Introduction

Crypto enthusiasts are becoming increasingly skeptical! The reason for this is that India is exploring new legislation that will prohibit the use of cryptocurrencies and punish anyone who owns, purchases, or mines bitcoins and other digital currencies! But why is that?

Before we go into the details, you should be aware of the gravity of these restrictions. To be clear, this will be the most stringent legislation of its kind in the world. China, for example, has prohibited the mining and selling of cryptos but not their possession. Possession of cryptos will be prohibited in India if the proposal becomes law!

But why is India taking such a hard stance on cryptocurrencies? Who stands to lose the most if this regulation goes into effect? And, first and foremost, what do we know about the proposal? Do you want to find out? Then continue to read.

India’s Government Has Proposed Banning Cryptocurrency

• If the rumors about the plan are true, it will be a blanket ban, rendering all digital currencies useless in India if the proposal becomes law. Furthermore, you will be penalized if you hold, mine, or buy digital currency after the regulation’s effective date. And, according to a government panel from 2019, this penalty might result in up to ten years in prison!
• You will, however, have up to 6 months to sell off all of your crypto holdings. Regardless, you may be arrested and detained.
• This isn’t the first time a proposition like this has been considered. In reality, there have been several setbacks and gains in this subject. 
• Cryptocurrencies were designated non-legal tender in the 2018 Union Budget by the then-Finance Minister, late Shri Arun Jaitley. (Legal tenders, for example, Indian Rupees, are coins or notes that allow you to buy things in that country.) 
• So, in essence, Cryptos can only be stored as assets and cannot be used as currency. You may name them “crypto-assets” instead.
• In the same year, the Reserve Bank of India prohibited banks from working with cryptocurrency exchanges. In contrast, the Supreme Court reversed the RBI’s restriction in 2020, allowing crypto platforms to re-enter the market. 
• The government’s plan to restrict crypto-assets and develop an RBI-backed digital rupee was repeated by Finance Minister Smt. Nirmala Sitharaman in February 2021. And over the weekend, a harsher version of the idea made the rounds in the media once more! That’s all there is to it.

Anyway, what motivated the government to spend so much time thinking about this? So, let’s talk about it.

What Is The Government’s Motivation For Banning Cryptos? 

• Let’s think about currencies for a moment. Imagine a situation where $1 represents Rs. 80 one day and Rs. 70 the next. Transacting with overseas peers will be extremely challenging for you. And none of your hedging strategies will work when rates change so quickly in a couple of seconds. In the end, the country will have to lose a significant amount of money. Fortunately, this isn’t the case right now.
• However, you can’t avoid volatility difficulties with cryptos as currencies, which are 10 times as volatile as the $-Rs pair! There have also been cases where the price of Bitcoin increased by almost 3000 percent in just three months! And can you rely on such a volatile currency to settle international trade? No, right?
• So, the government’s feelings are the same as yours right now. They are well aware of cryptocurrency’s volatile nature, which renders them unstable. They also believe that accepting cryptos as currencies will harm the Indian rupee, which is a fiat currency. Furthermore, they are concerned that the anonymity of cryptos may make it easier for them to be used to fund unlawful operations.
• As a result, they have already banned the usage of cryptos as a form of currency due to national security concerns. Instead, they want the RBI to be allowed to create a framework for an official desi crypto, or ‘a digital rupee,’ as they describe it.
• So, you wonder, why not use it to your advantage? Why not allow investors to buy and hold bitcoins, square off at all-time highs, and enjoy massive profits? You see, no matter how lucrative cryptos appear to be, you must understand that they are not backed by any actual asset. 
• As a result, it’s impossible to tell if a price surge is sensible or merely a bubble ready to explode. It is solely based on supply and demand. You can’t bet on it blindly either.
• Bitcoins are referred to as “high-order speculation” by even renowned investor Rakesh Jhunjhunwala. And a volatile asset class is indeed vulnerable to hazards such as difficulty in price discovery, market manipulation, and hacking. As a result, the government intends to prohibit bitcoin trading and possession. And what if it turns out to be true?

What Do We Stand To Lose If Cryptos Are Effectively Banned?

• As it stands, the government appears to want to outlaw cryptos but not blockchain! Consider this: permitting blockchain without cryptos is akin to allowing a car to run without gas! Because cryptographic tokens are required by practically every blockchain company to validate data and power the process. 
• As a result, it is clear that if cryptos are prohibited, blockchain will cease to exist. After that, you’d have to relinquish tomorrow’s decentralized triple-entry system.

In Terms Of National Security

• The government claims that cryptocurrencies are used to fund criminal operations and should therefore be prohibited. Will you outlaw the use of the US dollar for criminal purposes? Does that make sense? Instead, why not control it? Instead, why don’t we control it? 
• According to Chainalysis research from 2021, illegal activities accounted for only roughly 2.1 percent of all cryptocurrency transaction volume in 2019. So, do you believe it is a genuine national security threat?

Consider It From A Business & Employment Standpoint

• Investments in Indian blockchain businesses could be stifled if the prohibition is enacted. VC firms such as Sequoia Capital are investing in Indian blockchain startups, and banning cryptos will force them to close and relocate. Furthermore, these more than 300 Indian blockchain firms employ a large number of software developers and pay taxes to the government. 
• Cryptocurrencies would be outlawed, resulting in huge unemployment and a loss of revenue for the government.

When It Comes To Investing In Crypto-assets

• We all know that they are quite volatile. Is this, however, a reason to outright prohibit it? for new sectors and asset classes are frequently volatile. However, you can mitigate the risk by using a SIP cost-averaging method. All you need is some forethought, regulations, and knowledge. A total prohibition isn’t a conceivable option.
• Anyway, even if you go through the process of outlawing it, do you think people won’t try to discover loopholes? The reality is that they will. They’ll travel on their timetable. Fake exchanges will arise when the crypto process goes underground. After all, it’s impossible to keep Indians from boarding the global tech train.

The Digital Rupee

• When it comes to the ‘digital rupee,’ it’s unclear what the government hopes to achieve with it. India would not be the only country to launch its digital currency. Because the digital rupee is not the solution to India’s collateral problem of sustaining its imports and exports to support its population, each country will eventually come up with its own, and things will return to normal. 
• India, by the way, already has the best payment system in the world: UPI. Why would the government wish to put its successful payment system in jeopardy? This isn’t a good business decision.

Conclusion

Take a look at the international scene, and you’ll notice that practically every major economy is becoming more accepting of cryptos. India’s engagement in the tech revolution is comparably low due to regulatory uncertainty. In other words, India has a lot of room to explore and gain a competitive advantage.

And here’s what the former CTO of an American crypto exchange platform Balaji Srinivasan has to say about the ban on crypto impact on the Indian economy: “India may end up 20 percent poorer than it could have been in the five-year periods. It’s almost as if the internet had been banned for five years.”

As a result, the proposed blanket ban would be counterproductive to India’s cause, but regulations are required.