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While some countries like El Salvador saw this as an opportunity to improve their financial system and fully embraced the revolution, others like China declared a blanket ban on cryptocurrencies. In an interesting turn of events, India, the country with millions of crypto holders, has recently imposed a 30% tax on crypto earnings, and revealed plans to introduce their own digital currency. The country still awaits the official digital currency bill that is set to clarify its stance on cryptocurrencies.
While the taxation is a step in the right direction for the future of crypto of India, the impending bill might oppose private cryptocurrencies in the country, and that’s a bigger problem than many want to admit.
What exactly is the bill?
The Cryptocurrency and Regulation of Official Digital Currency Bill, in its current form, seeks to ban all “private cryptocurrencies” as a payment method in India, barring a few for the development of underlying technology. The initial plan was to introduce this bill in India’s winter parliament session, 2022. However, considering the impact this bill could have on investors and financial markets on the whole, the Indian government took a step back to reassess its take on cryptocurrencies. The problem, however, is with the use of the term “private cryptocurrencies”.
When the news of this impending bill broke out on November 23rd last year, people were quick to speculate on what the term “private coins” meant, and a lot of them came to the conclusion that these were privacy coins. QuickSwap founder Sameep Singhania also found this bill to be different from the one in 2019 and said “our finance minister, on multiple occasions, has said that the government will support the blockchain and crypto innovation happening all around in the country. This time, they have specifically put a ‘private crypto’ ban in the bill.”
Now, there still is a visible confusion about what the government exactly means by “private crypto”. But, if the speculations are right, banning privacy coins like Monero, Zcash, and Dash might not be the right move for the future of the crypto industry.
What are privacy coins in cryptocurrency?
One of the signature features of cryptocurrencies is transparency. The underlying blockchain networks of cryptocurrencies are public ledgers and anyone can get a full account of all the transactions occurring on the network. For instance, if X sends 10 ETH to Y, this transaction is permanently recorded on the blockchain using their wallet addresses. This makes the network pseudonymous and anyone who knows X’s wallet address can see a full record of every transaction they ever make on the Ethereum network.
It doesn’t take a genius to understand the flaw in the plan here. The lack of user privacy on blockchain networks started to become fully evident as the number of users started to grow. This is precisely why privacy coins were created. Using technologies like zero-knowledge proofs and zk-SNARKS, these coins created a way to protect user privacy while they transact on blockchain networks. Naturally, this raised concerns about this technology being used for criminal activities like money laundering and this could be the reason why the Indian government might deem it fit to ban these coins. However, when you look beyond the surface, these coins could be quite important for the growth of the crypto industry.
The advantages of privacy in cryptocurrency outweigh the risks
Users these days are more concerned about privacy than anything else, and when it comes to crucial information like financial transactions, this concern multiplies. This is why privacy cryptocurrencies are very crucial for protecting and safeguarding the interest of users in the decentralized world. They ensure that sensitive user data is not available for just anyone to access and create a safe space for transactions. Some privacy coins like Zcash and Dash provide users with the option of whether or not they want to shield their transactions, giving them ultimate control over their data. This kind of trust could draw more users towards the crypto revolution.
Moreover, as cryptocurrencies continue to go mainstream and their adoption increases, these coins can be used to protect the privacy of organizations and businesses. They allow businesses to sign deals using smart contracts over the blockchain, while all the financial transactions between them are well protected. The use-cases are virtually endless.
Moreover, multiple reports have shown that less than 1% of crypto transactions account for criminal activity and cash still remains to be the tool of convenience for criminals. Given all these positives of privacy coins, declaring a full ban on them might cause a threat to user privacy and ultimately the underlying technology.
Hoping for the best
Just like any other innovation ever created in the history of mankind, privacy coins could have a few drawbacks. But ultimately, their advantages outweigh the risks. While the Indian government’s ultimate decision is still awaited, we are hopeful that the government will keep in mind the interests and privacy concerns of all users.
Sameep Singhania is a cofounder and lead developer at QuickSwap.