On Monday, Nirmala Sitharaman, the finance minister of India, expressed concerns about the “destabilizing effect of cryptocurrencies on the monetary and fiscal stability of the country” and recommended “framing of legislation on the sector.” She also stated, “RBI is of the view that cryptocurrencies should be prohibited.”
We investigate what the recent crypto bans mean for India, its people and whether NFTs are next. After all, India is the second largest country in the world, so anything crypto related that happens in the country, is poised to affect the global industry too.
The legality of cryptocurrency and NFTs
NFTs and cryptocurrency both work on the same blockchain technology. Many of the Indian citizens are finding this blockchain technology a new way to freedom and continuously explore more opportunities in the sector. Indian creators and influencers ride the NFT wave for more than just revenue. Renowned Vishal Malhotra, funded his film through the sale of NFTs. Last year, he sold eight NFTs, which fetched him around 18 lakh rupees ($23K).
NFT space provides opportunities to independent artists in India, as K-NAV, Jay Kila, and NLYTN released the first Indian NFT hip-hop EP in July 2021. According to the research of the NFT Club, India hosts 11 NFT companies, making it the third largest globally. Abhay Agarwal, founder and CEO of Colexion, which is Asia’s Largest blockchain-based NFT marketplace, said, “India has always been a powerhouse of creativity and talent. NFTs provide the appropriate and seamless reach for artists to showcase their work digitally, at a much larger scale. Web3.0 and Metaverse are ushering in a new era for web users, crypto assets, and blockchain.”
India’s crypto market is around ten years old, and the government has been keeping an eye since then. However, the government ignores the crypto space’s bright future in the Indian market and seeks to put a stop to this sector, snatching unfulfilled dreams of many crypto enthusiasts in the country. Back in 2018, the government released a circular regulating cryptocurrency. Last year, they smashed a huge tax of 30% on crypto transactions to discourage investors, and the recent government announcement left the crypto sector in the dark.
Nirmala Sitharaman advised the government, “Formulating any legislation for regulation or banning of crypto will require significant international collaboration.” RBI stated that cryptocurrencies are not a currency because every modern currency needs to be issued by the Central Bank/government. Further, the value of fiat currencies is connected to monetary policy and their status as legal tender. Indian currency will see more dip in its value as people are making transactions in crypto. RBI also stated that blockchain technology is entirely anonymous and can’t be traced; therefore, it increases the risk of getting scammed or money laundering.
Complete crypto ban with loopholes?
Crypto experts say that it is impossible to ban cryptocurrency completely. However, the government may ban or restrict trading in crypto and its use as a means of exchange or payments. The decentralized nature of blockchain is the main loophole. Exchanges can shut down their services, but it is not possible to ban cryptocurrency as decentralized exchanges and blockchain technology do not fall under the ambit of any government or entity.
However, there are many ways to bypass the crypto ban, as seen before in China, Nigeria etc. The primary method is to use a trading platform operating outside of the country. This will help to trade crypto globally despite the local ban.
Another way is proxy websites which act as middlemen between a person’s computer and the internet. The proxy site’s servers are located in the U.S., where cryptocurrency trading is allowed; hence you can access the proxy servers for trading purposes.
Can you bypass the ban with NFTs?
NFTs are mainly used to verify ownership since locating and identifying the original work owner on virtual platforms is difficult, leading to easy work replication and lower value. Therefore, NFTs are an attempt to impose decentralization, ownership tracking and value storage. NFT creators in India have expressed concerns about its long-term viability due to the lack of explicit laws restricting or preventing Indians from dealing in NFTs; hence, the legality of NFTs remains a great concern.
RBI introduced crypto laws in 2018, but it is not clear yet whether trading in NFTs is prohibited under the Securities Contract Regulation Act, 1956 (“SCRA”) because there is no official or legal structure of legislation. If they are considered a derivative later, trading in NFTs would be illegal in India.
However, it is expected that the government will also ban NFTs as it may be categorized as “intangible assets” and governed under the software and intellectual property part of the FEMA regulations. If NFTs are banned in future, one can trade NFTs through international exchanges and decentralized exchange platforms.
The Reserve Bank of India has constantly warned against the macroeconomic effects of cryptocurrencies and pointed out its issues with crypto. Recent decisions from RBI raise questions about the sale and purchase of tokenized artworks, its legality, and other legal issues like NFT holders’ rights, as well as creator and holder liability. In this uncertain future of crypto, the Indian ecosystem has seen some talent move outside the country to pursue their career in the crypto sector. Many local entrepreneurs work for foreign markets and avoid serving customers in India.