Since I have started writing this column on technology a couple of years back, two things have been eminently predictable. One is Elon Musk, the richest man in the world now, doing unpredictable things: boring tunnels, implanting chips in pigs’ brains, smoking unmentionables, and christening his son with unpronounceable names. The second is the unpredictability of bitcoin and cryptocurrency – volatile, erratic, yo-yoing between $3000 and $48000 in this short time, and being simultaneously hailed as the next big thing or dismissed as a ‘digital tulip’, as speculative as the tulip mania centuries back. So, it was interesting when the two came together in a rather risqué cartoon tweeted by Musk, showing a pious priest getting distracted by an unusually clad lady with the word ‘bitcoin’ written over a certain part of her anatomy. Something had to happen, and it did.
A few days later, Tesla announced that it had bought $1.5bn of bitcoin from its cash reserves and will soon accept cryptocurrency as legitimate payment for its cars. Mastercard followed that up by announcing that it will incorporate ‘select cryptocurrencies’ on its global payment network. BNY Mellon, incidentally the US’ oldest bank, announced holding and transferring digital currencies for asset management clients. JP Morgan and Goldman Sachs announced executive positions within their storied banks, who will look at cryptocurrencies. Even the iconoclastic mayor of Miami tweeted that he would get his city to buy bitcoin, and pay salaries and taxes with it
All of this served as rocket fuel for bitcoin, and its younger sibling, Ethereum. The former rose 358 percent over 12 months to its highest ever, and Ethereum (ETH) went up from $1 in 2015 to cross $1700 this week. Roger MacInnes, Investment Director observed that rather than an odd bunch of “bros” and “computer geeks”, bitcoin is now populated by alumni of prominent investment banks, hedge funds and consultancies, with many crypto companies professionalised and formally regulated. “It’s grown up,” MacInnes said.
The other very predictable occurrence in the world of cryptocurrency was yet another avowal by the Government of India to ban it. It proposes to introduce a new legislation, Cryptocurrency and Regulation of Official Digital Currency Bill 2021, to do that, and also set up a legal structure for an “official digital currency”. While the latter is a laudable step, the former seems to be a response Luddites would love. The Government tried to ban cryptocurrency once before in 2018, before it was reversed by the Supreme Court. The Bill promises to ‘allow for certain exceptions to promote the underlying technology of cryptocurrency (Blockchain, we presume) and its uses’. But this is precisely why it leads to the belief that the Government has not understood the technology. The way the technology is built, an owner-less, consensus-driven, distributed ledger like the blockchain needs cryptocurrency to grease the wheels. To say that you are interested in blockchain, not bitcoin is like saying that you are interested in the economy, not money.
This step has many more ramifications. One is how it will kill innovation. Blockchain, along with AI, AR/VR and IoT, is projected to be a technology that will shape the future. This move will certainly drive the blockchain startup ecosystem to friendlier regimes like US, Switzerland, Singapore, and Estonia. India has more than 30,000 brilliant blockchain innovators and practitioners, according to Akshay Aggarwal, the founder of Blockchained India, and they will now be looking at moving out. International tech companies will certainly see this as a retrograde step, and it will freeze blockchain and crypto-exchange investments coming in, besides undermining India’s reputation as a technology hub. India is the second largest BTC trading nation in Asia, and all those trades will move to exchanges globally, rather than local, Indian exchanges. The thing with digital technology is that you actually cannot shut it down, it just moves elsewhere – to shut down cryptocurrency, you will have to shut down the Internet. Sumit Gupta, CEO, CoinDCX makes another very interesting and important point around the geopolitical effect of this shortsighted step. Banning BTC will further strengthen China’s position in the money market, it has a large trading and mining presence in cryptocurrency, and India will leave the space open for it. Also, Bitcoin is called ‘digital gold’ for a reason – it is limited, fungible, and a potential store of value. If this were to emerge as a global currency reserve, as gold did last century, this step would seem suicidal in retrospect.
There are many problems with cryptocurrency – it is volatile, it sucks energy, it is often abused by criminals. But banning any new technology is not the answer. Video players thrived on piracy and porn, the Internet was grossly misused in its early days. The answer is not to ban it, but regulate it as farsighted governments in US, Japan, South Korea etc. have done. Meanwhile, just as the Bill was being drafted, Jack Dorsey, the co-founder of Twitter tweeted this out: JAY-Z/@S_C_ and I are giving 500 BTC to a new endowment named to fund #Bitcoin development, initially focused on teams in Africa & India….