“India should start thinking about having its own crypto exchange and its own crypto currency”

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“India should start profiting rather than banning crypto.”

* IMAGE: In the case of crypto, the government has no control over the investment people make. Photograph: Edgar Su / Illustration / Reuters, background image Altaf Hussain / Reuters

Is the Modi government’s plan to regulate cryptocurrency a good move?

Will crypto be a serious threat to the country’s macroeconomic and financial stability as the RBI believes?

India has the largest number of crypto owners in the world, around 100 million. What Attracts Young Indians to Cryptocurrency?

Professor Padmanabha Ramanujam has been studying crypto since 2017 when he saw his students trading it.

“Crypto is not a bubble and it will be in the future as well,” Professor Ramanujam, currently dean of IFIM Law School in Bangalore, told Shobha Warrier of Rediff.com.

The Prime Minister said: “It is important that all democratic nations work together on cryptocurrency and ensure that it does not fall into the wrong hands which could spoil our young people.” A businessman like Elon Musk said that it is people’s currency and that he supports virtual coins. Where is the truth ?

Unlike other currencies, crypto has no regulations at the moment.

It is not regulated by any central authority.

Whenever there is no regulation there will be speculation about how the trade is going, what the real price is, etc.

Now let’s look at the scenario in India. There are uncertainties around crypto. But if you look at investing in cryptocurrency, there is a strong momentum in India.

It has been reported that over the past year the crypto market has grown 641% in India which is really huge.

The reason crypto investment has mushroomed is the March 2020 Supreme Court order quashing the RBI circular banning cryptocurrency.

Almost 6 million active users have joined a single Indian crypto platform called Coin Switch Kuber since June 2020. People believed there was validation by the Supreme Court when the court lifted the ban imposed by the RBI. This has prompted many people to join the crypto bandwagon.

Now the government is talking about banning all private cryptocurrencies and the RBI is talking about banning a currency. Do you support such an approach? Is this the way to go?

If you look around you will see negative effects in every country that has imposed a ban or regulated crypto.

As the whole transaction works in peer to peer, it is impossible to technologically regulate peer to peer.

You can keep blocking, but they’ll still find ways out. The only way to regulate crypto is through technology, and users will find another technology to counter the blocking technology. It will therefore be extremely difficult to regulate cryptography.

But the Cryptocurrency and Official Digital Currency Regulation Bill, 2021 listed around 26 pieces of legislation awaiting Cabinet nodding. What the authorities are trying to do is create more financial stability and stop money laundering.

I think the government will have to find a balance because there is absolutely no way they can regulate crypto. At the same time, they may want to regulate it so that they can look at the number of transactions that are taking place.

They may also want to see that money laundering or any illegal money is not channeled through the cryptocurrency. To that extent, they may want to regulate crypto.

But I don’t support absolute cryptocurrency regulation.

The government wants to shut down private cryptocurrency players. Is such an approach possible?

I do not think so. This is not possible because you have to understand that the digital technology behind cryptocurrency is very sophisticated.

I think regulators have very less knowledge, or may not even understand how blockchain or a cryptocurrency like Bitcoin works.

I think transparency might be the issue when it comes to cryptocurrency, and if you could address the issue of transparency, you’re more or less on the right track.

How will you approach the issue of transparency?

I would say, self-declaration. This is the best practice in my opinion.

If you look in Europe, crypto is accepted even for the purchase of vehicles. In fact, Tesla said they own crypto. Google and Facebook can also hold crypto.

From a futuristic perspective, cryptocurrency is going to stay. So, I think self-declaration is the only way to have transparency.

The RBI has said the cryptocurrency will pose a serious threat to the country’s macroeconomic and financial stability. How is that going to be a threat?

Whenever you have an intermediary like banks for example, you are able to trace the generation of income and the government will have control over the investments people make.

But in the case of crypto, the government has no control over the investment people make.

For example, I buy shares in a company and if that company goes bankrupt, the government can probably help me get the money back. You might remember that people lost a lot of money when the Global Trust Bank collapsed. But the government could step in and people got their deposits back.

But in the case of crypto, if people invest and then lose money, and the big financial institutions invest and then lose money, the government will have no control. And that can have an impact on the economy and the government in terms of balancing their current account deficits.

The chances of such a thing happening are very much less. But if it reaches very high levels and something is seriously wrong with the cryptocurrency, it can lead to financial instability and thus impact the economy, like the 2008 financial crisis.

That’s why I said, what is needed now is transparency. The government does not trust crypto because it is not transparent.

The plan to ban private players in the crypto field, and only the RBI leaving with a currency, will it work?

No. The Center is seriously considering the cryptocurrency bill with a phased approach. The crypto community is challenging the bill saying that the lack of a definition of private crypto in the bill gives arbitrary powers to the state.

Let’s be honest. India needs a cryptocurrency exchange like Japan, which is regulated by a financial services authority.

A blanket ban on private crypto as proposed by law is a bad idea.

You are creating a financial services authority with people who have knowledge of crypto to regulate it. You must also involve private actors.

Now the authorities’ argument is that the crypto is out of the control of the state and the central bank. So do you think that with a financial services authority to oversee, there will be some oversight?

Yes. Once you have established a crypto exchange, it can handle its own crypto currencies, it can have initial coin offerings, which will lead to a new asset class in India.

When you have a crypto exchange it will help people to invest in India.

The Prime Minister was of the opinion that crypto would spoil the Indian youth, and you have around 100 million crypto owners in India …

You see, the Prime Minister is advised by certain committees because his responsibility is to ensure the welfare of the Indian people.

At the same time, I would say that we must not let this opportunity pass by. Using the Prime Minister’s Made in India initiative, we should create our own crypto exchange and our own crypto currency. This way you can take advantage of the market.

You mean like Bitcoin which is so popular in the world …

Exactly. If you want, you allow Indians to mine our own cryptocurrency rather than going to foreign crypto.

When you have the most crypto owners in the world …

Yes, that’s why I say let’s capitalize on the market.

IMAGE: Professor Padmanabha Ramanujam. Photograph: courtesy of Professor Padmanabha Ramanujam

Why do you think young people are the main crypto investors? Is it because they are more tech savvy?

First you need to understand that people make a huge amount of money in crypto. It should also be understood that the new generation does not want to miss any opportunity to earn money.

Wherever there is a higher risk, there is a higher profit. And young people tend to take advantage of this risk.

Mind you, Gen Z is a risk taker! They are young and have a different mindset. They don’t mind gambling and losing money.

What future do you see for crypto in India and around the world?

I think the crypto is going to stay. It will continue to be there whether India bans it or not.

If you find a buyer for your crypto in another country, you keep selling and profiting.

India should start profiting rather than banning crypto. India should start thinking about having its own crypto exchange and its own crypto currency. Let people trade this currency.

Some people say that if India drops this opportunity, it will miss the tech bus again. Do you think so?

That’s why I’m saying don’t over-regulate this. If you set this too much, you are forcing people to invest elsewhere, which will only increase the risk for that investment.

You say to yourself, the crypto will be there and it’s not a bubble that’s going to burst soon?

Crypto is now in the limelight as the valuation of Bitcoin has increased.

But I’ve been aware of it since 2017. I’ve seen my BBA students in Gujarat trading bitcoin before.

Crypto is not a bubble and it will be in the future as well.

* Please note that the image has been posted for representation only.

Featured Presentation: Ashish Narsale / Rediff.com

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