Naavi.org

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

This is an open letter to our honourable Prime Minister Mr Narendra Damodar Das Modi, our honourable Finance Minister, Mr Arun Jaitely, our honourable Minister for IT, Mr Ravishankar Prasad, our honourable Minister of Home Mr Rajnath Singh and also to the Secretaries of the Ministries of Finance, IT, Home, as well as the RBI Governor Mr Urjit Patel and the Director General of CERT-IN.

Over the last few months, India has been witness to a series of attacks not only from across the borders of Kashmir, but also from the Cyber Space. It will not be long before the enemies across the borders and the enemies from Cyber Space converge more effectively than what they are doing now so that they can recruit more physical terrorists and inflict damage to the country.

The recent Cyber attack in which a ransomware called “WannaCry” infected over 2 lakh computers across the world and an estimated 40,000 in India itself should strike a warning bell in us since we in India are preparing for ushering in a “Digital India” with ‘Digital Payment’ systems replacing our currency system and introducing concepts such as smart cities and smart gadgets of various kinds leading our future.

The country’s dependency o IT systems is growing by the day and with the possibility of Aadhar Enabled Payment Systems coming into use, the vulnerabilities are all around us. If these vulnerabilities are exploited by our enemies, then the country will be irretrievably pushed back in its development agenda.

It is reported that there was recently an advertisement in the dark web stating “Let’s Kidnap the Planet” promoting a “Ransomware”. Though we may be relieved that WannaCry did not hurt India as much as it did some other countries, this relief may be short lived and we cannot be complacent. A whole industry is said to be coming up around “Ransomware” as indicated in the following report.

Ransomware: “Let’s Kidnap the Planet!”.

According to this report, ransomware is growing at an alarming rate because there is enormous money to be made. The report says that a study has indicated that 40% of the victims paid the ransom and some malware rakes in upto $ 30 million every 100 days. Hence the menace will continue and new variants of ransomware will keep coming up.

While technology people work out technical solutions to ensure that observed vulnerabilities in systems are quickly and effectively plugged, the Governments also need to device their own strategies and build a multi pronged Counter strategy to defeat the design of these Cyber Financial Terrorists to kidnap the planet for their personal gains or otherwise.

Though the initial crop of ransomware may come from techies who are not conventional terrorists who kill people for religious fanaticism or otherwise, ransomware is a tool which is easily acquired by conventional terrorists and it is reasonable to expect that it should already be in use for fund raising by terrorists not only in Kashmir or Naxalites in India but world over by many rogue elements.

A time has come now for us to initiate some measures which is in the hands of the Indian Government to mitigate the risk. I would like to highlight one such measure here since this is currently under the radar of the Finance Ministry and the RBI.

I am referring to a concept called “Bitcoin”, which is the most successful “Crypto Currency” in circulation in the word and traded in exchanges against legacy currencies like dollars.

There are countries which have formally recognized the Bitcoin as a currency for public to use in exchange of goods and services. There are even ATMs which can be used to withdraw dollars against bitcoin holdings and also for depositing dollars into bitcoin wallets.

The current bitcoin  (BTC) exchange rate is around Us $2000 and about 300,000 exchange transactions take place per day (Source www.coindesk.com).

Countries like China are reported to have invested a huge sum of money to acquire Bitcoins both by mining it themselves and also perhaps by buying from the market.

Bitcoin is created by computer operations which is called “Mining” but the total stock of Bitcoins in the world is limited to 21 million by design and it has become almost impossible now for any ordinary computer user to mine new Bitcoins. Most of the Bitcoins presently acquired are traded Bitcoins. Since Bitcoin has been a currency of drug mafia and other underworld activists, most of the current stock (Which is a commodity in legal sense) is tainted as having been used as “Money Laundering Tool” in the past. Hence most current stocks in India are legally like “Stolen gold pledged with a pawn broker” which is sold and resold.

Now there is a lobby in India which is trying to convince the Government and RBI that Bitcoins should be legitimized in India. Government has even formed a committee to bring in regulations for Bitcoins. The industry has started spreading the rumour that there will be regulation but there will be no ban on Bitcoins in India. Recently, one of the Bitcoin exchanges in India reported that they are receiving more than 2500 new registrants each day.

The confidence with which the industry is claiming that the Bitcoin Regulation Committee will only “Regulate” and not “Ban”  Bitcoins creates a concern that the industry might have already got a hint of the things to come.

Bitcoin technology called “Block Chain” is technically fascinating and there is every possibility that the Committee members may be impressed to accept the technology. Many Banks are advocating its use for authenticating Banking transactions.

There is no doubt that “Block Chain” technology is an innovative technology but the way it has been used in Bitcoins as well as the way it is proposed to be used by Banks in India is not within the legal frame of the country.

Most importantly, there is a level of anonymity in Bit coin transactions which make it the best parking place for Black Money. Though technically, technologists claim that Bitcoins can be traced and FBI has the capability, the challenge is imposing. India is presently not capable of tracing Bitcoins and unless a global coordinated effort is launched, Bitcoin tracing is not practical.

There is a possibility that a Crypto Coin is seeded with a regulatory mark (Like an RBI seal) to make it usable as a replacement of printed paper currency. But the Bitcoin and other Crypto coins in circulation are anonymously generated and is outside the economic system of the country.

Allowing “Non RBI seeded Crypto coins” to be created and circulated is inimical to the economic interests of India and hence if there is any regulation, there should be a total ban on any “Crypto Currency” other than one which is released by RBI.

This is common sense like saying that no currency printed in India is valid as a currency unless it is printed in the Government Mint and carries the signature of the RBI Governor.

The second aspect that we need to recognize that Bitcoin today has become the currency of operation of the ransomware operators and one effective way to curb the menace of ransomware is to eliminate the use of Bitcoin worldwide so that the holdings of Bitcoin become worthless like the demonetized notes.

Just like high denomination notes were demonetized on November 8, 2016, the Government of India should “Demonetize Bitcoins” and force all existing holders of Bitcoins who are citizens of India  to declare their present holdings and convert them to legacy currencies within a certain time of say one week after which holding of Bitcoins should be declared as an offence.

At the same time, we should work on getting other Governments to also take similar steps by raising this issue in the UNO so that we can move towards a global ban of unregulated crypto currencies and more particularly the Bitcoin.

If this is not done, we will have terrorists using Bitcoins instead of Havala to exchange money and pay the stone pelters of Kashmir and other Terrorists, Naxalites and Criminals. Bitcoin Ban will also prevent corrupt politicians, bureaucrats and businessmen from holding their black wealth in the form of Bitcoins.

Hence the request to “Ban Bitcoins” and “All Unregulated Crypto Currencies” should be considered as an extension of the November 8, 2016 move to demonetize Black wealth.

At the same time, Banks who are experimenting with authentication of transactions under the Block chain technology should review the legality of the operations involved before further action is involved.

I would like everybody to remember that Bitcoin is fascinating like the hood of a King Cobra. But we need to keep away from it to remain safe and not try to go near. Some may say, King Cobra can also be handled if we know how to handle. But only those who know the risks know how safe it is to sleep with the King Cobra.

I therefore urge the Indian Government that we should defeat the Cyber Financial Terrorists by choking their source of revenue and one of the first steps in this direction is to ban Bitcoins in India.

I request the Committee looking into the regulation to consider this as a submission from a concerned Indian citizen and take it on record before arriving at their final decision.

Naavi

(Na.Vijayashankar)