Why the government is banning Cryptocurrencies?

Government is about to pass a Bill, regulating Cryptocurrencies. But why the government is banning Cryptocurrencies?

The Indian government has almost taken the step to pass a bill to put a blanket ban on Private Cryptocurrencies. This ban has started a huge debate on what will be the aftermath of this ban. However, one question about this ban should also be, why the government is banning Cryptocurrencies? What could be the reason to effectively kill a booming industry so abruptly? In this article, we will talk about the reasons why the Indian Government decided to ban Private Cryptocurrencies.

Major reasons of concern

What gives these Cryptocurrencies value?

Cryptocurrencies are just data that can be used as a medium of exchange. Most Cryptocurrencies are fiat currencies, meaning they don’t have actual backing to convert into another commodity, say Gold. In the case of the Indian Rupee, it is backed with massive gold reserves. The Reserve Bank of India has reported that it has 743.84 metric tonnes of gold. This gold backs the Indian Rupees. These Cryptocurrencies lack a backing of value by an established entity which makes it implausible to effectively regulate in a particular region.

Flow of funds from one Nation to another

It is easy to transfer money from one country to another using cryptocurrencies. Cryptocurrencies can be regarded as ’Hot Money’. This hot money can cause massive instabilities in the market. To regulate this, the government favoured the banning of Cryptocurrencies.

Elimination of Monetary Sovereignty

The government of a nation exercises a power that allows it to have absolute control over its currency. This effectively eliminates this power, because, if Cryptocurrency such as BTC is in widespread usage the government cannot have absolute control over Monetary Sovereignty. This will reduce the Monetary powers of the Government to zero which the government will never allow happen. This also is one of the paramount reasons why the government is so stern about banning Cryptocurrencies. Many people consider Cryptocurrencies to be a necessary element for the market as the government has failed to keep inflation under control.

Money Laundering

Cryptocurrencies have a bad reputation for being involved in crimes. One such tarnish on the seamless face of Cryptocurrency is their association with illegal activities such as Money Laundering. Cryptocurrencies allow transactions almost anonymously which make it close to impossible to trace these transactions. However, it is possible to trace these transactions with sufficient effort. The catch is, India lacks skilled labour and infrastructure for such an elaborate endeavour. So, to eliminate this, the government decided to take steps to ban Cryptocurrencies.

Association of Cryptocurrencies with Terrorism

India is constantly at war against terrorism and extremism. These nefarious activities have been happening since India gained independence in 1947. To fight terror on the battlefield, armaments and weapons are necessary. But, it’s the blood money that finances these arms for terror. Cryptocurrencies make a perfect choice to use as a medium of exchange. People funding terror dispatch money in digital tokens across countries which are almost traceless. This has raised an alarm and the government has decided to eliminate this threat. While counter-terrorism is actively working on Eliminating terror activities, constantly improving technology and lack of good infrastructure has slowed them a bit. This issue has driven the government’s decision.

Tax Evasion

Many people use cryptocurrencies as an easy way to hide income. Indeed, this can be an effective way to avoid paying taxes. Government is concerned about not getting enough tax if this happens. Additionally, as crypto transactions are pseudo-anonymous, it’s almost impossible to trace back the transactions. This conceals the income of the user and could potentially cause a loss in revenue collection.


The government has decided to take a calculated decision based on the advice of many experts in this domain. It is speculated that this bill might not get cleared by the Honourable Supreme Court of India. There are also some speculations that the government has made plans to launch a CBDC or Central Bank Digital Currency shortly. However, as of now, there are no confirmations yet.

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