Ever since the news was out that Government of India had formed a “Committee” to take a policy decision on whether Bitcoin and other Crypto Currencies are to be “banned”? or “Regulated”? or “Observed?” there has been a flurry of activity in the MyGov discussion site where a number of people are trying to support legalization of Bitcoin. Some are saying that it is required to support the “Digital India Program” of Mr Modi.
Before we go further, we need to raise some doubts about how people are expressing their opinion on the forum. It is unclear whether they are fully aware of the technical, legal and economic implications of deciding about Bitcoins one way or other? Or Or they just trying to run a social media campaign as “Social Media Marketing” Companies operate?.
There was a basic flaw in the way the Government has floated the enquiry which was just to float a discussion in the online forum.
I want the Government to provide a clarification on the following points.
- The MyGov discussion page does not show the composition of the Committee. It is necessary to provide the names of the members of the committee so that people will undertand how it represents the stakeholders and public interests.
- It is also ideal if every member gives a declaration that either they or their close relatives donot posses any Crypto coin themselves?.
- Also it would have been better if a notice had been given through news papers so that all person who have a stake in Black Money and Corruption elimination could have responded even if they are not active on the MyGov.
Let us now forget these and proceed with the presumption that the Committee consists of honest and reliable members.
Then the following questions arise.
5. It was incorrect to combine “Virtual Currency” and “Bitcoin” in one breath in the introduction. This will confuse a lot of people who donot know the difference between a “Privately Constructed Crypto Currency like Bitcoin” and the “Virtual Currency in the form of balances in a PayTM wallet”. Many of the responses in the MyGov site indicates that people are equating the need to legalize Bitcoins as part of Modi’s Digital India agenda. This confusion is directly attributable to the confusion in the use of terminology.
This public opinion gathering without explaining the problems of a “Privately Created Crypto Coin” is therefore not going to be of use and will not provide the committee with any reliable feedback.
In a complicated decision involving complex technology, interpretation of law and the economic impact, even experts will find it difficult to form an opinion and hence calling for an opinion on the social media is not the correct form of getting the feedback. It can lead o wrong conclusions.
(We hope this is not done deliberately as a show of the formality of getting public opinion.)
6. Government of India on the other hand should have conducted roundtables in different cities inviting relevant experts to discuss the Technical, Legal and Economic impact of legalizing “Privately Created Crypto Coins”.
7. The opinion is sought on “Banning”, “Regulation” and “Continued Observation”. This again introduces confusion. “Continued Observation” is meaning less as it indicates “No Decision”. RBI has been on observation mode for atleast 3 years now and if it has not yet formed an opinion, then it never will in the next few months or years. The choice is therefore between “Not banning Now” and introducing some form of “Licensing or Regulation” and “Banning Now”.
8. “Regulation” automatically means “Declaring that Bitcoins are Legitimate, it can be held by an Indian Citizens and it can be traded” etc. Once Bitcoin is recognized, “All Privately created Bitcoins” will become automatically legalized.
9. The only form of regulation would be, “Licensing of Exchanges”, “Taxing of Profits” etc.
I have a serious doubt if RBI currently has any powers to legalize “Bitcoins” in the way it is perceived as a “Currency”. If we look at Bitcoin as an “Electronic Document”, there is no need for any kind of “recognition”. It is an “Electronic Document” which some have assigned value and trading. Though it is not a “Physical Commodity”, it is a “Virtual Commodity”. Since no body promises to pay consideration, Bitcoin document is not a security nor even a derivative. If a “Virtual Commodity” has to be traded in the market, then it has to be under the guidelines of SEBI.
However, if Bitcoin is treated as a currency which is the perception in the market place, then RBI needs to declare if it is the “Currency of the Cyber Nation” which is “neither India, nor America nor Russia etc etc…”. Without recognizing the existence of a “Cyber Nation” which has no sovereign Government nor an international supervising body like UNO, RBI cannot declare recognition for the currency which does not belong to any recognized Country.
Just as the Caliphate of ISIS, the”Bitcoin Nation” will remain independent of all known sovereign regulations and promote a “Law Less Financial Society”.
When we integrate this “Lawless Financial Society” with the “Law abiding Financial Society”, we will create a financial chaos in the system.
The biggest beneficiary of such an integration which would mean that Bitcoins can be used to buy goods in the physical society, convert into Rupees or other legacy currency etc is the Criminals and Black Money holders.
All the good work that Mr Modi had done by demonetizing high value currency at a great inconvenience to part of the law abiding society would be wiped out if the Committee suggests “Regulation” and not “Banning” of Bitcoins and all “Privately Created Crypto Coins”.
Some Bitcoin exchanges operating in India are misleading the public that by obtaining the PAN numbers of the members, they are creating a system where Bitcoin trading is within regulation and should be allowed.
When the commodity “Bitcoin” is exchanged into Rupees or other legacy currencies, the owner of the Bitcoins will get his wealth converted into wealth recognized by the physical world. The Bitcoin itself is being used predominantly as the “Currency of Criminals” and hence when such Bitcoins are converted into legacy currency, it becomes “Money Laundering”. Physical world laws recognize “Negotiable Instruments” which are the only types of financial instruments which can create a “Holder in Due Course” who gets a title free from the defects of the title of the transferor in certain circumstances. Since “Bitcoin” is not a “Negotiable Instrument”, once a Bitcoin passes through a criminal transaction such as a ransomware or drug traffiicking etc it remains tainted for ever even after it changes hands or split up.
Does the Exchange guarantee that all sellers are genuine miners or those who have acquired their Bitcoins without any taint on them?… It is impossible for them to guarantee though theoretically every Bitcoin can be traced to a block chain and the transactions that identify Bitcoin wallets. As long as these Bitcoin wallets remain anonymous, there is no way that the Exchange can provide a guarantee that the commodity that they are selling is free from defects. Hence the buyer is always at the risk of receiving a tainted Bitcoin which he may have to return to a legitimate holder.
I draw the attention of the viewers to Buybitcoinworldwide.com/india which lists about 12 Bitcoin exchanges in India where you can buy and sell Bitcoins.
One of the exchanges listed is “Purse.io” which says
” With Purse.io, you purchase bitcoin with a credit or debit card but indirectly; Purse.io connects you with a buyer who wants to make a purchase on Amazon. You use your credit/debit card to order items from the buyer’s Amazon wish list. When the items have been delivered to the buyer, you’re given some bitcoin equivalent to the value of the items you ordered for the buyer. Purse.io is available in the United States, Canada, Japan, Brazil, France, Italy, Spain, China, and India”
Purse.io is linked to Amazon and permits purchase of goods on Amazon using Bitcoins. It encourages buyers of goods to place orders against Bitcoins. It simultaneously identifies sellers of goods who may accept Bitcoins and acts as an agent to complete the transaction.
It is not clear what is the involvement of Amazon in this “Money Laundering Exercise”.
There is another Exchange called VirWoX which claims
“Technically, VirWoX isn’t even a Bitcoin exchange. It mainly serves as a way for people to buy Second Life Lindens, a currency used in the virtual world Second Life. You can’t buy Bitcoin with PayPal directly at VirWoX, but it’s possible to first buy Second Life Lindens (SLL) and then trade your SLL for Bitcoin. This process works perfectly, but in the end will cost you about 10% in fees.
This workaround/hack has made VirWoX the easiest and most popular way to buy bitcoins with PayPal.”
This is another “Money Laundering Exercise” which involves Secondlife.com and Paypal.
We need to also look into Localbitcoins.com which offers buying and selling of Bitcoins agaisnt Cash.
At this point of time 27th may 2017, 11.59 AM, several Cash buying and selling options for Bitcoins are listed listed on the site as shown in this document. Refer here:
I want RBI and SEBI to let me know if these transactions are legal in India and if not why they are not taking action.
I want BJP to recognize that many of these transactions could be from political parties having black money defeating the purpose of demonetization.
If these transactions are not legal, is it not proper for us to say that there is a serious dereliction of duty on the part of RBI and SEBI?
Zebpay claims itself to be a leading Bitcoin Exchange in India and prominently displays reports from Nishit Desai Associates and Center for Internet Society. It is not clear in what context these reports were given and whether it was permitted to be used for promotion by ZebPay. It also prominently displays support of ICICI Bank and HDFC Banks as their Banking partners. When things go wrong, all these partners of illegal business become answerable to law.
The general argument of many is that “Bitcoin” is a technology innovation and it needs to be supported for this purpose. Law is presently not clear so that we should interpret it favourably and RBI should support the technology innovation.
While we are all for “Innovation”, innovation for the purpose of creating a “Black Money World” is not acceptable. Some legal luminaries who are supporting Bitcoin today should also reflect why Napster was not allowed to continue with its business. Was it not an “innovation”?, “Was it not something 20 million users had endorsed”?. If respect for Copyright law struck down Napster, the same concern should strike down Bitcoins.
Bitcoin is a rogue concept in economy and has to be killed at the earliest. The same goes for all privately created Crypto Currencies.
My support is however for Government backed Crypto currency such as “Bit Rupee”. This could use Cryptocurrency technology with full control of RBI and SEBI for mining, transfer, trading and conversion into or from Cash or any other currency crypto or otherwise. What kind of regulation is required for this purpose can be determined once the idea is accepted.
Further, I want people not to treat Crypto Currencies on par with the term “Virtual Currency” which is the virtual form of legacy currency. Digital India needs Virtual Currencies but not Cryptocurrencies.
Modi’s vision of Digital India is not related to legalizing Bitcoins and we should not use that excuse.
Public should know that when Banks are given license to accept Public Deposits, RBI expects them to maintain certain levels of financial discipline and ensure maintenance of Cash and Liquidity ratios, maintenance of Non performing Loans below certain levels and so on. Even the Payment Banks and Mobile Wallet companies are required to have certain minimum networth and Management team before they are permitted to take any money from public.
On the other hand, Bitcoin exchanges today function with a paid up capital of Rs 1 lakh, with a management team which has no financial or economic experience and credentials nothing more than being software start ups.
When public are opening Bitcoin wallets they have a choice of opening their wallets with these technological upstarts in India with an Indian postal address and hope that if some thing goes wrong, you can hold them responsible. But a company with a paid up capital of Rs 1 lakh may not be able to take liability of even 1 bitcoin today.
How can anybody trust these companies with their Bitcoin wallets?. What if they simply transfer the bitcoin holdings to themselves and claim “I was hacked”? What if real cyber criminals hack into these bitcoin wallets and rob your money? What if some terrorists kidnap the Wallet company executive and use his admin password to clean up your Bitcoin holdings?
If you open your Bitcoin wallets with some foreign agencies then it may be difficult even to launch a case against them if your account is lost.
At a time “Hacking” of even big Banks with robust security is common, will these technology start ups who may not much more than creating a Mobile App be able to have security measures that will firewall global hackers?
These are some thoughts that investors should consider before thinking of supporting Bitcoin legalization.
If the investors are not intelligent enough to understand these risks and think of investing with a greed to make profits, then when they lose money they will all flock in front of RBI gates and ask RBI ..”What was RBI’s responsibility in simply being an observer and allowing the public to be looted? . Questions will also be asked about SEBI, the Finance Minister of the day and of course the Prime Minister.
Today none of the regulators can say that the risks were not pointed out to them because I have personally ensured that these risks are brought to the attention of all relevant persons. It is of course their prerogative to ignore and let the innocent public suffer.
I am looking forward to persons like Mr Rajeev Chandrashekar (MP) who can understand both the technology and the risk to take up this issue with the Finance Cum Defense Minister and the PM so that India bans Bitcoin and all Privately created Crypto currencies forthwith and declare any possession of undeclared assets of this nature as a punishable offence. At the same time, mined crypto coins must be converted to legacy currencies and declared. Any other legitimate holdings can be allowed to be converted into legacy currency under a special amnesty scheme which may run for about one week within which all current holders who want to declare their holdings and escape further action should be given an opportunity.
Subsequently, India should take steps to convince the international community also to take similar steps to that the “Currency of the Criminals” namely the Bitcoin and the ilk must be eliminated from the face of earth.
I also want the honourable Supreme Court of India to take note of the dangers of Bitcoins and privately created Crypto coins to the Indian economy and ensure that Government is not swayed from its principles of cleaning up corruption in India by eliminating all tools of Black wealth accumulation.
The Highest authority which can really act in this instance is only Mr Narendra Damaodar Das Modi and I therefore directly appeal to him to ensure that a right decision is taken in this regard.