The Supreme Court is hearing a petition from the Crypto Currency industry players challenging the April 6, 2018 RBI Circular that disallowed entities regulated by it from providing banking channels to exchanges to trade in crypto currency.
RBI has been firm on its views that Bitcoins and Privately managed Crypto currencies have no place in India. It has even excluded it from the “Reguatory Sandbox” scheme Had it not been the firmness of RBI, Bitcoin would have been legitimized by this time by the Ministry of Finance.
After much deliberation, the Finance Ministry now seems to have come up with a draft bill “The Banking of Cryptocurrency and Regulation of official Digital Currency Bill 2019” . From the leaked information available about the draft it appears that the Government may ban Bitcoin but keep its options open on starting its own Crypto currency. It may be called the “Digital Rupee” (It should better be called the “Crypto Rupee”) which could be a Government/RBI issued Crypto Currency which will be firmly under tracking by the Government.
Such identifiable crypto currency does not fit into the philosophy of Bitcoin and hence the industry will not look at it as a member of the Crypto Currency industry at all. If and when the Government decides to go ahead with this project, we can discuss how it can be done and until then, let us keep this discussion in the backyard.
If the RBI just picks up a Crypto currency algorithm from any software developer, without itself being able to verify the codes, it will be possible that fraudsters will push a Crypto currency algorithm with a back door which will give them access to the Government Crypto Mint.
This Risk is like a risk where a Mint is constructed where the contractor builds a secret door to be able to walk into the vault any time and lift any currency or gold. Physical construction is easy to check but will the RBI Governor be able to find out a secret door if it is in the Crypto algorithm itself? Hence the project needs a more detailed discussion which can be taken up later when required and not now when only an enabling provision may be contemplated.
The second point that the Bill seems to have highlighted is that except for the Government sponsored Crypto Currency (Crypto Rupee) the private crypto currencies will be banned and any person who may be holding, selling or dealing in such crypto currencies may face a jail term of 10 years.
Possibly this draft bill may be placed before the Supreme Court in the hearing proposed for July 23.
The Court will however be bombarded with the arguments that Bitcoin has already been recognized by some foreign Governments, it is a subject of “Free Speech” ,”Freedom to barter any commodity”, “Instrument of Privacy” etc. The Supreme Court which always has a weak spot for something couched under the terms “Freedom” and “Privacy” is likely to be left wondering “Why Not” when it comes to a prayer by the industry that the Government should not out rightly ban Bitcoins.
In the process, there is a possibility that the Supreme Court can err and direct the Government to legitimize the Bitcoin in some form.
Naavi.org has been consistently bringing to the notice of the public the dangers of giving any leeway to Bitcoin usage in India. Obviously Supreme Court judges donot read such blogs and even if they read, donot take cognizance of the same. It is left to the advocates to bring it to the notice of the Court.
If representatives of RBI and the Government take note of the same, they can bring it to the notice of the Court during the hearing so that the Supreme Court is aware of the risks to the country if Bitcoin is allowed to survive in India. It would be in the interest of the petitioners to suppress such information and therefore they are unlikely to bring it to the notice of the Court.
For the immediate information of the persons concerned, I will briefly highlight the following issues that the Supreme Court must take into account before passing any judgement in this case.
- Adverse impact on the Financial Economy
If Bitcoin is recognized then the entire family of more than 1600 crypto currencies with which it is fungible will become “Cash with the public”. The current total estimated market capitalization of all these cryptocurrencies is US$353,020,383,066/-(approx 353 billion or) (https://coinmarketcap.com/) . This is equivalent to around rs 24 lakh crores which compares with the total money circulation in India which is around Rs 21 lakh crores.
Judging from the records of earlier years the money supply in India has an annual accretion of around 8-10% while the inflation levels have been around 5-7%. Hence if money accretion goes up by 100%, the inflation level may go up to around 85-90%.
What will the condition of India be if the inflation level is around 90%? is a point which the Supreme Court needs to consider when it adjudicates on the case.
2. Adverse Impact on the Electricity Consumption
Most people does not understand/or ignore how Crypto currency recognition will have an impact on the energy consumption in India.
We know that Crypto Currencies are created by individuals running a “mining” process for which they run their computers to create a successful new block which can be added to the current block. A successful block consists of the previous block, the list of transactions to be added to the block in the period following the creation of the previous block, a random nonce value that the miner adds to it, the new hash which meets the criteria set by the algorithm, the new bitcoins issued to the miner, the digital wallet identity of the miner etc.
This process involves many many iterations by many many people and the computer has to consume electricity and also generates heat in the process.
A recent study conducted by the Cambridge Center for Alternative Finance at Cambridge Judge Business School, University of Cambridge has indicated that Bitcoin mining consumers around 58.93 TWh per year which compares to 58.46 TWh per year which is the consumption of the entire Switzerland in one year. The Indian power production per year is around 1423 TWh per year. The Bitcoin power usage is therefore around 4.1% of Indian total power consumption and around 0.25% of the global power consumption.
Presently Bitcoin mining is infeasible for most of the individuals and it is running only as an industrial activity in some countries including Iran which was in the news recently. But if Bitcoin is legalized, then there will be a big hike in the mining activity that will spike the power consumption. There will be mining activity in other Crypto Currencies which will be later exchanged with the Bitcoin. Hence most Indians would set their computers to keep running the Crypto algorithm hoping that they would strike gold.
Each block of Bitcoin is today around 210 GB in size and hence all nodes which are involved in mining will keep transmitting such huge data from the node to the central server keeping the data storage industry and the ISPs happy but choking the more productive use of bandwidth and storage facilities.
In many cases, Mining is done through “Cryptojacking” where “botnets” are created by planting trojans in the computers of the public and using their electricity and computer resources to mine bitcoins for a remote cryptojacker. The computer users are suffering today by the slowing down of their computers, increased heating of their processors and corresponding reduction in the life of the computing devices which is going unrecognized as a disguised damage created by Bitcoin.
It is for the Nation’s power minister Mr R.K.Singh to clarify how the Country would respond if the Supreme Court legitimizes Bitcoin and causes a big spike in the electricity consumption in India leading to shortfall in electrification projects.
The heat generated in the process if released to the atmosphere will contribute to the global warming and a separate research is required for harnessing this heat energy if the global warming has to be contained. We are still a long way from such research in India and hence have to put up with the consequences of the warming generated now.
3. Adverse Impact on National Security
The the identity of the digital wallet in which the crypto currencies are held is anonymous. The wallet addresses are managed by international wallet service providers who are not within the jurisdiction of Indian law enforcement. Even when “Data Localization is mandated” through PDPA, the wallets will continue to be just “addresses” and managed by international anonymous dark web players.
Within the blocks also the bitcoin owners are represented only by their wallet identity.The wallet address is a public key and no name or address of the miner is visible in the block. The person who holds the private key corresponding to the public key of the digital wallet will be able to encash the bitcoins credited and convert it into legit currency. It is more or less impossible to identify the wallet holder except when the wallet service provider shares the wallet creation data through which some tracking can be attempted.
Hence the bitcoin holdings will remain anonymous and outside the reach of the law enforcement. Even when the first transaction of conversion from a legit bank account to a digital wallet through an exchange is traceable, subsequent transactions from one bitcoin wallet to another is outside the radar of the law enforcement as well as the taxation authorities.
The biggest risk comes from the fact that bitcoins and other cryptos can be used by terrorists to fund terrorism in India. It is already being used as the currency in which kidnap ransoms as well as ransom ware ransoms and crimeware sales happen. The darkweb uses it as the only currency and the entire cyber crime industry is run through the use of Cryptos. If the Cryptos are made acceptable in the physical world or in Amazon type of platforms, then there will be a circulation channel for illegal money to render it as a tool of money laundering and havala. This will make the law enforcement work of tracking the money trail in frauds and corruption impossible.
If therefore the Supreme Court renders legitimacy to Bitcoins, it will kill the efforts of the Government to control black money completely and the National Security agencies to disarm the financial strength of both the Terrorists and the Naxalites.
Any bench of the Supreme Court that takes such a decision will carry the moral burden of all deaths and destructions that may occur in future from terrorist and Naxal activities.
4. Anonymity is a recipie for Scams
The biggest USP of Bitcoins is the anonymity. But this is also the biggest weakness for the holders when it comes to a scam where the bitcoin wallet company or the exchange or the new Crypto Coin issuer himself commits a fraud by vanishing into thin air or declaring that their servers were hacked and the information is lost.
Such Scams are difficult to prove and the investors mostly have to lose their Crypto holdings.
For all these reasons and more, I would like to say that the Supreme Court has to be aware that any decision to legitimize the Bitcoin as a currency either in the final judgement or the comments the judges pass during the hearing would create a damage to the fundamental fabric of our society.
No doubt this is the intention of the “Tukde Tukde Gang of India”. But we hope that the judges of the Supreme Court would see through the arguments of the petitioners and understand that what these people are suggesting is not in the interest of the country.
If the Supreme Court is honestly in favour of the well being of India, then they have to dismiss the petition and not force the Government into a regulation that is counter productive.
If the Supreme Court is not firm in denouncing Bitcoin, it will warm the hearts of the Modi baiters, but the public of India will be deeply disappointed with the Supreme Court.