PRITHVIRAJ THALI

Blockchain, and more particularly, Cryptocurrency is the new Rubik’s Cube that governments across the world are struggling to solve. A cube that is already viciously twisted and turned so many times that the solution does not seem close at hand. For India, 2017 was truly the year of cryptocurrencies, especially the fag end of it. While there is a huge amount of literature on the net explaining what blockchain and its by-products are, we shall primarily focus on those aspects of it that are as yet, not well understood and hence largely feared.
Since November 2017, Indians were introduced to a new source of investment that promised manifold returns, namely, Bitcoins. As we all know, Bitcoin is a virtual currency, which does not have any physical presence. In that, it is not Fiat money like Indian Rupees or US Dollar, which are backed by their respective governments. Investing in Bitcoins is equivalent to investing in an avenue, which is beyond the ambit of the Indian govt. as well as the RBI and the Tax authorities.
Many Indian Cryptocurrency Exchanges have mushroomed, fuelled by the immense success of their counterparts abroad. As of now, it is estimated that there are about 1400+ virtual currencies that are traded on a few or many of these exchanges. The returns on other legally accepted channels of investments such as Mutual Funds, Fixed Deposits or Govt bonds are paltry as compared to profits made by investors through crypto trading. Naturally, Asians and more recently Indians have been lured by the prospects of such huge returns. Consequently, considerable Indian wealth – both legitimate and ill gotten — has already been invested in Bitcoins and other Altcoins (as the other lesser known crypto-currencies).
The Indian Govt. has, since 2013, been warning its public that the risks of such investments in virtual tokens far outweigh the end gains. It is not ruling out the possibility of such investments facilitating Money Laundering and Terrorist Financing. The fact that Bitcoins are already being accepted in payment by governments and entities in some countries could lead to movement of value across borders in the virtual form, thereby providing anti-social elements with a far more efficient conduit and a better alternative over the Hawala channels.
Regulatory control is another area where the government finds itself clueless as far as this virtual space is concerned. The big dilemma it is facing is this: should it legalize crypto-currency investment and tax the returns or should it ban it for good? While the first alternative could help earn the govt. huge rewards in terms of tax revenue, it is easier said than done. The problem is that a considerable chunk of Indian wealth in all its shades (which includes black money as well) has already been converted to Bitcoins and Altcoins. Legalising it could mean lending validity to that part of black money which is already invested. Spurred by this, more black money could be pumped into this avenue. The second alternative of banning would be restricted more to banning Indian crypto-currency exchanges and not crypto-currencies per se.
In view of the recent statements by the Finance Ministry likening cryptocurrency investments to “ Ponzi Schemes” and anticipating crippling restrictions by the governmental apparatus, Indian Banks have already started withdrawing their support and placing restrictions on the accounts of these Indian exchanges through which Indian Rupees moves from banking system to the exchanges. What the governments the world over has not been able to control or regulate, they are rejecting with fantastic disdain. We cannot overlook the possibility that it could serve a larger purpose to understand the Blockchain – the core technology which claims to be the next revolution after the Internet. The Internet and Mobile Association of India (IAMAI) and Blockchain Foundation of India (BFI) have been working relentlessly to bring about a paradigm shift in government’s outlook on the virtual space, trying to impress upon them the benefits that blockchain could offer to India Inc.
What the Indian Govt. and RBI fail to understand is that though Crypto-currency markets are marked with high volatility – one of the grounds on which it is vehemently being rejected – it is also subject to the same factors as those that rule the other speculative markets in India. SEBI has been refreshingly silent on the matter, which leaves some room for positive negotiations for these pro-Crypto lobbies. The reaction to blockchain by governments and corporates is the same as it was for Internet when it was first being introduced in the commercial and domestic space.
I still remember the scenario when I had started my banking career. It was the early 2000s and apart from the private sector banks, which were already computerised, the nationalized and cooperative banks had a hard time trying to integrate the Internet technology with their highly knowledgeable yet extremely tech-averse human capital. But, after much fanfare, eventually they too had to give in to the innovation.
It is imperative that the Indian govt., RBI, Tax authorities and SEBI collaborate mutually as well as with Blockchain tech players in not only embracing the potential that crypto avenues have to offer, but also adapting to the technology to suit the Indian financial system and diverse domains without compromising on controls and regulatory framework. How and when they would do it remains to be seen. But, all in all, these are exciting times to be living in and we could well claim the privilege someday of telling our grandchildren a few decades hence how we rode the wave of revolution that first brought blockchain to India.
India Inc, we are waiting with bated breath and high hopes!! Don’t let us down.

The writer is a bank operations manager.