹69, as of this morning.
Cryptocurrencies are trading at 20-30% discount right now due to the chaos created by the government. The ruling government should have acted more responsibly to define the definition of private cryptocurrency since they mentioned the term for the first time back in February.
Hitesh Malviya, founder of itsblockchain.com, told Business Insider India
Despite all the fear, doubt and uncertainty (FUD) in the air, the government hasn’t actually used the word “ban,” as reported by others in mainstream media. The description of the discussion even goes on to say that it will allow for “certain exceptions.”
We are yet to receive official communication from the government in this regard [private cryptocurrencies].
Ashish Singhal, co-chair of the industry body Blockchain and Crypto Assets Council (BACC) as well as the founder and CEO of crypto exchange CoinSwitch Kuber told Business Insider
Privacy coins, currencies not owned by the government or just no to the term ‘currency’
It remains to be seen how India will define ‘private’ cryptocurrencies in the proposed legislation. And, without any official draft in the public domain, it could mean one of three things.
According to Rajat Prakash, the managing partner at Athena Legal, “An inference can be drawn that generally anything not owned by the government is considered private. Also, it could mean that cryptocurrencies that are on private blockchain hence making them untraceable could be private cryptocurrencies.”
It could also mean that non-government coins — which includes everything from Bitcoin to Tether to Shiba Inu — won’t be legal tender and could be classified as an asset.
So, if it [cryptocurrency] is managed by a particular founder or a company or a fund, we can call it private. Whatever is not issued by the government, all of that could be private. Or, it could be where we do not have stablecoins.
Sathvik Vishwanath, the co-founder and CEO of Unocoin told Business Insider
Cryptocurrencies won’t be ‘currencies’
Rameesh Kailasam, the CEO of the advocacy group IndiaTech, believes that the Indian government’s stance on the issue could just mean that it isn’t looking at cryptocurrencies as ‘currencies’.
“There has been an engagement process over the past few weeks and months. If I go by the word of the bill versus the sentiment that is currently there — they will ban cryptocurrencies for currency purposes. Which means, they won’t accord them the status of currencies,” he told Business Insider.
Instead, like other democratic countries around the world have done, cryptocurrencies will be accorded the status of ‘assets’. This means that they will be monitored thoroughly for all security concerns, with respect to protecting investors as well as preventing illicit usage.
“Effectively, the government’s earlier proposals were meant to restrict any crypto whatsoever from being a payment method or medium of exchange, and only the central bank digital currency (CBDC) being allowed,” explained Nitin Sharma, partner and global blockchain lead at venture capital firm Antler Global.
What’s a privacy coin?
Within the crypto community, ‘private’ cryptocurrencies are normally considered to be ‘privacy coins’. As Kumar Gaurav, the founder and CEO of cryptocurrency bank Cashaa, explains, these are, “cryptocurrencies that offer anonymous transactions which hide a user’s wallet balance and address and mix multiple transactions with each other to elude chain analysis.
These are the same coins that have attained the most scrutiny for facilitating the movement of funds from illicit activities. Others, like Bitcoin and Ethereum, in contrast, aren’t intentionally built to be opaque and don’t disguise the addresses used by participants.
“If the government goes by the technical definition both [Ethereum and Bitcoin] may skip the ban,” the director of the financial services company Market Maestroo, Ankit Yadav, told Business Insider.
Cryptocurrencies that are owned by private players
On the other hand, if the Indian government isn’t just looking at privacy coins or cryptocurrencies being defined as a ‘currency’ in general, the third possibility is that it’s looking at centralised coins — those owned by private entities.
The underlying philosophy behind most cryptocurrencies is to be decentralised, which means no single entity can have control over its supply, its tokenomics and other fundamental aspects. Instead, decisions are taken with all parties with a stake in the cryptocurrencies — either through ownership or governance tokens — voting on major decisions.
“There are currently more than 11,000 cryptocurrencies in the market. All these cryptocurrencies, at one level or another, are created by private companies or individuals,” Edul Patel, the CEO and co-founder of crypto mutual fund platform Mudrex, told Business Insider
But, centralised coins do exist — like XRP, NEO and EOS. This means the control of power is concentrated with just one organisation at the helm or a set of limited individuals. The larger question is around their governance.
If the interpretation of ‘private currency’ is limited to cryptocurrencies on permissioned blockchain managed by private entities — like Facebook — or privacy coins powered by private and anonymous blockchain like Monero, DASH, ZCash etc then the impact of proposed prohibition will be minimal and unlikely to disrupt the existing marketscape.
Ganesh Vasudevan, the research director for financial insights at the International Data Corporation’s (IDC) India wing, told Business Insider
Nearly 15 million Indian retail investors representing 1.8% of the population have invested over $6.6 billion in crypto assets, according to CrossTower.
Only once India’s crypto bill comes up for discussion in Parliament will stakeholders have a clearer view of what the government means by ‘private’ cryptocurrencies. And, it’s only once there’s a definition in place will the rest of the pieces of the puzzle fall into place.