During a conference in Mumbai on November 6, Ganesh Kumar, executive director of the Reserve Bank of India (RBI), has reportedly declared: “Our current position on bitcoin is that we will not be using it for any payments and settlements…though the technology underlying cryptocurrencies will not end”.
Pretty cryptic, isn’t it? What are the implications? Does it mean India is due to ban bitcoin/crypto/sort of?
The Bull Narrative: Central Banks and Cryptoassets are going through a complicated relationship, but they will sort it out
For starters, Kumar’s declaration doesn’t mean at all that India is about to ban cryptoassets: that’s not what he said. If India were due to ban crypto, the statement would have been an entirely different one, don’t you think?
Still, it sounds strange, to say the least, sort of I-want-to-eat-my-cake-and-have-it-too. How come bitcoin is deplorable while the “underlying technology” is so easily accepted? In case you missed the subtext, Kumar is clearly hinting at the dialectic between bitcoin – the bad guy – and blockchain – the good guy.
The implied assumption is that blockchain is an enabling tool, while bitcoin is a disruptive – if not destroying – tool.
After all, in 2017 everybody loves the blockchain. Even Jamie Dimon. The market of cryptocurrencies is growing at ludicrous speed ($197 billion and counting at the moment I’m writing this article) and nobody wants to bet against someone winning. If the new narrative comes true, and crypto turns out to be the new Internet – the so-called Internet of Value, if you read Don Tapscott’s beautiful posts on Medium – you don’t want to be the guy that was saying crypto is nothing but a fraud.
Therefore, there has been a great effort (who started this counternarrative I do not know) to decouple bitcoin from its protocol at the marketing level. Something which seems off (if not a little “Newspeaky” given that “blockchain” is a made-up term – in original’s Nakamoto white paper there’s no mention of the term “blockchain”). It sounds weird, actually, since all blockchains (excluding Iota, a blockchainless cryptoasset) need incentives at their core to sustain the necessary efforts for consensus. Bitcoin without the blockchain is like a tree without the sun. At the end of the day, it’s like when investment banks make a mess and their non-performing loans got diverted to a bad bank. In the eye of the (financial) beholder, Bitcoin has become Blockchain’s Bad Bank.
TL;DR: everybody pulling the strings (if they ever exist) is stepping his foot into blockchain or, as they call it, “distributed ledger” (a new term that strengthens my theory about the decouple). Hyperledger is a remarkable example.
Started in 2015 by the Linux Foundation as a general-purpose project concerning open source blockchains for business, it involves a plethora of industry powerhouse, including Intel, IBM, Cisco, Fujitsu, J.P. Morgan, Wells Fargo and Accenture, just to name the most notable ones. Another one is the Ethereum Alliance. Launched by the Ethereum Foundation – the father of all ICOs – it includes among its members Fortune 500 companies like Accenture, Intel, J.P. Morgan, Microsoft and Santander (and many more), startups, academics and tech vendors.
According to a study by Juniper Research, 57% of big corporations, i.e. corporations with more than 20,000 employees, is considering adopting blockchain into their project.
And you got to tell me whether we should include ICOs or not – because if we do, that’s not the same ballpark. But, I mean, totally. Consider that as reported by Autonomous, in the first half of 2017 alone, money from ICOs has largely outmatched money from VCs, with 1.2 billion of USD raised by ICOs by August 9, $3.3 billion by the last count. And numbers keep growing. Banks are jumping into blockchain. The Ripple Foundation has more than 100 members, with big names like Bank of England, Bank of America, RBC, Standard Chartered, UBS, Credit Agricole. Some bank is also experimenting with private, permissioned ledgers.
Aside from foundations, in a few cases, blockchains are already used in the real world, even without an underlying cryptoasset. Citi, for instance, has recently launched a blockchain-based payments service with Nasdaq for private equity. Countries like Estonia use blockchain technology for all kind of stuff, from data security to voting. Last June the UN’s World Food Programme (WFP) sent aid to thousands refugees through the Ethereum blockchain – they are pretty real, aren’t they?
As the future of crypto shines bright, Kumar’s declaration vaguely reminds me of what Mario Draghi, President of ECB, said regarding cryptocurrencies.
“It would certainly not be in our power either to prohibit or do something of [that sort] to regulate.”
In other words, if history teaches us anything, India may ban bitcoin, but bitcoin and altcoins will survive just like they have done so far despite FUD, scalability issues and actual problems.
Finally, consider Kumar’s statement bearing in mind the ambiguous situation of blockchain in India. On one side we got Kumar going on record with an anti-bitcoin, pro-blockchain statement, on the other side several Indian banks such as ICICI Bank, Kotak Mahindra Bank and Axis Bank are already using Blockchain for overseas transactions and international remittances. Also, the maybe-ban news comes after the State Bank of India’s announcement dated November 1 about blockchain’s upcoming implementation for Know Your Customer (KYC) protocols.
The Bear Narrative: Central Govt. and Banks are coming to blockchain, and they are coming to take it all
Go yelling around all you like that Kumar’s is FUD and India isn’t going to ban crypto, but you cannot deny the likelihood of a crypto ban has certainly raised after the declaration.
The same year as when everybody is falling in love with crypto (or pretends to, because you know: it’s good PR), many institutions would rather ban it or already have. We have heard concerned statements similar to Kumar’s, from officials in Hong Kong, Singapore, Canada, US along the idea that tokens are de facto securities. Not to mention that China banned crypto entirely in September together with South Korea and Vietnam.
All in all, India’s positioning in respect with the crypto space may be in line with Russia, that firstly pumped Ethereum with great headlines just to dump it later, announcing a countrywide crackdown on crypto and an upcoming national cryptocurrency called CryptoRuble.
Some argues that government will shut down bitcoin if they ever get too big, like Jamie Dimon.
All things considered, the rationale of Kumar’s declaration is not that mysterious.
Cryptoassets have reached mainstream attention together with scandals of drug trafficking, money laundering, and terrorism financing, so of course institutions don’t want to have their names associated with this stuff. But they are smelling the crypto space may be onto something. It could be Bitcoin. It could be Ethereum. Who knows. it could really be anything among the hundreds of altcoins out there. But there’s something unique about this stuff: they enable to do stuff that previously wasn’t possible.
Trustless transactions, smart contracts, censorship-proof dApps, zero-fee payments: you can’t do this stuff with pre-bitcoin technology.
I conclude by saying that there’s more than a few reasons for being cautious about distributed ledgers. I’m a truly crypto believer and I think one day everybody will be using this stuff, but I’m not here to give you financial advices. I’m more interested in the tech and the implication of crypto for society as a whole. In this regard, I’m not alone thinking there are quite a few clues to say that this kind of technology may be not the new Internet, but the new Linux at least – and frankly, I think we all can be ok with that – especially given that Linux is ubiquitous nowadays.