Every few months, we hear that bitcoin has been banned by some country or the other. As early as 2013, bitcoin was "banned" by Thailand. In 2017, it was big news when China banned bitcoin and the latest news carries a ban by the Reserve Bank of India.
The problem is this news is grossly misleading because it is simply not possible to ban bitcoin, or any crypto currency for that matter.
Bitcoin’s price last year was hovering around $1,000 mark whereas right now, it is in the $9,000 range. This is in spite of the all the bans. This does not fit into any market logic. But that is the beauty of crypto currencies. They do not fit into traditional regulatory or banking framework. A different outlook is needed to understand how they work and why they were created in the first place.
Decentralisation
This is because bitcoin and most crypto currencies that run on Blockchain technology are decentralised. It means they do not run on one server or URL or IP address. These virtual currencies run on multiple nodes that can be owned and run by anyone and are usually spread across the globe. There is no central point for the governments to attack or block.
This is very similar to Torrent protocol. It is peer-to-peer. At the simplest level, if I hold bitcoin in my wallet and transfer it to your wallet, there is no way any government can block it because this entry of transfer is recorded in a distributed ledger.
What has RBI done?
So, what is this ban? If you read the RBI circular, they have never used the words "ban" pertaining to bitcoins. It has only prevented any organisation regulated by the central bank to deal with businesses that have anything to do with crypto currencies. Practically, this means banks will have to stop deposits and withdrawals to and from Indian rupee on crypto currency exchanges. This news spread widely and was seen as a “ban on bitcoin”
Apart from this, the RBI has issued several warnings about scams and risks related to crypto currencies. It had also said there would be a crackdown on the illegal use of such cryptos.
But traders are still buying and selling crypto currencies under a three-month notice period that was issued to all exchanges. Even after that, the RBI or the government cannot technically ban bitcoin. Also, in the latest event, the Delhi High Court has already challenged this circular calling it “unconstitutional” and the apex bank has to present the basis of this restriction on banks to the court
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