Bitcoin users and investors in India could be in for tough times ahead as a high-level, interdepartmental committee set up by the government of India has urged it to crack down on such virtual currencies.
The contents of the committee’s report, submitted in August, have not been officially announced yet, but highly placed sources reveal that the committee has asked for a crack down.
“The report has recommended that the government should ask the enforcement directorate to track down those people who are dealing in virtual currency and treat them on the premise that they are trying to evade tax,” said a finance ministry official.
The committee has suggested that the government should declare such virtual currencies “illegal”, the person added. The committee comprised members from the Reserve Bank of India, the State Bank of India, NITI Aayog and the Department of Financial Services.
The recommendations are harsher than expected, and could be a major shock to investors in this alternate form of currency.
At present, the government has adopted a neutral stance towards virtual currencies, neither encouraging them nor making them illegal.
The official position of the Reserve Bank of India is that people who deal in bitcoins and other virtual currencies are doing so at their own risk, and that they stand to lose much or all of their investments in such instruments.
Bitcoins and other virtual currencies like Etherium are championed by broadly two types of people — those who resent government interference in the economy, and those who want to evade government scrutiny of their monetary transactions.
The first category includes legitimate investors and speculators, as well as activists and libertarians. The second category comprises those who deal in illegal drugs, arms, terrorists and tax evaders.
However, bitcoin is not ideal for the second group as the public ledger of transactions is transparent to everyone.
Even though the names of the persons involved in the transaction is not recorded, the person’s unique public address is recorded.
In other words, if the law-enforcement agency can figure out that a particular key or identity belongs to a particular individual or organization, it can figure out what that person or organization has been up to.
Some alternative digital currencies have sought to overcome the ‘drawback’, but are yet to achieve the same kind of buzz that Bitcoin has.
Of late, the virtual currencies have attracted a lot of smaller investors, who believe that it could give them returns unheard of in more ordinary investments such as stocks and bonds.
However, making virtual currency transactions illegal — though difficult to implement — puts such investors at legal risk and has the potential to drive down prices of the virtual currency.