The recent news-bites from a variety of outlets citing unnamed government sources introducing a bill in the Indian Parliament about banning cryptocurrencies in their entirety seemed to make news waves. So much so that it was assumed that Bitcoin price dropped a whole 10 percentage points because of this… however, one has to note that crypto-exchanges in India account for less than 1% of the global trade. Indian customers own only about 1.4 billion – 2 billion in domicile, which is a small fraction of the 1.2 trillion dollar market capitalization of all cryptocurrencies globally. Trading volumes are still in the millions of dollars for the entire country, whereas the top global exchanges single-handedly have several billion-dollar trades in a single day. Not to mention that custody businesses and such have not yet started in India overall.
While established stockbrokers and old economy veterans would vouch for a ban, citing lack of “value”, lack of “production functions” or “hugely speculative market behaviors among traders”, these criticisms have been tried and tested. So much so that there is an entire website dedicated to obituaries here: https://99bitcoins.com/bitcoin-obituaries.
By banning cryptocurrencies – Firstly, governments will move the entire sector into the black market. For example in Venezuela where a dictatorship deemed that cryptocurrencies were to be banned, people stored Bitcoin on mobile phones, traded for it in US dollars and escaped the country. Similarly, in Nigeria where mail scammers were banned from converting crypto into fiat by banning exchanges, peer-to-peer money transfer increased manyfold.
Secondly, banning will forfeit innovation in many sectors, such as decentralized finance, which provides individuals an opportunity to borrow against collateralized assets. Governments will miss out on capital gains, tax revenues, and other kinds of income taxes gained from people who are employed in this sector. This change in lending and consumer loan behaviors will prevent large-scale loan scams that have caused bank after bank from collapsing in India.
Thirdly, web3.0 which is about the decentralization of the internet where no single monopolized entity can control the gateways to the internet will completely exclude India. For example, today almost all data are controlled and owned by foreign and multinational companies possibly in foreign data centers. In the great west vs. east internet, wherein China runs its own internet behind the firewall, and collects and analyzes large troves of information about foreign citizens, whereas the US runs a similar operation to to control user data. web 3.0 apps can allow individuals to control their own data. With Web3.0 and decentralized search engines, blogging platforms, multimedia websites and apps, gaming platforms, and such these data will be encrypted and stored on decentralized nodes. Web-3.0 which connects to wallets requires that users pay small amounts of gas fees or transaction fees from their crypto-wallets using public cryptocurrencies. This prevents large issues such as spam and other malfeasance remnants from the past.
Fourthly, Financial inclusion by not involving private or public banks will remain a distant dream. With 200 Million people, un-banked, cryptocurrencies will provide a mechanism to enable the remotest person to access money without needing a bank account. Similarly signing up using complex procedures that governments require for accessing bank accounts will be entirely avoided. In addition, when banks and financial institutions collapse, people lose their money. Cryptocurrencies and their derivative software allow individuals to not only access their money but also have the ability to transact with it.
Fifthly, Last but not least is the concern about money laundering and cybercrime.Often mainstream media (possibly paid media) cites money laundering as the most common use case for cryptocurrencies. While a large amount of recent criminal activity such as cyber-attacks which blackmail users to pay in crypto-etc. have been detected. Such instances is still a small fraction of the money laundering that takes place through other means. . Many innovations in crypto-analytics such as chainalysis, etc. monitor public blockchains and provide law enforcement a quicker and faster route to capture money laundering instances to prosecute. In fact, the DEA and other authorities have seized millions of dollars worth of cryptocurrencies in the past few years using a combination of these techniques.
Sixth, Considering the percentage of money laundering happening with fiat currencies vs. cryptocurrencies, cryptocurrency-based money laundering is just a trickle. In addition, crypto-money laundering is tractable at entry points such as gateways which convert crypto tokens into fiat currencies. Specifically, when regulated exchanges exist, all of this information is accessible and disclosed by exchanges to tax authorities on a daily if not weekly basis. having access to this information combined with the public nature of the blockchain provides authorities operating in the income tax sector a once-in-a-lifetime mechanism to detect and prevent such instances. In addition to that, if the money laundering or crypto-malfeasance exceeds the tolerance levels of society, a technical change made on the blockchain can rollback such a change or exclude bad-actors entirely.
Seventh, With innovations happening in the design of next-generation cryptocurrency protocols where the crowd of developers, i.e., the protocol enforcers themselves penalize illegal behavior. As a result, incentives to cheat or extract illegal rents in this ecosystem drastically reduces. Comparing this with money laundering in terms of hiding physical assets such as land-records ( or cash or gold ) that individuals carry on their person, or hide under other pseudonyms or in the names of other people, cryptocurrency-based money laundering is a small fraction of the actual money laundering that happens.
Money laundering is a real problem but is more easily detectable with cryptocurrencies.