Explained: The New Cryptocurrency Bill, the Market Plunge & the Centre's Stand

The Bill, which seeks to ban cryptocurrency in India, will be tabled in the upcoming session of the Parliament.

The central government's announcement of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 on Tuesday, 23 November, has sent ripples of panic running through the digital currency market.

(Image: The Quint/Aroop Mishra)

The central government's announcement of The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 on Tuesday, 23 November, has sent ripples of panic running through the digital currency market.

The Bill, which seeks to impose a ban on the use and mining of cryptocurrency in the country, will be tabled in the upcoming Winter Session of the Parliament.

Soon after the government's announcement, the market saw a sharp plunge in crypto prices, with investors in alarm over the future of the digital asset in India.

What does the new cryptocurrency Bill propose? What will its fallout be? What is the government's stance on crypto exchanges? What do stakeholders say? Here is all you need to know.

What Is Cryptocurrency?

A cryptocurrency is an encrypted digital currency that uses a decentralised ledger, called the blockchain, to record and validate the transactions.

It is a digital asset based on a network that is distributed across a large number of computers. This decentralised, peer-to-peer structure allows the currency to function without the oversight of a third party.

This essentially means that this currency operates outside the control of governments and central banks.

When a transaction is made, wallets use an encrypted electronic signature (an encrypted piece of data called a cryptographic signature) to provide a mathematical proof that the transaction is coming from the owner of the wallet.

Some of the popular cryptocurrencies include Bitcoin, Solana, Litecoin, Ethereum, and Cardano. As per Investopedia, as of November 2021, the aggregate value of all the cryptocurrencies is over $2.4 trillion.

What Is the Cryptocurrency and Regulation of Official Digital Currency Bill 2021?

As per the Lok Sabha bulletin on proposed business during the session, issued on Tuesday, the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 "seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses."

The Bill also provides for the creation a facilitative framework for the creation of an official digital currency to be issued by the Reserve Bank of India (RBI).

The Bill defines cryptocurrency as follows:

"Cryptocurrency, by whatever name called, means any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration..."

The key features of the 2019 draft of the Bill were as follows:

• The Act seeks to ban mining, holding, selling, trade, issuance, disposal, or use of cryptocurrency in the country.

• The Bill allows the use of processes or technology underlying any cryptocurrency for experiment, research, or teaching.

• The central government, in consultation with the RBI, may issue digital rupee as legal tender.

• The RBI may also notify a digital currency recognised as legal tender in a foreign jurisdiction, as a foreign currency.

The Market Crash

After the government announced the listing of the Bill late on Tuesday evening, crypto prices nosedived, as investors rushed to sell their digital assets in fear of an inconducive atmosphere for the assets.

As of 11:45 pm on Tuesday, all major cryptocurrencies saw a drop of around 15 per cent and more, reported NDTV.

While Ethereum fell by 15 per cent, Tether fell by almost 18 per cent.

Meanwhile, Bitcoin prices fell to their lowest rates since 13 October, seeing a slump of nearly 20 percent, as per according to Forbes.

What's the Government's Stance on Crypto Control?

The announcement of the Bill comes in the wake of a slew of government consultations over cryptocurrency in the last month.

Prime Minister Narendra Modi on 13 November had chaired a high-level meeting on cryptocurrency and related issues.

"The government is cognizant of the fact that this is an evolving technology, and hence the government will keep a close watch and take proactive steps. There was also consensus that the steps taken in this field by the government will be progressive and forward looking," sources were quoted as saying by news agency IANS, after the meeting.

The meeting was an outcome of a consultative process involving the RBI, the Finance Ministry, and the Home Ministry.

Further, a parliamentary panel, chaired by BJP leader Jayant Sinha, on 15 November, had met representatives of crypto exchanges and the Blockchain and Crypto Assets Council (BACC). The panel is supposed to have arrived at the conclusion that cryptocurrencies should not be completely prohibited, but regulated, reported news agency PTI.

Prime Minister Modi, delivering the keynote address at the Sydney Dialogue on 18 November, stated that cryptocurrency, if it falls in the wrong hands, can cause damage to the younger generation.

"Take cryptocurrency or Bitcoin, for example. It is important that all democratic nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youths," he was quoted as saying by news agency ANI.

'Speculation on Both Sides': What Do Stakeholders Say?

A number of industry stakeholders have reacted to the listing of the cryptocurrency Bill, sharing their preliminary opinions of the development.

"We are highly optimistic about the introduction of the crypto bill in the upcoming session of the parliament. We expect the bill to accommodate the aspirations of Indian crypto owners, Indian crypto entrepreneurs, and investors who have put their faith in India’s crypto growth story. The crypto bill should be flexible enough for young blockchain projects to flourish and we strongly believe that there is a very strong case for a standard process for new cryptocurrencies before they get listed on any exchange in India for trading."

Shivam Thakral, CEO of BuyUcoin

"I think popular crypto-assets like Bitcoin, Ethereum will be pre-approved by the regulators for getting listed on the exchange. We also request the government to give immediate clarity on the taxation and filing of crypto assets," he added.

The founder of popular cryptocurrency exchange WazirX Nischal Shetty took to Twitter shortly after the government's announcement on Tuesday, and observed that the description of the Bill is the same as the 2019 draft.

"The Crypto regulation bill has been listed for winter session. The description hasn’t changed much. There will be speculation on both sides. The good thing is more people within Government are aware of how crypto works," Shetty said.

"This is not the end but the beginning of crypto regulations in India. Industry has had the opportunity to present. Law makers understand the growing market. Over 15M+ people own crypto in India. There are ways to curb the bad activities and promote innovation. Don’t panic," the stakeholder said in a tweet.

The founder of crypto education platform Bitnning Kashif Raza, told Business Today that the Bill listed by Parliament seems similar to the draft Bill titled Banning of Cryptocurrency and Regulation of Official Digital Currency, which was introduced in 2019.

"The government proposal we have today seems to be similar to the Bill presented by the government last time as well. The only thing that is spooking crypto investors now is the clause about banning private cryptocurrencies. Basically if we go by this, only those backed by the government will be allowed, not the rest," he was quoted as saying.