The country is also planning to allow for “certain exceptions to promote blockchain technology and its uses.

Banning cryptocurrencies

The proposed rule dubbed the “Cryptocurrency and Regulation of Official Digital Currency Bill” favors the creation and issuance of a national digital currency by the Reserve Bank of India.

Other countries such as Venezuela, Sweden, China, Japan, the U.S., Canada, Uruguay, and Estonia have looked at the possibilities of creating national digital currencies.

The bill has a higher chance of passing as Prime Minister Narendra Mod’s right-wing Bhartiya Janata Party controls the country’s two houses of Parliament.

India’s industry experts were left nervous following the announcement of the bill. Other experts are questioning India’s interpretation of ‘private cryptocurrency.’

“There’s no such thing as a ‘private cryptocurrency.’ Cryptos, by their very nature, are decentralized and public,” tweeted Nischal Shetty, the founder of Wazir X, one of the largest cryptocurrency exchanges in India.

Another official who spoke to Economic Times India on condition of anonymity said “this is (the) time to be nervous.”

The official further said that they are pinning their hopes on the bill not being passed in its current form.

“There is a lot of positivity around crypto and I hope this (bill) will not get passed as it is now.”

India’s turbulent history with crypto regulation

India’s crypto community has had a tough time with regulators over the past few years. 

The country has previously taken strong action against the industry only to have the strict rules overturned.

A panel of lawmakers recommended banning all ‘private cryptocurrencies’ in 2018 and proposed that offenders should spend up to 10 years in prison.

In that same year, Arun Jaitley, who was the Minister of Finance at the time, said the government does not recognize cryptocurrency as a legal tender” and added that the government would do what it can to prevent the use of crypto in illicit financial activities or being part of the financial system.

The country banned all cryptocurrency-related transactions in 2018 but the Supreme lifted the ban in March last year.

A growing industry

The lifting of the ban in 2020 spurred growth, catalyzed by soaring Bitcoin prices, of the cryptocurrency industry in India.

Cryptocurrency exchanges such as Wazir X, Unocoin, and ZebPay recorded a sharp increase in trading volumes and new user signings. 

This proposed bill will likely slow down the industry's growth.