Indian Finance Commission Member Shaktikanta Das: “It Is Impossible to Effectively Regulate Cryptocurrencies”

As of late, the Indian government has expressed keen interest in developing countrywide blockchain initiatives, but top officials are not too fond of cryptocurrencies themselves. Moving ahead, the country has been weighing its options, but some, like Shaktikanta Das, who heads a financial commission tasked with looking at cryptocurrencies and other financial matters, are asserting that regulation is too difficult to implement and properly enforce.

Looking Back

In early February, finance minister Arun Jaitley stated in his budget speech that the Indian government “does not recognize cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payments system.”

So far, only two committees in the finance ministry have actually tried to understand and recommend regulations for cryptocurrencies. The first committee, set up in April 2017 under Shaktikanta Das, who at the time was secretary of economic affairs, was dead-set against allowing cryptocurrencies in India from the start. The second panel, headed by Subhash Garg, the current secretary of economic affairs, is still weighing its options.

This seeming aversion to cryptocurrencies began several years back in 2013, when India’s central bank, the Reserve Bank of India (RBI), cautioned users against potential security threats. But these warnings, paired with the warnings from the finance ministry, have so far failed to deter many Indian investors.

Shaktikanta Das

Das is currently a member of the 15th finance commission that has been tasked with reviewing the government’s financial situation. He still maintains the belief that enforcing regulations would be a tough task:

“Let us accept that it would not be possible to regulate it effectively. Because they will do transactions from their houses. You cannot enter every home to check what transactions are going on. So, I think this is a serious challenge, and this should not be allowed at all.”

Das’ opinion matters because he has held several key positions in the finance ministry, heading the departments of revenue and economic affairs. He has also been a board member of the Securities and Exchange Board of India and the RBI, both of which are involved in drafting cryptocurrency regulations.

The big issue with cryptocurrencies, according to Das, is that they have no asset base: “[Fiat] currencies have the guarantee of the RBI, on behalf of the sovereign. That is the underlying guarantee for that. Share of a company—you have an underlying asset of the company. In cryptocurrencies, what is the asset base? It is created out of vacuum, it is created out of thin air.”

Looking Elsewhere

Some Asian countries, in particular, China, share India’s apprehensions. Japan, in contrast, passed a law in March 2017 allowing digital currency payments and declaring them assets, and since then have been making attempts at regulation. South Korean officials have also promised not to clamp-down on crypto. 

Because of these attitudes, according to Anirudh Rastogi, managing partner at New Delhi-based law firm TRA, it may not be practical for India to write off cryptocurrencies completely:

“That would work very well if the global financial community was moving that way, but since it is not, and, if you want to be an outlier in that regard, it is going to have an adverse impact on your [India’s] financial system,” Rastogi said. “If two or three of the largest economies are giving it legitimacy, one needs to take a hard look at it before you take a drastic step.”

Moreover, measures to curb cryptocurrencies could instead encourage illegitimate transactions:

“You will just drive these transactions from otherwise compliant exchanges, which keep records, and basically drive them underground, making it very difficult to keep track of transactions,” Rastogi said. “It would be very difficult to enforce a ban, and that is one of the reasons why various jurisdictions have kept away…but have rather regulated cryptocurrencies,” he added.

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Two Indian cryptocurrency exchanges have halted trading amongst fears of a crackdown. Although the Indian government has expressed keen interest in blockchain-based technologies, cryptocurrencies are not regulated in the country. And while it hasn’t yet introduced restrictions on the coins, the threat of doing so has been enough to spook some in the industry.

In an email to its customers, BTCXIndia, which bought and sold Ripple, stated that it would not be accepting new deposits. BTCXIndia, which bought and sold Ethereum, advised its customers to withdraw their funds on or before March 4th. So far, they are the only Indian trading platforms to have closed down. Others, like Zebpay, Unocoin, and Coinsecure, are still doing business.

Kamesh Mupparaju, the founder and CEO of the exchanges, said they ceased operations because of threatening language. “If there is a sudden [order] to withdraw the funds, that would mean trouble for the customers,” Muppajaru told CNN.

“As we heard in the budget speech, the Indian government is discouraging crypto currency trading. This has been clear also by government actions in the last year, and has put our business under a lot of stress and putting us in a position where we don’t feel that we can continue our business in a professional manner any longer.”

Officials in the country have repeatedly warned citizens not to trade in digital currencies. The finance ministry compared them to “Ponzi schemes” in late December, and Finance Minister Arun Jaitley said in February that the government would eliminate their use “in financing illegitimate activities or as part of the payment system.” India’s central bank has also warned that those who invest in cryptocurrencies do so “at their own risk.”

Changing Direction

The exchanges are not dropping off completely. In the email from BTCXIndia, the company informed users that it’s simply shifting gears, moving away from cryptocurrencies and more towards advising corporate clients adopting blockchain-based technologies:

“We are launching full-fledged blockchain labs on March 09, 2018 for Blockchain based application development and consultancy. We hope that this work will help the government seeing the huge benefits that India can derive from blockchain technologies, and eventually promote progressive and clear regulation also for the public blockchain space.”

Mupparaju founded BTCXIndia as a Bitcoin exchange in 2014, but switched to Ripple in March of last year after bitcoin’s epic price surge made it too expensive for most of his customers. He launched ETHEXIndia a year before, in March 2016.

After months of government action aimed towards curbing crypto trading in India BTCIndia and ETHEXIndia exchanges have announced that they will cease trading by March 5, as reported by the Economic Times.

Indian Exchanges Suspend Trading

BTCXIndia informed it’s customers via email that due to continuing government pressure it would not accept deposits post dated from January 1 and that any deposits received would be automatically returned to customers.

Furthermore, they have advised any customers with existing accounts to withdraw all funds before March 4. Since 2013 BTCXIndia had provided real-time trading of cryptocurrency and Indian Rupees. BTCXIndia made its case here abstracted from the original email.

“Until new rules are in place for tokens on public blockchains, we are halting our trading ( XRP/INR pair) platform and will focus 100% on our consultancy working with permissioned (sic) blockchains. All trading activity will be halted as of March 5th 2018. Please withdraw all assets from your account before then.”

The company stated it would launch it’s blockchain lab this month.

In parity with BTCXIndia, ETHEXIndia announced it too would cease trading any and all cryptocurrency and would return any deposits to its customers automatically. These announcements come after months of contentious relations between government regulators, banks, and cryptocurrency exchanges.

Late in 2017 Indian banks froze the accounts of some of the countries largest exchanges as most of the exchanges were running on borrowed money with little private funding to back them. It was also reported at the time that banks feared cryptocurrency exchanges were using their accounts for purposes other than they listed upon opening and froze assets as a cautionary move.

These actions interested the Indian Income Tax Department which went on to audit several of the larger exchanges including BTCXIndia as well as some private investors. At the time (December 2017) the tax department speculated that the cumulative revenue of the ten largest exchanges in India amounted to around $6 billion.

Ripple Partners with Indian Bank

On the flip side, banks in India are still eager for blockchain technology as Induslnd Bank proved by forming a partnership with Ripple in order to make transferring currency in and out of the country easier and more convenient., Ripples blockchain network, now has over a hundred members and can provide instant access to funds all over the world including India, China, and Brazil which are all under-serviced by traditional banks.

“The payments problem is a global problem, but its negative impact disproportionally affects emerging market. Whether it’s an engineer in the U.S. sending money to his family in India, or a small business owner in Brazil trying to move money to their suppliers in another country, it’s imperative that we connect the world’s financial institutions into a payments system that works for their customers, not against them,”

Patrick Griffin, Head of Business Development at Ripple, said.

Government-backed researchers in Canada are planning to unite with India’s technology industry association NASSCOM to research blockchain. Together, the two hope to create an global epicentre for studying the implications and applications of the innovative tech leading to increased “high-end technology capabilities.”

Blockchain: Beyond Cryptocurrency

The teaming up of Canada’s Blockchain Research Institute (BRI) and NASSCOM (National Association of Software and Services Companies) aims to explore the use of blockchain technology in both government and academia. There are several areas in which India perceive blockchain to be disruptive to current industries, both financial and otherwise. These include land registry, healthcare, and banking.

The announcement of the union between BRI and NASSCOM, combined with the recent news that India are forming a “Future Skills” initiative aimed at educating their youth in cutting edge technology, clearly evidence a nation positioning itself as a hub for innovation in the blockchain industry. The educational platform was announced just days ago by Indian Prime Minister Narendra Modi at the World Congress on Information Technology 2018.

Meanwhile, the BRI’s stated goal is to “build blockchain-based economies around the world”. With their assistance, plus an increasingly blockchain-literate young workforce, India could well rise to the top in the field of research and application of the exciting and potentially disruptive technology. Narendra Modi’s government have even earmarked around US$500 million for developing the digital economy. This represents a doubling of public spending on the sector.

According to CNN, Don Tapscott, the founder and executive chairman of the Canadian institute, stated:

“We see our coalition with NASSCOM as a delightful opportunity to nurture the blockchain community in India… We strongly believe that India has the potential to lead the blockchain revolution.”

Whilst the Indian government are evidently receptive to the innovative potential of the blockchain, they seem somewhat more hesitant when it comes to the first real application of the technology – crytocurrency. Finance Minister Arun Jaitley recently stated in his 2018/19 Budget Speech:

“The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payment system.”

This statement has been interpreted in two ways. Firstly, there are those who believe it represents out and out hostility towards digital currency. This wouldn’t be surprising from a nation who have taken extremely misguided measures such as demonetisation policies in the past. However, there are also those who stress the use of the word “illegitimate” in Jaitely’s statement. This could be interpreted as meaning greater efforts to curtail money laundering offences made possible by cryptocurrency whilst not ensuring any form of blanket ban for its legitimate use.



The Prime Minister of India, Narendra Modi, announced today the formation of a platform aiming to provide education on various cutting-edge technologies. The initiative will be known as Future Skills.

Future Skills Platform to Focus on Blockchain Technology

The platform was announced today at the World Congress on Information Technology 2018 (WCIT). The event was attended by ICT associations from over 80 different nations.

NASSCOM (National Association of Software and Services Companies), India’s main information technology group, are behind the platform. They are hoping to provide the 18 to 35-year-olds of the nation with a better grounding in cutting-edge technologies. A total of eight areas were mentioned. These included blockchain technology.

The association have previously held workshop sessions on blockchain technology and readily acknowledge its potential. In a post on their website, they write:

“While we have witnessed how the ‘Internet of Information’ has changed our society over the past two decades, we are now entering a phase where Blockchain may do the same by ushering in a new paradigm comprising ‘Internet of Trust’ and ‘Internet of Value’.”

NASSCOM is also amongst those behind India’s first blockchain special interest group. The goal of this is to explore how blockchain technology can impact various industries, both financial and otherwise.

Also today, Narendra Modi Tweeted part of the address he gave to WCIT:

This was shortly followed by a post from Law & Justice, and Information Technology Minister of India, Ravi Shankar Prasad. Prasad included a brief overview of the Future Skills initiative, as well as a video of Modi’s presentation to the Congress:

Despite the news that India seems to be fully embracing the transformative power of blockchain, the leaders of the country still seem opposed to the concept of decentralised cryptocurrencies.

In a budget speech given earlier this month, Finance Minister Arun Jaitley stated:

“The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payment system.”

Also within the speech delivered February 1, Jaitley added:

“… the government will explore use of block chain technology proactively for ushering in [the] digital economy.”

This was followed up by the announcement of a doubling of government spending on the digital economy. Around US$500 million has been reportedly earmarked for the sector.

Despite the Indian government’s focus on the technology behind cryptocurrencies and their perceived hostility towards the first practical application of it, digital currency exchanges in the country have recently made moves to self-regulate. Seven of the major Indian platforms have come together to form the Blockchain and Cryptocurrency Committee. It’s hoped that such initiatives will discourage the central government declaring any sort of blanket ban on cryptocurrencies.


Image: Wikimedia Commons

Citibank India is the latest lender to tighten the squeeze on cryptocurrencies. In an e-mail Tuesday, February 13th, the bank said it has barred customers from using Citibank debit or credit cards to buy virtual currencies. Citibank isn’t alone. Other international financial institutions like Lloyds, JP Morgan Chase & Co, and Bank of America, have also barred customers from using bank-issued credit cards to buy virtual currencies.

In the U.S., Citibank has forbidden customers from borrowing money on credit cards for such purchases — but Citibank India has gone further with this ban on virtual currency-related transactions even on debit cards. According to inside sources, the rationale behind the move was to shielding card-holders from possible fraud. As of December 2017, there were 2.63 million Citibank debit card and 1.61 million credit card customers, Reserve Bank of India (RBI) data showed.

“Given concerns, both globally and locally, including from the Reserve Bank of India, cautioning members of the public regarding the potential economic, financial, operational, legal, customer protection, and security-related risks associated in dealing with bitcoins, cryptocurrencies, and virtual currencies, Citi India has decided to not permit usage of its credit and debit cards towards purchase or trading of such bitcoins, cryptocurrencies and virtual currencies,” the email sent to customers read.

Recently Indian finance minister Arun Jaitley stated that the government does not consider cryptocurrency legal tender and that it will take all measures to eliminate its use. And with the central bank also issuing cautionary statements, it’s possible other Indian banks will follow Citibank’s lead, according to VG Kannan, CEO of the Indian Banks’ Association, an industry body that represents Indian lenders. “It [the government notice] does seem like a warning. Therefore, no bank would like to deal with this kind of transactions, and they also want to discourage customers from it,” Kannan said.

India’s cryptocurrency industry has been quick to play down Citibank’s move. Seven Indian exchanges have banded together to create a central repository to maintain a real-time database of traders in a bid at self-regulation, and they have responded: 

Most purchases are done through internet exchanges not using credit or debit cards”

said Ajeet Khurana, head of the Blockchain and Cryptocurrency Committee, an industry lobby. But other observers are concerned. “Even if banks were to justify this as necessary to mitigate their risk, I would find such a view to be very conservative and unjustifiable, which leads me to think that this is arm-twisting,” said Anirudh Rastogi, managing partner at law firm TRA, which represents several cryptocurrency businesses.

In response to the minister of finance naming cryptocurrency as illegal tender Indian exchanges have banded together to create a central repository to maintain a real-time database of traders in a bid at self-regulation.

Exchanges propose self-regulation

When Finance Minister Arun Jaintly named cryptocurrency illegal tender in his early February budget speech he set off a rash of panic selling across Indian exchanges. Since then the panic has subsided and exchanges have made moves to self-regulate in order to put off any harsher government intervention.

Cryptocurrency traders are required by exchanges to submit both their PAN and Aadhaar number along with banking details in order to open a trading account. Though the proceeds from all transactions are credited to the same account the data is not shared as each exchange operates exclusively.

Seven cryptocurrency exchanges have come together to form the Blockchain and Cryptocurrency Committee (BACC) of the Internet and Mobile Association of India. This mouthful has tasked itself with collecting and pooling users trading data through PAN cards and making this information available to government agencies.

“This is one of the proposals we are planning to submit to the government committee which is looking into the issue of cryptocurrency,”

said Ajeet Khurana who heads the BACC.

Indian tax authorities have notified an estimated 100,000 investors asking them to reveal profits earned on cryptocurrency trading for 2017.

BACC will promote best practices

Industry experts estimate that in 2017 about 10,000 crore (100 billion rupees) trade in cryptocurrency was done by around five million active Indian traders.

The BACC plans to submit it’s proposal to the government committee headed by economic Affairs secretary SC Garg this week. The government panel will submit it’s recommendations by March and all expect a trading monitor of cryptocurrency to be appointed by March. The BACC is planning a code of conduct that would require all exchanges following Know Your Customer (KYC) and anti-money laundering policies already enacted and followed by individual exchanges.

“These exchanges don’t deal with cash and will adopt the best practices applicable for the banking industry Though the government has specified that cryptocurrencies are not legal tender, we hope to present to the government committee that people can still trade in them like they do in ‘stock or gold’,”
 said Khurana.
Globally Japan was the first country to establish regulatory oversight of cryptocurrency exchanges in May of 2017 while other major trading countries like the US and South Korea are still exploring their own paths to regulation.

The Indian government is looking for a Blockchain based solution to rampant fraud in the higher education system starting with the class of 2019.

India to be bullish on Blockchain

In his 2018-19 budget address, Indian Minister of Finance Arun Jaitly discussed plans to clamp down on cryptocurrency trading while supporting Blockchain technology to solve a rash of governing problems in the world’s second most populous country.

“The Government will explore the use of blockchain technology pro-actively for ushering in digital economy,”

Its first implementation will be in education where fake certificates and degrees are a major problem. Companies looking to hire graduates often spend large amounts to certify the degree they are being handed is authentic. A fake degree that passes even vigorous inspection can be had for as little Rs 2,000 (about $30) and it can take weeks or months to certify a degree with it’s issuing institution.

It can cost as much as Rs 1000 per applicant to authenticate a degree which may not sound like much but large companies in India may be hiring up to 10,000 fresh employees at a time which makes the cost debilitating.

This is not the case with digital certificates registered on Blockchain where verification can be accomplished instantaneously using an app. Another major advantage is that records cannot be tampered with as any changes will have to be approved by all parties processing the block.

This kind of guarantee of authenticity will save companies money during recruitment but also help candidates when seeking employment in other countries since their degrees will no longer be circumspect.

All aboard the Indiachain

India’s plans to use Blockchain technology goes far beyond education to governance projects including land title, healthcare records, benefit distribution, and digital identity.

This network collectively to be called Indiachain is slated to be the nations largest blockchain network and is intended to speed up government contract processes, reduce corruption, improve transparency, and even boost the agricultural economy. Indiachain will be linked to Indiastack, a set of code developed around the country’s unique identity project as well as other government digital databases.

Why the Finance minister believes in the good of Blockchain technology to aid the country in so many ways, but is still determined to put the anchors on it’s massive cryptocurrency markets is a mystery. One that not even he seems to know the answer to as demonstrated in parts of his contradictory speech.

The Indian government isn’t looking too kindly on cryptocurrencies, but the country has certainly caught on to the potential applications for blockchain and associated technology.

Blockchain technology is becoming a favourite in India, Asia’s third-largest economy, for solidifying information, sharing records, and preventing tampering. In his budget speech on February 1st, the country’s Finance Minister Arun Jaitley said the following: “The government will explore the use of blockchain technology proactively for ushering in the digital economy.”

Stripping away the financial application, blockchain is essentially a bookkeeping platform that can be accessed by anybody on the internet but at the same time is owned by nobody. “Once you have a blockchain, the big spreadsheet in the cloud serves as a recordkeeping system that can’t be forged and can’t be reversed,” said Nicolas Cary, the Co-founder and President of Blockchain (the company).

In some cases, such as in the southern Indian state of Andhra Pradesh, the technology is already being applied. The government there is working with Swedish startup ChromaWay to set up a blockchain based land registry system that allows people to collateralize property, receive loans, and invest in that asset. Tracking property ownership using blockchain allows people to avoid disputes, frauds, and errors, while also lessening the administrative hassle of registrations and title transfers. Andhra Pradesh’s neighbour, Telangana, is also digitizing its property documentation system.

Registries around the world are currently laid-out in one of three ways: on paper, in a database, or as digital files in machine-readable form. The latter of these three is where most land registries ultimately hope to end up. According to August Botsford, Chromaway’s chief security analyst: “It’s more efficient, and you can do more with your data, including analytics and automation,” (this according to Quartz).

Beyond land registries, blockchain can also help put a stop to other fraud, such as identity theft. To reduce the chances of getting hacked, a growing concern in India, the platform can manage digital IDs. Currently, if you pay for something online, you turn over unencrypted personal information that gets stored all over the web. With blockchain, only encrypted, relevant information will be released — and only when necessary.

A step ahead of other states in implementing the technology for land registries, Andhra Pradesh also entered into a partnership with Swiss cybersecurity firm WISekey, making it a frontrunner in securing citizen’s data as well.

It seems that governments are falling over themselves to crack down on Bitcoin and cryptocurrencies. Each day politicians from different nations berate the blockchain based digital assets and issue dire warnings over their perceived dangers. Mainstream media picks this up and a FUD party ensues, usually fueling a self-perpetuating selloff.

The Indian government is the latest to adopt this mentality by stating that they do not consider cryptocurrencies as legal. According to local media Finance Minister Arun Jaitley raised concerns during his annual budget speech.

Curbing illegal activities

During the meeting he addressed the issue of the growing popularity of cryptocurrencies within the country and stated:

“The government does not consider cryptocurrencies legal tender or coin, and will take all measures to curb the use of these crypto-assets in financing illegitimate activities or any part of payment systems,” 

In the same breath he went on to say that the government will explore the use of blockchain, especially in creating a distributed ledger system based on the technology.

The Ministry of Finance has previously warned about virtual currencies in December when it stated;

“Virtual Currencies (VCs) don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices. VCs are not backed by Government fiat. These are also not legal tender. Hence, VCs are not currencies,”

Despite the cautions and today’s statement on the need to prevent digital currencies being used for illegal activities no exchange closures or clampdowns have occurred in India.

Panic ensues

The wave of fear has already hit social networks with panicked FUD spreading netizens harking on about a complete ban on crypto trading. This has not happened and is not happening, it is another classic case of the media misquoting and misunderstanding the situation.

Those that are legally trading crypto and declaring their taxes do not come under scrutiny and will be able to continue, for now. The government does not recognize crypto as legal tender so buying a coffee with Bitcoin will not be possible but trading still is. Curbing the use of cryptocurrencies for illegal activities is NOT the same as banning Bitcoin in India.