Yet, a steering committee report by the finance ministry, released in September, recommended a softer approach, citing the importance of blockchain technology, which powers cryptocurrencies, to fintech.
Bitcoin is an open source technology protocol, not controlled by a single entity. In that sense, it resembles some of the more enduring vignettes of our times, such as Wikipedia or, arguably, the Linux operating system.
Cryptocurrencies can also be thought of as a network formed by computers running this open source code. This network’s computing power is 72 million TH/s (trillion hashes per second). To put that in perspective, the computing power of Google’s 10 million servers would be less than 1% of this.
It is their brute computing power that makes bitcoins uncensorable, inviolable, and ultimately, valuable.
Given these three ways to interpret bitcoins, the pertinent question is: what exactly should India’s regulators be regulating?
Apart from some anodyne lip service to blockchain technology, are policymakers trying to clearly parse out the distinction between the currency, the technology, and the network?
The Garg panel’s document seemed to be exclusively concerned with bitcoin as a cryptocurrency, and its destabilising effect on monetary policy. To be sure, these are valid concerns, and there are no easy, near-term answers.
Yet, the Indian government would do well to keep in mind the other two perspectives on bitcoin, which has inspired many to invest in cryptocoins.
In the period between the first quarter of 2017 and the second quarter of 2019, venture capital funds worth over $6.2 billion was poured into over 400 companies in this space, most of them in the US.
The top 10 unicorns in this space, led by Binance and Coinbase, are collectively worth around $50 billion, and companies built on top of the bitcoin protocol collectively employ hundreds of thousands of the sharpest business and technology minds globally.
Large corporations such as Facebook, Google, JP Morgan and Goldman Sachs are investing heavily in research and developmental efforts in this space. Institutions such as MIT, Stanford, and Berkeley are also emerging as leading centers of bitcoin research.
The important thing is, these efforts are not just focused on bitcoin, the cryptocurrency. They are looking at making the bitcoin network more scalable and more reliable so that people can send money to each other faster, corporations can settle international transactions more efficiently, participants in a supply chain can collaborate to make it more efficient, and some of the most disenfranchised people in the world can access financial services in a safe, secure, and convenient manner.
The current stifling of crypto enthusiasts in India will only hasten the exodus of some of the sharpest minds to global centers like Singapore, San Francisco, and Berlin—cities where they are likely to be welcomed with open arms, funding, and a friendly regulatory framework.
India’s Garg panel had also recommended that India must consider introducing an official virtual currency, the “Digital Rupee,” to replace private cryptocurrencies such as bitcoin.
This is an impractical idea.
For one, there is the infrastructure hurdle. Some entity (usually from the private sector) needs to invest heavily to build out the payment gateways and the user and exchange interfaces that will be needed to drive adoption of a crypto rupee.
The public sector has limited resources to develop or manage projects at this scale. Most Indian governmental websites still use the older, insecure, HTTP protocol without the SSL encryption. A wallet to store the proposed crypto rupee, for instance, would be considered highly unsafe, and find little traction.
Designing and developing critical components and building blocks like these is typically best left to motivated, young, geeky engineers congregating in hacker houses in Powai and Palo Alto, than to an army of ‘for-rent’ consultants hired by the government’s IT department through archaic tendering processes.
Some have termed cryptocurrencies as the “Wild West” of the financial world. Terrorists, pornographers, and money launderers can misuse it.
However, living in fear is to lose the battle to the neo-luddites and the rentiers reluctant to change the status quo. Given that bitcoin is here to stay globally, we might as well consider a progressive approach to a sector that is nascent, evolving rapidly and has transformational potential.