Decoding private cryptocurrencies and why the Government wants to ban them

The Government wants to ban private cryptocurrencies from the financial markets. Find out why.

Cryptocurrencies are becoming popular as more and more platforms are offering options to invest in them. However, being unregulated, cryptocurrencies come with their own set of risks. That is why the Government is all set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. With this bill, all private cryptocurrencies will be banned.

Do you know about private cryptocurrencies and why the intended ban?

Let’s understand.

Also Read: Bitcoin, Ethereum, Dogecoin: Everything You Need To Know For Successful Trading In Cryptocurrency

What are private cryptocurrencies?

There has been no official definition from the Government about private cryptocurrencies. However, experts believe that private cryptocurrencies are those that block the records of transactions done by users to allow them privacy. Compared to Bitcoin, Dogecoin and other currencies that are traded on transparent blockchains, private cryptocurrencies are traded on private blockchains that hide transaction data. As such, transactions become untraceable.

Why the Indian Government wants to ban private cryptocurrencies?

The Government wishes to ban private cryptocurrencies for the sole reason that they are untraceable. In the case of such cryptocurrencies, the blockchain is clouded, and the transactions cannot be interlinked or traced back to the user. The entire transaction is, thus, obscured, which might lead to unscrupulous dealings and trades. This might also affect the macroeconomic and financial stability of the country. Hence the ban!

Also Read: Should You Buy/Sell Cryptocurrency Now Or After The Bill Is Introduced?

Would all cryptocurrencies be banned by India?

No, the parliamentary bill seeks to bank only private cryptocurrencies that hide transaction details. Popular cryptocurrencies like Bitcoin may not be banned.

Public cryptocurrencies like Bitcoin assign pseudonyms to users so that they can hide their identities. However, the transactions are public and can be seen by those who have access to the blockchain. This prevents the possibility of unscrupulous transactions and illegal trades. Since these public cryptocurrencies are transparent, they might be allowed to operate.

What the Government’s cryptocurrency bill would propose?

Besides putting a ban on private cryptocurrencies, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is expected to create a framework for creating and introducing an official digital currency of India that would be regulated by the RBI. Moreover, the bill would promote the technology underlying crypto and its uses in India.

Related: Expert Opinion On Cryptocurrency: Will It Be Banned Completely Or Emerge As A New Asset Class?

If you are also planning to diversify your portfolio with cryptocurrency, wait for the Government’s bill to be passed in Parliament. If you invest in private cryptocurrencies and they are banned, you might suffer the repercussions of the ban. So, wait and watch for the Government’s policy on cryptocurrencies. For the safer bet, invest in public cryptocurrencies like Bitcoin, which are expected to be allowed after the bill is passed.