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India, a world leader in the information technology (IT) sector, is currently caught in a tug-of-war between opposing views regarding cryptocurrencies. The opponents are the Reserve Bank of India (RBI), and Indian cryptocurrency advocates. The stance held by the RBI is that of cryptocurrencies not being legitimate currencies and, threatening to the banking system of India. The stance held by crypto advocates is to foster innovation by embracing crypto technology for the bettering of the Indian economy. This writing will examine these stances, their potential results, and recommend an outlook for the situation. Eventually, crypto advocates will win this battle, as this article will explain. India will then emerge as a global leader in the cryptocurrency sector due to its concentration of talent in IT.
The RBI argues that cryptocurrencies are an invalid form of currency as they lack a physical backing of value nor are they government-issued. They also state that cryptocurrencies are volatile in their value, and thus not an accurate medium of value transfer. Their stance is also that the currencies will enable illegal activities. These criticisms are compiled in the RBI circular, which allowed them in 2018 to ban all cryptocurrency dealings for financial services under their jurisdiction, the Indian rupee. Cryptocurrency advocates, through their petition and appeal efforts, managed to convince the Supreme Court in early 2020, to lift that ban. They argued the ban was unconstitutional and that the RBI overstated their power. Although this resulted in a resumption of activity for major crypto exchanges in India with the Indian rupee once more, the RBI also began to appeal the ban lifting. They are urging the Supreme Court to only legalize state-issued cryptocurrencies. The Supreme Court is considering this manoeuvre.
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The RBI’s stance fails to acknowledge how cryptocurrencies function. Arguing that cryptocurrencies do not hold a physical backing and thus have no value is flawed, as the value can be attained by means other than a physical backing, such as the minting of a token through a valuable task a user conducts. In that case, the token does have value, as the task had value, however, it is not tangible. Regarding the mention of using cryptocurrencies for illegal activities, it is important to consider that cryptocurrencies can be used for legal or illegal activities, just as the Indian rupee certainly can as well. Due to the RBI’s inability to acknowledge how cryptocurrencies function, their criticisms cannot be taken seriously.
The Internet and Mobile Association of India (IAMAI), baffled by the stance of the RBI, decided to contact the central bank for clarification on their demand for banning all non-state-issued cryptocurrency. The RBI stated in response that it is:
“especially concerned about investor protection, the anonymity of transactions, and the cryptocurrencies’ lack of intrinsic value” (The Quartz, July 12th, 2018).
The IAMAI also reached out previously, in June 2018, to the RBI, to collaborate on policies for cryptocurrencies to prevent such fraud to investors from occurring. This was after the RBI had stated that they wish to:
“ring-fence gullible investors and lenders from scams, several of which have happened internationally.” (The Quartz, July 12th, 2018)
The CEO of crypto-exchange Belfrics, which is Malaysia based but with operations in India, Praveen Kumar, stated that:
“by limiting transactions via bank accounts and allowing more cash-related transactions, RBI is allowing more people to get duped” (The Quartz, July 12th, 2020).
This was because banning cryptocurrencies was encouraging illegal crypto trading with cash instead. Praveen then further suggested:
“Instead, they need to regulate the exchanges and lay down guidelines that can help prevent these frauds” (The Quartz, July 12th, 2018).
On the contrary, this is what cryptocurrency advocates said regarding the tech being used for criminal activity:
“… Our main objective is to create a dialogue with policymakers and develop a comprehensive framework for crypto assets in India paving the way for innovation” (The Hindu, March 4).
The quote above was by Sohail Merchant, CEO of Pocketbits, which is a member of IAMAI’s blockchain and cryptocurrency Committee.
Furthermore, an Indian trade organization, The National Association of Software and Service Companies (NASSCOM), tweeted:
“We believe that banning #tech is not the solution, a risk-based framework must be developed to regulate and monitor cryptocurrencies and tokens” (The Hindu, March 4).
These mentions by crypto leaders show that they are not interested in enabling criminal activity and are willing to align the technology’s implementation to Indian regulations. So, the RBI’s statement of cryptocurrencies being a portal for crime is unfounded.
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Crypto advocates wish to embrace the technology for these reasons; 1) allowing the availability of financial services for those in need of it most, 2) allowing India to reach its full economic potential and emerge as a global leader in the cryptocurrency sector, 3) making use of Indian IT talent. Concerning the first reason Nischal Shetty, the founder of India based WazirX, a cryptocurrency exchange, had this to say about capital access through cryptocurrency availability:
“someone in some village in India will get access to capital, it may be 1% [interest] because there is so much capital in the world, it’s just that it is not entering India, so the biggest benefit I think I see is access to capital that India will get, that India needs for [economic] growth” (EVENTICA BEINGEVENT, 2020, 4:14).
Currently, those that require capital the most in India face the heaviest interest rates. Nischal is posing that cryptocurrencies will make funds available for those in most need of it. All without insatiable rates.
Thus, the crypto advocates are motivated by prospects to improve living conditions in India, and also incubating India as a leading economy. They are also aware of the RBI’s inability to provide valid reasons for their anti-crypto stance. Due to this, they will not be discouraged and will fight with religiousness for the technology to be adapted. Since the advocates are more than willing to adopt regulations for the crypto space, it is a clear indication that their intentions are indeed what they claim and not for illegal means.
This provides reasoning to expect India’s eventual adoption of cryptocurrency, with the necessary regulation. This expectation is reinforced by the recent acquisition of WazirX, by Binance. Binance has also pledged to invest USD 50 million, to crypto start-ups in India. They also intend to work with academic institutions to create blockchain education for students in India. This is what the CEO of Binance, Changpeng Zhao, had to say of the move:
“Binance is the only international crypto exchange to invest in India, before the ruling, and even today. But I expect more investments to go there now.” (Twitter, March 4th).
So, a leader in the crypto industry sees potential in India, and he expects other organizations to also invest in the Indian crypto industry. This is significant since Chanhpeng invested before the RBI’s crypto ban was lifted. CoinDCX, another Indian based crypto trading platform has raised $3 million from investors for developments in the Indian crypto space (Bloomberg, March 23). Furthermore, an article on bitcoin.com states:
“After the supreme court quashed the banking ban imposed by the central bank, the Reserve Bank of India, a number of companies worldwide have expressed their interest in the Indian crypto sector.” (Bitcoin, March 11)
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The obstacle currently faced by the crypto industry in India is currently unfavourable regulation, which is coming to an end since the Supreme Court’s decision to lift the crypto ban. According to a report by Dappros, a London-based consulting firm, India has the second-largest number of blockchain developers, 19 627, in the world (Altcoin Buzz, Jan 12th).
Due to the motivation, the crypto advocates have in India, and the investments following forward, as well as the concentration of IT talent that India is known for, especially the magnitude of blockchain developers, it is expected that the crypto industry will develop substantially in India. India is opportune to be a global leader in the cryptocurrency space. It is of recommendation, to ensure such an outcome, that cryptocurrency education and investments continue to increase. At the current rate of development, this will most certainly allow India establishing a presence in the global crypto space. Crypto education is necessary since the obstacle provided by the RBI is due to a misunderstanding of the nature of cryptocurrencies. Education is what will create the correct impression of the technology for Indian citizens. Since businesses such as Binance and CoinDCX are willing to not only invest in India for the crypto space but also foster education regarding this technology in India; any misinformation bolstered by the RBI will be overcome. The Indian public will thus be in favour of the technology pushing it to further adaptation and prosperity.
In conclusion, the RBI is unfounded in its resistance against the developing cryptocurrency industry in India. Any misinformation the RBI bolsters will be overcome when crypto education continues to be fostered in India. Also, due to the concentration of crypto talent in the country, as well as the honourable motivations of the crypto advocates and the growth of their investments, it is eventually expected that India will establish their economy much further than the country would have otherwise.
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