What is Cryptocurrency?
A cryptocurrency is a form of digital currency based on a widely distributed network of computers. The decentralized structure of the cryptocurrency allows it to exist without any government interference. Although the cryptocurrencies are pretty secure, and it is theoretically impossible to dupe transactions or counterfeit, there’s no regulatory body to regulate the transactions or look over their use or regulate the mining of cryptocurrencies. Hence, the government is always skeptical about legalizing it.
Bitcoin is indisputably the most popular cryptocurrency in the market. Currently, it holds about 42% of the market capitalization, followed by Ethereum, which is the second most popular cryptocurrency in the market. Other tokens, also known as altcoins, include Solana, Litecoin, Cardano, EOS, etc.
Is A Blanket Ban Possible?
Cryptocurrency is essentially a piece of code that lacks any inherent value or liquidity. They can represent an asset, a commodity, or security. Therefore it might be difficult to impose a ban on cryptocurrency. Millions of people can hold cryptocurrency and use it as a medium of exchange to create its value.
To transfer crypto from one wallet to another is not very different from transferring files from one desktop to another. So, a ban might not be able to take away people’s ability to transact in cryptocurrencies. But, it certainly can make the process difficult.
Another significant concern towards banning cryptocurrencies is that the revenue generated through these tokens is relatively high. With developing technologies, many investors believe in trading only through crypto. Therefore, if the government decides to ban these tokens, they are sure to miss out on a massive chunk of profits and taxes.
Although the statements by the Central Government do not entirely clarify the ban, it indicates that only the private tokens would get banned from the Indian market. The public tokens such as Bitcoin, Ethereum, and others of this sort which offer some traceability of the transactions, would continue to exist legally.
Banning Cryptocurrency is a Technological Challenge
How blockchain technologies function, sending cryptocurrency is not very different from sending music files. Therefore even if the government decides to put a blanket ban on these tokens, the more complicated thing would be to enforce the ban because you can’t stop people from sending or receiving tokens.
Nevertheless, banning these tokens would stop mainstream users from investing in them on a publicly available crypto exchange and decrease the number of users overall in the market. The government might also introduce some penalties on sending and receiving tokens, resulting in a decrease in the number of investors. But this will also create an alternate exchange of currency similar to the black market, defying why the ban was put upon.
India has a large crypto user base, currently the second-largest in the world. Suppose the government decides to go with the blanket ban. In that case, the users might resolve illegally to trade in crypto, increasing money laundering activities. Therefore, it is doubtful that the government will put a blanket ban on the use of all cryptocurrencies. Although, some private tokens may face prohibitions or strict regulations to undergo transactions.
Market Impact: Positive or Negative?
The values of several digital currencies dropped by massive percentages following the announcement of the bill. Bitcoin dropped by more than 13%, whereas Dogecoin and Shiba Inu dropped by a massive 15%. This suggests that the market is not happy after this announcement. But the impact was smaller than what had been anticipated. This also shows a stronghold of the Indian crypto user base.
The market would inevitably react negatively if the Indian government decides to ban cryptocurrencies, but the scale on which it would affect the global market is unpredictable. Since the digital currency is very volatile, the ripples created by the bill might shake the entire ocean of currency tokens, or as it has been observed before when the Chinese government decided to ban cryptocurrencies, it did not spectacularly affect the global market. Only time can tell how severely the government’s decision would affect the market worldwide.