The Committee of Finance Ministry has called for public opinion on whether Bitcoins (and other Virtual Currencies) should be banned or regulated or observed and thereafter the committee may come a decision at its own convenience.

If we observe the pages of Mygov.in where the discussion has been opened, there is a concerted effort by the Bitcoin supporters to post comments that Bitcoin should be legalized.  Of course, if any person has already got a stake either because he has bought a Bitcoin already or would like to buy it and convert some of his black money into anonymous Bitcoins, he has to support Bitcoin legalization.

In the meantime the Bitcoin price is skyrocketing in the last few days which could indicate one of the two reasons namely,

1. There is more and more ransomware attacks demanding bitcoins and the victims are scrambling to buy bitcoins and the increased demand is pushing the price up.
2. The Bitcoin community has already convinced the committee that the Government may continue to “Observe” which is an euphemism that we will turn a blind eye to the blatant violation of law in India regarding investment.

The Bitcoin exchanges which are functioning in India are promoting the buying of Bitcoins. Some of them are trying to collect PAN card photocopies and calling it as “KYC. Some are allowing trading only through Bank accounts and some through credit card borrowings. However many are encouraging trading of Bitcoins in cash,  and even by converting legacy currency to Bitcoins and vice versa through Lindens. (virtual currency of secondlife.com).

Though legally we say that Bitcoin is an electronic document, a commodity and not a “Currency” and hence it is not illegal to mine, etc. it is being perceived like a “Foreign Exchange” and an “Investment”.

In India, such investments should come under the watch of either RBI or SEBI. It is unfortunate that both are dilly dallying on how to tackle Bitcoin regulation. While RBI has been “Observing” for the last 3 years SEBI appears completely at a loss on deciding how to respond. In fact it is easy to consider Bitcoin trading as similar to commodity trading and determine that it should automatically come under SEBI regulations. This is obvious and does not need the Government committee to decide. As long as the price is spiralling up, it looks like a great investment but if Bitcoin price heads down, then there will be lot of investors who will burn their hands. Then the Ponzi nature of the scheme would get displayed.

Will SEBI take responsibility for dereliction of duty if the speculative investment of Bitcoins continue?

While RBI should be concerned with the Foreign Exchange use in buying and selling of Bitcoins through the exchanges, and to regulate the Bitcoin wallets,  SEBI should consider it as its birth right to regulate trading in Bitcoins and there is no need to wait for any Government committee to make up its mind.

Additionally, if one goes through the schemes of investment suggested by some Bitcoin exchanges, it is like a lesson in money laundering. How can RBI, the Finance Ministry and SEBI keep quiet is a mystery.

I have today brought the need for regulation of Bitcoin trading to SEBI and the Finance Ministry and wait for their response.

I have also tried to draw the attention of the PMO and FM so that nothing should be done behind their backs to legitimize the “Currency of the Criminals” which Bitcoin has unfortunately become.

I have many friends in the technology domain who are staunch supporters of Bitcoins and also hold stock of Bitcoins. By no stretch of imagination they are into money laundering but have invested in Bitcoins because it is a technological fascination and ofcourse profitable as investment. It is to ensure that such people donot lose their genuine hard earned money that I have proposed that Government while banning Bitcoin should give a window for conversion of genuine investments out of tax paid income back to legacy currency under an amnesty scheme for a limited period.

Some of them are of the view that there is no way Bitcoin can be banned. I agree that even if Bitcoin is legally banned and the Government criminalizes holdings after the amnesty scheme expires, there will be many who will continue to hold it just like we still have stocks of demonetized currency with some.

This does not mean that we should stop from banning Bitcoin use, exchange, and stocking by any Indian national or in India.

ICICI Bank and HDFC Bank which are bankers to some of the Bitcoin exchanges need to rethink if they have to support this illegal system.

I also request the legal firm Nishit Desai and the NGO , The Center of Internet Society not to allow their names being used prominently in the promotion of Bitcoin trading knowing fully well how the legal status of Bitcons and the way it is perceived and promoted are completely different.

If Bitcoin community was itself not supportive of the criminal use of Bitcoins they would have by this time identified and published the identity of ransomware introducers whose bitcoin wallets  IDs were available for analysis.

The community is guilty of looking the other way because there is financial benefit to them and not care about the victims of ransomware. This is corruption of a kind.

Today, Bitcoin no longer remains just a technical innovation of the fascinating Block chain technology. It is also no longer an economic issue of currency in circulation outside the central bank’s control.

It is a national security issue where

-Cyber Financial terrorism called ransom ware needs to be choked to death and

-the terrorists and naxalites should not be allowed to use Bitcoins for funding their operations and

-Blackmoney holders should not be allowed to convert their black money into Bitcoins.

I hope regulators like SEBI and RBI will act atleast now before things go out of hand.

Naavi

This is our response to the Government seeking public comments on Bitcoin regulation:

Query 1: Whether Virtual Currencies (VCs) should be banned, regulated or observed?

Response:

Firstly we would like to say that “Banning” is also “Regulation”. Hence when we say VC should be regulated, it includes the option of “Banning”.

Secondly, by “Virtual Currency” we are speaking of Crypto Currencies and not the money kept in digital form in Mobile wallets, Internet Banking accounts, virtual prepaid cards etc.

Thirdly, “Observing” is meaningless. Government of India has been observing the development of Bitcoin from being a technology wonder to a currency of the criminals. Just as our “Procrastination Policy of Kashmir” has today brought Kashmir to the brink of disaster,  while RBI kept on observing the Bitcoin, the epidemic spread far and wide. Most black currency holders have found it more convenient to transfer their Swiss Bank balances to Bitcoins before the Government could make up its mind. Now the seasoned criminals have started moving out of Bitcoins and acquiring other Crypto currencies and hence it has become necessary to regulate/ban all Crypto currencies to ensure that the adverse impact of Bitcoin on the society is mitigated.

Three years back, we suggested that RBI should start its own version of a Bitcoin. It did not listen. At the same time while countries like China started accumulating Bitcoin wealth, our economists did not understand the impact of lopsided holding of Bitcoins when this decision of whether to legitimize Bitcoin or not came up. They kept observing and observing and I donot know what the Government means that it is also an option to consider.

After seeing that the recent ransom-ware attacks thrived on Bitcoins, there is a distinct possibility of ISI using Bitcoins as an easy option to distribute money in India instead of throwing fake currency bundles across the border in Malda is a definite possibility. We can safely make a guess that all stone pelters in Kashmir will in future get payments in terms of Centi BTCs or Milli BTCs (1 BTC=Rs 150,000/. 1 Centi BTC =Rs 1500/-. 1 Milli BTC =Rs 150/-).

In our opinion therefore, Bitcoin at present does not deserve the respect of a technology wonder. It is squarely the currency of the criminals and terrorists and it should be part of the National Security strategy to regulate Bitcoins in such a manner that it is not used to finance the terrorists and criminals in any manner.

If Bitcoin needs to be legalized today, it would also mean that we legitimize the current stock of Bitcoins all over the world estimated at around 16 million as against the theoretical maximum possibility of 21 million. It would also mean that all the current holdings with criminals, drug mafia, terrorists etc will get a recognized avenue to dump them in India.

The economic impact of allowing a Crypto Currency to take over the recognized Indian currency is definitely going to be adverse.

Many of the bureaucrats may in fact try to support Bitcoins because either they may already have parked their current Black money in the form of these Crypto Currencies or looking at the possibility of  using it in future.

Modi Government which is trying to tackle the Black Money menace in India should not fall into this trap of looking at Bitcoins as an acceptable risk just because Canada or  Japan has legalized it. In fact we should not only oppose Bitcoin use in India but also bring pressure on other countries not to legitimize Bitcoin or other private Crypto Currencies.

The net opinion is clear. We should not allow Bitcoin or other Private Crytpto Currencies to be legitimized in India.

On the other hand, if RBI wants to start its own Crypto Currency such as “Bit Rupee”, then it is welcome. This will be a fully regulated Crypto Currency where every unit is tagged with an RBI code. This stock of Bit Rupees will be a replacement of the current paper currency where instead of printing of the Paper currency, RBI may either itself mint the Bit Rupee or license Bit rupee mining through a secure non tamperable hardware control chip that has to be used by all licensed miners. The exact rules and regulations of such a “Bit Rupee Mining License” may be discussed at the appropriate time as a part of the regulation of such a system.

As a part of current regulation, Bitcoin and all other private Crypto Currencies have to be declared as illegitimate and its holdings should be considered as illegal. All present owners of these coins should surrender them to the Government with a proof of the acquisition through known sources of income as a “One time amnesty scheme”.

Part of the support that the Bitcoin legitimization is now receiving is from those who already have some holding and fear a financial loss if Bitcoins are banned. There is also one part of the community which is supporting Bitcoin because they think it is similar to other digital money and hence part of the digital progress which we want to achieve. By declaring the amnesty scheme and properly explaining the adverse impact of a currency that finances terrorists and operates outside the economy, most members of the public will support immediate de-recognition of Bitcoins and other private Crypto currencies. They will all and support the Bit Rupee creation as an alternative use of the Block Chain technology which is definitely innovative and useful.

Query 2. What measures to be taken to protect Consumer Protection?

Response:

If Private Crypto currencies are allowed, then it may work like a Ponzi scheme where the early birds will get the benefits and late entrants will lose.

Secondly, Bitcoin holdings are held in “Bitcoin Wallets” which are services provided by private organizations many of them with unknown reputation. If these Wallet companies close shop, all the holdings become unrecoverable. Since the essence of Bitcoins is the secrecy and confidentiality, there will be no evidence based on which the consumer can seek legal protection against either the fraudulent practices of wallet companies or exchanges or the security breaches that may arise in such companies because of their vulnerabilities, real or faked.

There is therefore no way Consumer Protection can be enabled for Bitcon/Crypto currency transactions.

The only precaution that the Government may be able to take is to say that the KYC of wallet owners have to be verified. But this will be abused royally since it goes against the basic tenets of any Crypto Coin system.

If RBI introduces its own Crypto currency, there may be a possibility of the digital signature of a person issued by an Indian Licensed Certifying Authority is embedded into every transaction. But this may not be practically possible.

Query 3.What measures should be taken to promote orderly development of VCs.

Response:

All Crypto currencies which are managed by private algorithms must be banned. Only Crypto currencies issued by RBI should be permitted. If any foreign Government wants to start a similar Government controlled Crypto Currency, it can be given recognition similar to the current foreign exchange system as part of FEMA provided conversion of private crypto currencies into such Government controlled Crypto currencies is not freely permitted. The total value of Crypto currencies issued by a country should be considered as part of the “Notes Issued” so that indiscriminate printing of crypto currencies should be avoided.

Query 4. Which appropriate institution(s) should monitor/ regulate the VCs?

RBI should be the institution to regulate the Crypto currencies. If required they can create a subsidiary to manage the techno-legal- financial implications with a representation of appropriate experts from the public.

In the past RBI working groups have been constituted with vested interests from industry being part of the group for manipulating the decisions from within.

This should be strictly avoided.

Query 5: In case VCs are not suggested to be regulated:

i). What should be the effective self-regulatory mechanism?
ii). What measures should be adopted to ensure consumer protection in this scenario?

Response: 

It is our firm opinion that “Not Regulating Crypto Currencies” is not an option. There is no “Self Regulatory” mechanism that can bring in privately created “Money” to be brought into the system. If private minting of digital currency is printed, Government will not have any legal logic to prevent private printing of paper currency. Every group of people like say residents of a 1000 apartment housing complex may say that they will print their own Coupons which will be currencies within their complex. Gradually there will be myriad versions of closed group paper currencies that will compete with the legal currency and Government will not be able to say that there will be one rule for digital money and another for paper money.

Non Regulation would be a fraud on Indian society and if Government even thinks about it, the decision would be challenged in the Court and Mr Modi’s image will be tarnished.

Summary:

-Ban all Private Crypto Currency

-Provide a one time amnesty scheme for conversion of current holdings but only if the acquisition is with accounted money.

-Introduce an RBI controlled Crypto currency with an RBI tag and owner identity tag embedded into every transaction unit.

-Create a subsidiary of RBI for managing the regulation with proper representation of independent and reliable experts

(Further Comments from readers are welcome)

Naavi

Today livelaw.in flashed a report stating that the  Madurai Bench of the High Court of Madras has reportedly observed that “Primary Evidence of electronic record under Section 62 of Indian Evidence Act would be admissible without compliance of Section 65”.

This was directly in contradiction with the Supreme Court judgement in the case of P.V.Anvar Vs P.K.Basheer and raised an eyebrow as to how the High Court could have blatantly ignored.

A copy of the report is available here:  report in Livelaw.in,

However when the order was perused in detail it was found that it was the report which was blatantly wrong and misleading and the order had not said what the report stated.

The Court had before it a petition from the accused of a Dowry harassment case in which the complainant had adduced a CD as evidence while the argument was in progress in the trial Court. The CD was said to contain some conversations but it appears that there was no certification under Section 65B. It also appears that the IO nor the prosecutor had not signed the revision petition. The magistrate had ignored the irregularity and proceeded to admit the evidence.

Naturally the accused objected and brought this petition to challenge the trial court order to accept the evidence.

It appears that this is a case of incorrect reporting by the blog which is regrettable.

Copy of the Judgement is here.

The Court has actually allowed the petition and set aside the trial court’s order to accept the CD as evidence. It has asked the trial court to proceed with the trial based on the existing documents and closed the miscellaneous petition under which the complainant sought to bring in new evidence.

It is interesting to note that the honourable judge in this case was Justice A.M. Basheer Ahamed and it would have been a Basheer overriding the Basheer Judgement if the report had been true!. It would have made an interesting headline for the media but fortunately the report was untrue.

Naavi

Before the public want to respond to the request for the Government of India for an opinion on regulation of Bitcoins/Virtual currencies, there is need for us to understand clearly the nature of Bitcoins and why it is popular and why it is desirable or undesirable.

There are many technical guide to the Bitcoin which is one of the types of what is called a “Crypto Currency”. There are more than 766 other Crypto Currencies in the market and the number is growing by the day. Bitcoin is the most popular and is today quoted at over US$ 2100 and hence attracts special attention.

The Finance Ministry in its communication has also used a term “Virtual Currency”. I prefer to call the Bitcoin more as a Crypto Currency since today “Virtual Currency” can apply to any currency held in virtual form. For example, Rs 100 I have kept in Phone Pe is virtual currency for me. I can use it for a virtual transaction and I may not be able to credit it to my Bank account and withdraw. I may have a mobile recharge balance which I can share with my friend as if I have withdrawn money from my Bank account and paid to my friend. This system works like a currency and hence can be considered as “Virtual Currency”.

Hence the term Virtual Currency is more generic and is inappropriate to the context of Bitcoin regulation. “Crypto Coin” is a better term to use in this context since it represents not only the Bitcoin but also other 765 plus Crypto coins which work on similar technology using the Block Chain technology base without any  regulation from a statutory regulator of a sovereign country.

However, “Crypto Coin” is a “Technology” and it can be used both by the general population without any regulatory control of a sovereign Government as well as under the control of a sovereign Government.

Amongst the available Crypto coins, Bitcoin and a few others have acquired notoriety because they have established themselves as the “Currency of Terrorists”. (COTs) With the current adverse attention, I presume that the terrorists are spreading their Bitcoin wealth by converting it to other currencies also and hence there are many popular Crypto Currencies that can be called “COT”s .

Any ransomware attack (which is to be classified as a Terror activity) in which a particular Crypto Currency is mentioned as the means of payment should be treated as a potential COT.

Additionally we can for the purpose of debate and regulation consider the possibility of a “Currency of Terrorist” being partly rendered as “Sanitized Currency of Terrorists” (SCOT) which can be trusted and used.

The appropriate classification to discuss is

a) “Virtual Currency” (VC) which is a digital form of legacy currency

b) “Crypto Currency” (CC) which is a form of recognized payment system in which an Electronic Coupon is created with the use of a cryptographic use such as hash process or digital signature process

c) Currency of Terrorists (COT) of which  Bitcoin is one

d) Potential Currency of Terrorists (PCOT) which is flagged for being declared as a COT if certain minimum criteria is fulfilled.

e) Sanitized currency of terrorists (SCOT) which is a part of COT that has an established clean track record for which a process can be established.

The Government has raised two important queries namely

1. Whether Virtual Currencies should be banned, regulated or observed?
2. If VCs are to be regulated what measures are to be taken for consumer protection, promote orderly development etc

We presume that in this query, Government has used the term VCs as “Crypto Currencies” of the Bitcoin type. In our classification we have used the term VC to current versions of digital currencies for which a regulation is already in place. Hence the term VC used in the Government communication could be applied to the other four categories of Bitcoin like systems namely the CCs, COTs, PCOTs and SCOTs.

We can discuss the need for regulation or banning for all these four types of systems.

In our opinion “Banning” is also part of “Regulation” and “Regulation” includes “Banning”. Hence we shall look at “Regulation of CCs” as inclusive of “Banning of VCs” that the Government has raised.

Also the suggested classification of CCs as COTs, PCOTs and SCOTs is also part of the regulation and hence they are considered together.

Before we proceed, let us also be clear on some basic aspects of Bitcoin which represents a unique technology which is of course fascinating by answering in simple terms some questions. These answers may be technically incomplete but have been so expressed for simplicity. (If any experts consider this as misleading, they may kindly suggest modifications”.

1.What is Bitcoin?

Bitcoin is an electronic document which says that “So and So” is the owner of 1 Bitcoin. It is like a public declaration of ownership. The “So and So” is mentioned not as a name but as a “Hash Value”… a number that identifies Bitcoin wallet of the owner.  The entire electronic document itself is digitally signed and has an identity in the form of a hash value. In effect it is like saying that Hash value X belongs to Hash value Y, where X is the BITCOIN identity and Y is the OWNER identity.

The Bitcoin wallet is held with a service provider just like the other digital wallets and is registered to an email address and/or a mobile. The wallet itself will have an anonymized ID.

2. What is the Mining Process?

A bitcoin transaction when it occurs is broadcast to the public through a network and is recorded by individuals. The individuals then process the transactions on certain rules.

The rules require that the transactions during the immediate past have to be listed showing the seller, buyer and the number of BTC (Or its sub units which may be called centi bits, milli bits etc upto the lowest satoshi which is 10 to the power -8 of 1 BTC or 1 in 100 million parts. It may roughly be 1 in 30 parts of a paise).

The transaction record should include some header information such as the identity of the previous set of records taken on record, the hash identity of the recorder etc and finally a “Random number” (called the nonce).

After creating the record a hash value of the entire record is calculated. This hash value has to be lower than a present minimum value. If not, the Nonce value has to be changed and hash value re-calculated. When this exercise is successfully completed, the set of recorded transactions constitute a “Block” and is broadcast as a successful block creation and is added to the previous block chain. The successful creator of the block is rewarded with free Bitcoins and this process is called “Mining”.

The creation of a successful block chain is therefore considered as “Solving a mathematical puzzle” and it requires millions of random attempts using the computer resource of adding a nonce value and calculating the hash, changing the nonce value and recalculating the hash value until the right hash value is arrived at for the block and broadcast. The new Bitcoins issued is a reward for being the first in the crowd to solve the puzzle. Currently 12.5 new Bitcoins are issued for every successful block creation that gets added to the Chain and confirmed by others.

Thus “Mining” is creating “bitcoins” through the use of computers and has no illegality in it.

3. What is a Bitcoin Exchange:

Currently the resources required to create these Bitcoins is considered too high and hence there is a large secondary market of buying and selling of Bitcoins through an Exchange. The prices may vary like any other stock price. Sellers and Buyers may come from different unidentified locations and the transaction may be settled in foreign exchange. Sellers or buyers may be criminals and the transaction may be a money laundering transaction.

The illegality of Bitcoins come through this process.

Since under law except “Negotiable Instruments” no other commodity or instrument can be transferred from one person to another free of defects in the title of the transferor, once a Bitcoin stock gets tainted, it remains tainted for .life. This is the essential difference between Bitcoin as a document and Cheques, Promissory notes, Bill of Exchange.

4. Why is Bitcoin called a “Currency”

Bitcoins can be mined and bought in an exchange and held as an investment. It can also be used for buying some other services or products if the service provider or the seller of the product is prepared to accept payment in Bitcoins instead of Rupees, Dollars or any other form. If more and more persons are freely willing to accept Bitcoins, then it becomes very much like a currency.

However, in the case of a conventional currency there is a Government which says that it guarantees its value. In the case of Bitcoins, there is no such guarantee.

5. Is Bitcoin Buying a Profitable Investment?

The value of Bitcoins is today around US$ 2000 plus in exchanges and it has given good investment returns to those who invested in it earlier. But will it continue in future?… No Body can answer. In a Ponzi Scheme, the early entrants make money at the expense of late comers. The same thing can happen in Bitcoins.

The reason the value of Bitcoins appreciate naturally is because the total stock of Bitcoins in the world is limited by the mining algorithm and progressively, the effort required for mining keeps increasing. Hence the “Cost of Mining” keeps increasing and makes the future value higher and higher apart from other speculative reasons.

If the demand for Bitcoins increase because WannaCry ransomware wants the victims to buy and pay by Bitcoins, then the value has to jump up. If Indian Government tomorrow announces that Indian Citizens cannot hold Bitcoins legally, then the value may drop.

Bitcoin is therefore a highly speculative proposition. If tomorrow the system is banned in most countries, the value will vanish into thin air.

6. What sustains Bitcoins

The general rule in the society is that majority of people often decide what is accepted as a law unless an authority comes in to change it.

The belief that Bitcoin cannot be banned is that there is a very large holding of Bitcoins in the world as of now, and hence it would be difficult to ban the Bitcoin.

Many Governments including China and Probably Japan have themselves mined and otherwise bought Bitcoins at low prices and are therefore supportive of retaining the global recognition of Bitcoins so that they can exercise a higher influence on global economy. (This is like insider trading in Stocks).

Indian Government may not currently have a stock of Bitcoins and if it accepts the system now, it will start with a very low market share of the total Bitcoin wealth in the globe.

Hence any regulatory measure should keep in mind that there is an economic consideration to either legalizing it or not.

An easy to understand example is that If a large number of people in Kashmir support terrorism and indiscriminate killing of Non Muslims,  then terrorism gets redefined as “Freedom Struggle”. The difference is thin and guided by the majority opinion. If the Kashmir Hindu population is slowly eliminated, then the balance can only tilt in favour of today’s terrorists.

Similarly, if a large number of population want to use Bitcoins for transactions which is anonymous because they can keep their black money in the form of Bitcoins, then there will be value to Bitcoin as a “Currency” and there will be popular support. There are a large number of such Black money supporters in the Government, Politician Circles and even among the public. Many of them might have converted their Black money after November 8, 2016 into Bitcoins. Even now, if the Bitcoin exchanges in India distribute one Bitcoin each to all our politicians and bureaucrats of relevance, then there will be so much support for Bitcoins that it will be legalized.

Hence Bitcoin popularity may be sustained by various illegal means and this itself is a cause of worry for honest citizens. When Citizens express their opinion on the regulation, they have to keep this in mind.

(…Discussions will continue… send me your comments or queries)

When Bitcoins were first introduced to the undersigned,  like many others, I was also impressed by the technology behind Bitcoins or Crypto coins. Many are aware that I was supportive of Bitcoins as a concept. Such persons may be wondering what happenned to Naavi as he has turned against Bitcoins and is advocating banning in India. I would like to explain the reasons for this change of our opinion on Bitcoins and Crypto Currencies.

Even in the earlier time when I was supportive of Bitcoins, there was already a controversy regarding Silk Route website and the fact that Bitcoins were used by the drug mafia was known. However the overall adverse impact of Bitcoins on the economy was not alarming and hence a lenient view was in order.

As regards the legal view, it was clear that Bitcoin was an “Electronic Document” and therefore it had a recognition as an “Electronic Commodity”. The fact that some were giving value to this commodity and many others were able to accept the value and participate in the trade created a situation where the commodity began being perceived as a “Currency”.

Additionally, this “Commodity which was perceived by many as Currency” was being bought from international markets since mining was not always feasible/profitable. Some were selling the bitcoins from India to outsiders. While selling Bitcoins against foreign currency was an “Export” of the commodity, buying from abroad was an “Import” of commodity.

The current FEMA regulations could not be clearly interpreted as permitting buying of Bitcoins from abroad as a permitted import.

Hence we were expressing the opinion that “Bitcoin” is a “Recognized Electronic Document” and if some body was able to use their computers to generate Bitcoin by mining, it was perfectly legal. But we also expressed that importing it should be within the provisions of FEMA and any profits made by trading in Bitcoins is taxable. Also once a Bitcoin stock becomes tainted as illegal acquisition, it remains so for ever since Bitcoin is not a “Currency” or a “negotiable Instrument” under law.

This opinion stands even today and has not changed.

However, initially, the undersigned was supportive of Bitcoins as a concept with the hope that negative aspects associated with the Bitcoin regime could be tackled effectively.

However, as the days progressed, Bitcoins grew more and more as the “Currency of the Criminals” and the Bitcoin community did nothing to bring controls that would prevent the misuse of Bitcoins by criminals.

At the same time, variants of Bitcoins also started coming out (Currenty more than 750 Crypto Currencies are said to be operating) and the criminals started distributing their holdings of Bitcoins into other forms of Crypto Coins. As a result, today Bitcoin and other Crypto coins have become fungible and if one of them can be the “Currency of the Criminals”, all Crypto coins are to be treated as “Currencies of the Criminals”. We therefore have to look at all of them equally.

The recent growth of ransomware attacks in the world into a level where it can be considered as  “Cyber Financial Terrorism” have made “Bitcoins” and Crypto Coins” as a chief faciliator of such terrorism. If there were no Crypto Coins, then the ransomware owners would find it difficult to operate their ransom kingdom before they are caught.

The “Anonymity” of Bitcoins/Crypto coins is therefore the biggest problem in accepting the system only as a technological innovation that may facilitate payment settlements in Cyber Space.

An “identifiable Crypto Currency” would make things different but people seem to be unable to give up the anonymity for acceptance of the system by regulators.

The second negative aspect about Crypto Coins is that it is not regulated by any central bank and hence the Crypto Coin wealth is all “Black Money” for the conventional economists. Even though the holdings of Bitcoins as compared to Black Money in currency form was considered negligible, consequent to the demonetization in India, we may now say that the market share of Crypto Currency in Black Money holdings in India must have gone up significantly and hence the adverse impact of all Black money holders in India converting their Swiss Bank money and other Black wealth to BItcoins/Crypto coins is very real and cannot be ignored.

Again, there is a possibility that the Crypto Currency holders can declare their holdings and agree to bring it into their account books along with payment of tax if any on their buying and selling. But I doubt if the Bitcoin/Crypto currency community would agree for declaring their Bitcoin holdings because this again comes back to the “Anonymity” aspect.

The third point that needs attention in the context of Crypto currency is the security of the system as a whole and whether the system can be hacked either at the Block Chain level or at the individual Bitcoin wallet level. Supporters of Crypto coins may swear by the security of the system because of the inherent checks and balances in the Block Chain method of authentication. But security is still debatable.

Another aspect that needs consideration by the economists of the country is that currently India is not a major holder of Crypto Currencies in the world. On the other hand countries like China, US and Canada may have a large holding of different Crypto currencies. India therefore will be at a disadvantage in the global economy if Crypto Currencies become a globally accepted currency equivalent.

There is no level playing field in the current Crypto Currency wealth and hence it would not be prudent for the country to adopt the Crypto Currencies as acceptable exchange medium.

In view of the above aspects and more particularly for the need of disabling the Cyber Criminals from using Crypto Currency as a tool to reap rewards of their criminal activity, Naavi has changed his earlier lenient stand on Crypto currencies and is  now firmly advocating “Ban on Crypto Currencies” as a policy of India.

Until such time the Crypto Currency community agrees to abandon anonymity inherent in these transactions, we will hold the view that Bitcoins and other Private Crypto Currencies have to be banned and its holdings criminalized.

I hope followers of Naavi.org will understand the logic for the shift in our stand.

Naavi

Department of Economic Affairs, Ministry of Finance has constituted an Inter-Disciplinary Committee chaired by Special secretary (Economic Affairs) and representatives from Department of Economic Affairs, Department of Financial Services, Department of Revenue (CBDT), Ministry of Home Affairs, Ministry of Electronics and Information Technology, Reserve Bank of India, NITI Aayog and State Bank of India on 15th March, 2017.

Read details here

The Committee will

(i) take stock of the present status of Virtual Currencies both in India and globally;

(ii) examine the existing global regulatory and legal structures governing Virtual Currencies;

(iii) suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc; and

(iv) examine any other matter related to Virtual Currencies which may be relevant.

Comments/suggestions from the members of public are requested on the following questions by 31th May, 2017 on the website: MyGov.in.

In particular, the following queries have been raised.

a) Whether Virtual Currencies (VCs) should be banned, regulated or observed?

b) In case VCs are suggested to be regulated:

i). What measures should be taken to ensure consumer protection?
ii). What measures should be taken to promote orderly development of VCs.
iii). Which appropriate institution(s) should monitor/ regulate the VCs?

c). In case VCs are not suggested to be regulated:

i). What should be the effective self-regulatory mechanism?
ii). What measures should be adopted to ensure consumer protection in this scenario?

It is requested that the comments may be supplemented by rationale and brief.

Public are requested to provide their comments in time to enable the Committee to arrive at an appropriate decision.

Naavi.org has published many articles on Bitcoin and also presented its views. Links to all the old articles will be provided for those who want to understand what is a Bitcoin and a “Crypto Currency” or “Virtual Currency” so that we can form an opinion on the same.

Naavi