From UPSC perspective, the following things are important :
Prelims level : Blockchain
Mains level : Paper 3- Implications of banning blockchain technology
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to ban cryptocurrencies. Banning cryptocurrencies would have several implications for India. This article deals with this issue.
Soaring value of Bitcoin
- Recently, Tesla announced that it will soon accept cryptocurrency as legitimate payment for its cars.
- Mastercard followed by announcing that it will incorporate ‘select cryptocurrencies’ on its global payment network.
- BNY Mellon, incidentally the US’s oldest bank, announced holding and transferring digital currencies for asset management clients.
- JP Morgan and Goldman Sachs announced executive positions to look at cryptocurrencies.
- All of this resulted in a soaring value of Bitcoin, and its younger sibling, Ethereum.
India’s governments stand on cryptocurrencies
- India’s government sought to ban cryptocurrency through a proposed legislation, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
- The Bill also provides to also set up a legal structure for an “official digital currency”.
- The Bill promises to “allow for certain exceptions to promote the underlying technology of cryptocurrency (blockchain) and its uses.”
- The way the technology is built, an ownerless, consensus-driven, distributed ledger like a blockchain needs cryptocurrency to grease its wheels.
- India tried to ban cryptocurrency once before, in 2018, before it was reversed by the Supreme Court.
Implications of banning cryptocurrencies
- The banning will kill innovation.
- India has more than 30,000 blockchain innovators and practitioners.
- These innovators will now be looking at moving out to friendlier regimes like the US, Switzerland, Singapore and Estonia.
- International tech companies will freeze blockchain and crypto-exchange investments in India and the step will undermine India’s reputation as a technology hub.
- India is the second-largest Bitcoin trading nation in Asia, and all those trades will move to overseas exchanges.
- China has large crypto trading and mining operations, and an Indian ban on Bitcoin will leave that space open for it.
Consider the question “What is cryptocurrency? What would be the implications of banning it?”
No doubt, there are many problems with cryptocurrency—it is volatile, sucks energy, and is often abused by criminals. But the answer is not to ban it, but regulate it.