In April, the Reserve bank of India took a hard position on cryptocurrency, ruling that all RBI-regulated banks will no longer provide services to any individual or businesses involved with virtual currency.
"Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control," RBI deputy governor Bibhu Prasad Kanungo stated at a press conference on April 5. "And if they grow beyond a critical size, they can endanger financial stability as well."
This decision triggered a litany of lawsuits and brought the debate about crypto to a head in India. As it turns out, this decision may have been arbitrary. According to RBI's reply to a Right to Information (RTI) request filed by New Delhi attorney Varun Sethi, RBI admitted that no formal research went into its decision to issue the ban, no committee was formed to analyze underlying concepts, and no input was sought from other central banks or virtual currency experts from the international community. The reply was received May 9 but published June 12.
To Sethi, this revelation appears to be a damning admission of bias during a time when India is still weighing how to regulate cryptocurrency or whether it should ban it altogether.
Sethi told Quartz that he plans to file an additional RIT request and is willing to take the matter to the country's Supreme Court. "I can explain to the court that my public interest litigation is a last resort and despite several attempts the RBI failed to provide any satisfactory answers," he said. Despite uncertainty over cryptocurrency's future in India, trading volumes saw a spike last month.
Politicians and banking regulators may be responding to cryptocurrency's reputation, and not necessarily its current reality. Recent coverage of exchange hacks and other criminality in the virtual currency sphere may have influenced the popular opinion of the digital assets.
This is reflected in the recent Netflix/Vox Media collaboration "Explained," which – in one of its episodes – took on cryptocurrency. Among the contentious claims made by "Explained" are:
- Most bitcoin is spent on illegal activities (an Australian researcher found that 44 percent of bitcoin has been used for illicit purposes, while another report shows that it is only one percent);
- The Byzantine Generals' Problem is about being able to transact privately (it is actually about the challenges of forming a consensus in a trustless environment);
- Satoshi Nakamoto invented the blockchain (Nakamoto invented bitcoin and popularized the term "blockchain"; blockchain is actually credited to Stuart Haber and W. Scott Stornetta 17 years before Nakamoto's paper); and
- All cryptocurrencies use blockchain (IOTA does not have a blockchain).
In the presence of bad information and bad actors, it may be important that evangelists and knowledgeable spokesperson are available to "set the record straight."
"Many legislators appear quite easily swayed by the media," Gene Grant, CEO of VRBex, told ETHNews. "The recent Facebook hearings in the United States suggest that many senior members are completely out of touch with the way the Internet works; so we should have zero expectation that they will understand cryptocurrency. What they understand is headlines, and the recent headlines are not good."
"What the industry needs is senior statesmen to appear and to engage in intelligent conversations. We need to have leaders to which the lawmakers can relate. In the long term, the advantages and benefits of cryptocurrency will be recognized. In the short term, however, we are lacking credible sources to carry our message to combat the misperceptions."
The RBI has gone back and forth as it considers issuing its own central bank digital currency (a report on this matter by an inter-departmental group within the central bank is expected to be released later this month).
Correction: This article has been updated to provide Gene Grant's current title.