Banning Cryptocurrency – Economic and Political Weekly

The Indian Government, under the chairmanship of Subhash Garg, appointed a committee for evaluating the working of cryptocurrency and its future scope. In its July 2019 report, the committee submitted a draft bill for the banning of cryptocurrency on the pretext of itsillegitimate existence and its direct challenge to the legal tender of the government (Indian Rupee). Cryptocurrencies, which shot to fame after the 2008 economic meltdown, are a unique method of virtual transaction, run on blockchain technology, instead of the conventional banking sector where there is a third entity to regulate the transaction of the individual, like a bank. The blockchain technology does away with that third party transaction and instead gives peer-to-peer transaction. However, due to its fluctuating nature, the cryptocurrency is not getting enough support from the government; in addition to that the whole premise of cryptocurrency has an essence of extreme libertarianism, with a hue of anarchism. During the 2008 economic meltdown, where most of the banks went bankrupt and millions of dollars were lost, economists blamed the banking sector for its overemphasis on unsecured loans. This distrust on the banking organisation boosted the blockchain technology, which was primarily introduced to support the mechanism of cryptocurrency. Under the blockchain technology, the nodes were able to transact without any third party interference on a peer-to-peer level and as the transactions were open to all the nodes to see, it became impossible to change any of the block of the blockchain, which brought in the immutable characteristics of the cryptocurrency. It is not that blockchains were immune to shortcomingsthere is a possibility of 51% attackbut the possibility of that happening is very rare.

The main heading of the bill showsits objective clearly minted on its text that is Banning of the Cryptocurrency. Keeping this predetermined objective of the bill in mind, it defines as to what qualifies to be called as a cryptocurrency. The bill says under Section 2(1)(a),

Cryptocurrency, by whatever name called, means any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.

If we emphasise on the term with the promise or representation having inherent value the definition here is targeting the fluctuating nature of the cryptocurrency. Due to the possibility of chances involved in a cryptocurrency, it makes cryptocurrency volatile.

Further, the bill specifically lays down that Cryptocurrency not to be used as legal tender. Under Section 6 of the bill, it prohibits the use of cryptocurrency as a medium of exchange. While Section 6 lays down a general ban on use of cryptocurrency, Section 7 of the bill deals with particular activities where it cannot be used.

The last two years have been a relentless endeavour from the central government to reconcile with the technological advancement of the world. Either it is Data Protection Bill, 2018 that is running a risk of turning redundant on grounds of its non-application on blockchain technology, or it is this particular bill. However, the irony is that both of them are still bills and not laws. The next important question that needs to be asked is whether it was required to have a law for banning cryptocurrency, or if the data protection law itself could have been good enough to handle the case of cryptocurrency. As cryptocurrency is primarily dependent on the blockchain technology for its existence, the question is whether data protection law, if amended appropriately, could have handled the blockchain technology and, by default, handled cryptocurrency. Or, the step of bringing in a new bill to specifically target cryptocurrency represents the fear about the sovereignty of the country being in threat.

Ashit Kumar Srivastav

Jabalpur

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Banning Cryptocurrency - Economic and Political Weekly