Cryptocurrency Bill 2021: The Central Government is going to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 during the ongoing Winter Session of Parliament. There have been speculations in past that the Government may completely ban cryptocurrencies in India. However, several reports recently claimed official sources as saying that the Government may allow trading and investing in cryptocurrencies with certain restrictions.
Crypto experts say that it won’t be possible to completely ban cryptocurrencies. However, the government may ban or put restrictions on trading in crypto and its use as a means of exchange or payments. “Cryptocurrencies exist on the blockchain that has no single entity controlling it. The decentralized nature of blockchain separates it from other digital currencies that might be under the control of a single entity. Governments can ban trading in cryptocurrencies and also ban using them for payment purposes,” Edul Patel, CEO and Co-founder of a global algorithm-based crypto investment platform Mudrex told FE Online.
“Exchanges can be shut down from operating in particular countries. However, imposing a complete ban on cryptocurrencies would never be possible. Decentralized exchanges do not come under the ambit of any government or entity. These are driven by communities of developers and crypto enthusiasts. Hence, despite a blanket ban on cryptocurrencies for transactional purposes, it would not be possible to put a complete ban on crypto,” Patel added.
While the crypto industry eagerly awaits the contents of the Cryptocurrency Bill 2021, it is a good time to look at how attempts at regulating or banning cryptocurrencies in other countries have worked.
“Cryptocurrencies were not seen as a financial stability risk but growing volumes have raised concerns for central banks globally. In Oct 2021, for the first time, the growth of crypto assets was brought up as one of the identified risks to global financial stability by the IMF. There are, however, few international precedents for controlling such risks,” Emerging technology thinktank Policy 4.0 recently said in a report.
The report listed how attempts at banning or regulating crypto in several countries have worked. take a look:
Amid high inflation last year, Turkey attempted a ban on cryptocurrencies, but without success.
“Turkey’s inflation peaked above 17% in April 2020 while bitcoin was simultaneously in a bull run. Cryptocurrency exchanges in the country registered a 600% increase in traffic, transacting close to $1-$2 bn per day as items from kebabs to gold started being sold for bitcoin payments. On April 30, 2020, the Turkish central bank banned cryptocurrencies for use as payments. However, a full legislation has not come into place yet and there is debate about the effectiveness of a ban. Trading of cryptocurrency continues in Turkey,” the report said.
In February this year, Nigeria’s central bank prohibited banks from supporting any crypto transactions. It also ordered them to close accounts of Nigerians using cryptocurrencies. However, the report said, “crypto has boomed in Nigeria despite the ban as people bypass centralised exchanges and turn to peer to peer trading channels.”
Nigerians traded $2.4 billion in cryptocurrency in May 2021 and it is considered as the second largest Bitcoin market in the world, according to Chainanalysis.
South Korea’s Financial Services Commission had put in strict requirements to link bank accounts and trading accounts and banned ICOs in 2021. However, the report said, “New legislation has been difficult for banks to comply with & crypto exchanges in Korea that are faced with the prospect of shutting down are considering suing the government. Crypto transactions are subject to capital control and individuals’ purchases of foreign currency are capped at 50,000 annually. However, laws have been difficult to enforce in the absence of compliant exchanges and the abundant availability of DeFi channels.”
China has been trying to ban crypto since 2013. This year, it put in place a blanket bank of all services related to cryptocurrency, including mining.
However, the Policy 4.0 report shows illegal crypto activities have grown in the country.
In 2020, China ranked 3rd in terms of the highest volume of cryptocurrency from illicit addresses. While there was a ban of crypto trading in the country in 2020, the highest number of DeFI users in the world last year were from China. As per the report, China participated in the 2020 DeFi boom with over 33,000 blockchain registration. The number of transactions on Uniswap reached around 400,000 in July 2020.
Even as China has banned crypto mining, it continues in stealth mode.
As per the report, stealth mining operations in China continue inside industrial operations. Home-based miners are difficult to identify as many have switched to at home GPU crypto mining.