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
