Blockchain mustn’t get blocked: Regulate but do not ban Bitcoin
February 21, 2021
The government’s proposed bill to ban cryptocurrency could deal a blow to India’s tech credentials
Since I started writing this column on technology a couple of years ago, two things have been eminently predictable. One is Elon Musk, the richest man in the world now, doing unpredictable things: Boring tunnels, implanting chips in pigs’ brains, and christening his son unpronounceably. The second is the unpredictability of Bitcoin and cryptocurrency—volatile, erratic, yo-yoing between $3,000 and $50,000 in this short time, and being simultaneously hailed as the next big thing or dismissed as a ‘digital tulip’, as speculative as the tulip mania of the mid-1600s. So, it was interesting when the two came together in a rather risqué cartoon tweeted by Musk, showing a pious priest getting distracted by an unusually clad lady with the word ‘bitcoin’ written over a certain part of her anatomy.
A few days later, Tesla announced that it had bought $1.5 billion of Bitcoin and 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. Even the iconoclastic mayor of Miami, US, tweeted that his city would accept taxes in Bitcoin.
All of this served as rocket fuel for Bitcoin, and its younger sibling, Ethereum. The former rose 358% over 12 months to its highest ever, and latter went up from $1 in 2015 to over $1700 this week. Roger MacInnes, an investment director, observed that rather than an odd bunch of “bros” and “computer geeks”, Bitcoin is now populated by alumni of prominent investment banks, hedge funds and consultancies, with many crypto companies professionalized and regulated. “It’s grown up.”
The other predictable occurrence in the world of cryptocurrency was yet another avowal by India’s government to ban it through a proposed legislation, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, and also set up a legal structure for an “official digital currency”. While the latter step is laudable, the former seems to be a response Luddites would love. India tried to ban cryptocurrency once before, in 2018, before it was reversed by the Supreme Court. The Bill promises to “allow for certain exceptions to promote the underlying technology of cryptocurrency (blockchain, we presume) and its uses.” But this is precisely why it gives rise to the belief that the government has not understood the technology. The way the technology is built, an ownerless, consensus-driven, distributed ledger like a blockchain needs cryptocurrency to grease its wheels. To be interested in blockchain, not Bitcoin, is like saying that you are interested in the economy, not money.
This step has many ramifications. One is how it will kill innovation. Blockchain, along with artificial intelligence, augmented/virtual reality and internet of things, is seen as a technology that will shape the future. India has more than 30,000 blockchain innovators and practitioners, according to Akshay Aggarwal, founder of Blockchained India, and they 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 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. The thing with digital technology is that you actually cannot shut it down. It just moves elsewhere. To shut down cryptocurrency, you will have to shut down the internet. Sumit Gupta, chief executive officer, CoinDCX, notes that China has large crypto trading and mining operations, and an Indian ban on Bitcoin will leave that space open for it. Also, Bitcoin is called ‘digital gold’ for a reason—it is limited, fungible, and a potential store of value. If this were to emerge as a global currency reserve, as gold did in the previous century, a ban could be suicidal.
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. Meanwhile, just as India’s Bill was being drafted, Twitter co-founder Jack Dorsey tweeted this: “JAY-Z/@S_C_ and I are giving 500 BTC to a new endowment named to fund #Bitcoin development, initially focused on teams in Africa & India….”
Picture from freepik.com