In this issue
- India crypto ban: Winter is coming
- Jack Dorsey: All in on Bitcoin
- China payment systems: Code red
From the Editor’s Desk
If Bitcoin and the crypto revolution were a breakout against governments and their centralized control of money, some governments now seem in the mood to show the decentralized upstarts who’s boss.
In India, one of the world’s most exuberant crypto markets, the bill for the good times came due in more ways than one at the end of last week, with local Bitcoin and Ethereum investors seeing the value of their holdings plunge amid the specter of an outright ban on cryptocurrencies.
The bill that literally came due — the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which “seeks to prohibit all private cryptocurrencies” — was put on lawmakers’ agenda for the legislative session that kicked off this week. Its eventual impact on the country’s crypto sector remains as yet uncertain.
What’s more certain is that the legislation aims to pave the way for the introduction of a central bank digital currency in the country.
In China, meanwhile, the development of a CBDC is light years ahead of New Delhi’s stated aim — let alone the musings of the minders of the U.S.’s monetary system.
And if there were any doubt that the world’s most populous nation might be big enough to accommodate financial networks other than the one planned for Beijing’s digital money, authorities took yet another step this week to remind the peons who calls the shots, introducing new rules to corral digital payments into China’s emerging CBDC ecosystem.
Many have described China’s digital yuan as a means of extending oppressive state surveillance and control over every aspect of Chinese people’s lives. Few have called out India’s plan for a digital rupee in anything like the same terms.
That may change. But one thing is indisputable: the great crypto experiment is not without powerful enemies, and its decentralizing promise will always require a robust defense.
Until the next time,
1. India’s crypto winter
By the numbers: India crypto ban — over 5,000% increase in Google search volume.
An Indian proposal to ban private cryptocurrencies is set to be put before the country’s lawmakers as part of parliament’s winter session. With a new crypto bill in the offing, finance minister Nirmala Sitharaman said that legalizing Bitcoin for payments was not on the government’s agenda, and that the government was not collecting data on Bitcoin transactions.
- The finance ministry revealed that it had received a proposal from the central bank last month that the definition of banknotes be updated to include digital currencies, paving the way for a central bank digital currency (CBDC), chiming with the bill’s aim of building a “facilitative framework for creation of the official digital currency.”
- India’s crypto industry is no stranger to official threats and attempts to ban it, following the issuance of a circular by the Reserve Bank of India in 2018 that sought — largely successfully — to prevent banks from handling crypto-related transactions. The instruction contained in the central bank’s circular was deemed invalid by the country’s top court in April 2020.
- But the proposed bill put on the parliamentary agenda on Monday — the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 — has engulfed India’s burgeoning crypto sector in a cloud of uncertainty. Former finance secretary Subhash Garg told local media that the characterization of the bill as a ban was misleading. Garg drafted the 2019 crypto bill that called for a ban on cryptocurrencies, which forms the backbone of the proposed bill. He said the government needed to improve its understanding of the crypto space in order to draft legislation that would be adequate to address the issues without limiting the potential of the sector.
- According to blockchain research firm Chainalysis, the country’s crypto market grew by 641% in the 12 months to June.
- Chainalysis found that 59% of Indian crypto activities took place on decentralized finance (DeFi) platforms, making transactions much harder to regulate due to a lack of know-your-customer and anti-money laundering requirements.
Forkast.Insights | What does it mean?
India’s stance on crypto has mirrored that of other states grappling with the explosion of interest in the digital asset market.
In the U.S. and the U.K., regulators didn’t pay much attention in crypto’s early days. More recently however, watchdogs have been calling for a more rigorous approach to keep the explosion of crypto in check. India is no different.
Although Indian authorities have gone further than most, with the Reserve Bank of India effectively aiming to crush crypto in an instruction to the country’s lenders in 2018, a Supreme Court setback for the central bank in 2020 suggested the matter might have been settled. However, crypto is now significantly bigger in India than it was in 2020.
Statistics show the scale of the growth is a headache for the central bank. Not only are India’s retail investors pouring into crypto, with an estimated 15 million active in crypto trading (although this figure has been met with skepticism by the country’s central bank chief), but so too are bigger players, with transfers worth more than US$10 million making up 42% of transactions sent from India-based addresses in the 12 months to June.
As in China, the movement of large amounts of money through unregulated channels is making authorities nervous. India is also forging ahead with its own central bank digital currency, for which it wants the same protections as Beijing.
If the planned crypto bill passes, it will likely be sold to the public as a package of measures to help protect new investors. But in reality, India is seeking to demonstrate that it can match its neighbor to the north with tough regulation and protection against capital flight.
2. Behind Jack’s Twitter toodaloo
By the numbers: Jack Dorsey — 5,000% increase in Google search volume.
Twitter co-founder Jack Dorsey appears to have embraced “the great resignation,” quitting his job as the company’s CEO to pursue his Bitcoin dreams at Square, a payments company he founded. Dorsey had declared his desire to focus on Bitcoin at an industry conference in June.
Dorsey wrote in an email to the Twitter team: “There’s a lot of talk about the importance of a company being ‘founder-led.’ Ultimately I believe that’s severely limiting and a single point of failure.” He shared the email publicly as a tweet. Former Chief Technical Officer Parag Agrawal was immediately promoted to Twitter’s top job.
- Dorsey’s move from Twitter leaves him as the boss at Square, which has facilitated Bitcoin trading for the past three years.
- Square released a white paper for Dorsey’s decentralized Bitcoin exchange, tbDEX, last week, according to which tbDEX is seeking to put in place a system for verifying the bona fides of decentralized exchanges’ users through decentralized identities and verifiable credentials. Decentralized exchanges have drawn criticism over spotty know-your-customer and anti-money laundering controls, allowing scammers and bad actors to operate relatively unimpeded.
- Under Dorsey, Twitter ramped up its blockchain and crypto ventures, including forming a dedicated cryptocurrency team and kicking off a decentralized social media project named Bluesky.
Forkast.Insight | What does it mean?
Despite his celebrity CEO status, Jack Dorsey’s record at Twitter was mixed. In the six years he served as chief executive — his second time in the role after being ousted in 2008 — the social network underperformed in the markets, struggled to moderate harmful content, and failed to grow its user base as rival networks ate into its market share.
Like many high-profile tech company founders, such as the likes of Jeff Bezos and Elon Musk, Dorsey has made a habit of getting involved in multiple companies at once.
Also like the Amazon and Tesla chiefs, he has a devout following that hangs on his every word. His move into crypto wasn’t surprising, although his potential impact on the industry is the subject of much speculation.
The biggest players in crypto — such figures as Ethereum co-founder Vitalik Buterin, FTX founder Sam Bankman-Fried and Joseph Lubin, the founder of ConsenSys — are typically somewhat reserved characters with an obsessive focus on the products and companies they helped create. Dorsey, by contrast, has been characterised as impulsive in the many books written about him. Indeed, two years ago, he surprised staff and investors by announcing plans to move to Africa for up to six months a year.
Although that move did not materialize, it highlights the challenges that lie ahead for Dorsey. Crypto, with its trademark volatility, regulatory issues and performance bottlenecks, is a tough nut to crack at the best of times. Is Dorsey, who prefers sewing and yoga to product and code, the man to do it? Time will tell.
3. China’s QR Code of conduct
China’s central bank has issued new rules for mobile payments in an effort to crack down on illicit activities associated with personal collection QR codes, non-commercial codes used for transfers of money between family and friends. The new rules, set to take effect in March, will compel merchants to stop using the codes — the use of which is widespread among small businesses in China — in favor of merchant QR codes. Analysts from Chinese finance sector heavyweights including Everbright Securities, Huaxi Securities and Huaan Securities have suggested that the central bank’s move will give the country’s new state digital currency, e-CNY, an edge over mobile payments made through companies such as Alipay and WeChat. The two mobile payment platforms operate a duopoly in China’s non-bank payment sector, with a combined market share of more than 90%.
- WeChat Pay operator Tencent’s Tenpay was fined 2.8 million yuan (US$440,000) for foreign exchange rules violations this week. That came following an 8.7 million (US$1.4 million) yuan penalty last year for facilitating illegal payments. Alibaba was handed a hefty 18.2 billion yuan (US$2.9 billion) fine after it was charged with monopoly conduct in April.
- “The new rules regarding commercial collection QR codes look like another regulatory measure related mainly to the main mobile payment providers, Alipay and WeChat Pay, and not necessarily as a promotion for the digital RMB deployment,” Amnon Samid, CEO of Israel-based cybersecurity firm BitMint, told Forkast.News, referring to the rollout of China’s digital yuan. But Samid, whose company’s technology was used for the Bank of Shanghai’s digital yuan trials, added that the new measures aligned neatly with the priorities of future e-CNY deployments.
- “At the end of the day, this process will lay the perfect foundation for an acceleration in the promotion and an extensive rollout of sovereign digital currency as a result of improved risk management and more transparency,” a senior finance manager at Industrial and Commercial Bank of China told Forkast.News.
Forkast.Insight | What does it mean?
China’s finance sector authorities have struck again. Although the use of off-the-radar QR codes by small businesses may appear trivial when compared to Beijing’s grander offensive against tech companies engaging in finance-related activities, it’s a singular example of regulators actively making it more difficult for private businesses to compete with the juggernaut that is e-CNY.
China has gone further than any other major country to consign the private cryptocurrency industry to history — putting India’s potential crypto ban, to which we referred earlier in this edition of The Current Forkast, in the shade — although some holdouts remain.
The announcement of QR code rule changes can be seen as putting the finishing touches to what has been a year-long demonstration of the Communist Party’s overweening power and control. Alipay and WeChat Pay, once the darlings of China’s lightning-fast tech industry, are now having to roll back innovation — and pay hefty fines — as part of the push for the pre-eminence of Beijing’s state-run digital currency.
Alibaba Group, which owns Alipay, has seen its share price sink by 50% in the past six months and Tencent, WePay’s parent company, has seen a similar decline. Beijing is betting big on its digital currency, and it doesn’t appear particularly concerned with commercial collateral damage.