India should launch a digital rupee – and back it with digital gold. More broadly, India should champion decentralized cryptocurrencies like Bitcoin and Ethereum to safeguard national security, prevent deplatforming, attract international capital, strengthen monetary policy, deter financial fraud, accelerate technological development, and hasten India’s ascendance as a global power.
We make this case below. But if you haven’t been following cryptocurrency closely, or India’s proposed ban, don’t worry. Our first step is to review the basics for folks new to the space before explaining why Prime Minister Modi should buy Bitcoin rather than ban Bitcoin, and how India can use crypto to regain its rightful place on the world stage.
1. Crypto is now a Trillion Dollar Industry
Bitcoin was invented in 2009 by a pseudonymous engineer named Satoshi Nakamoto. His creation solved an unsolved problem in computer science and created a trillion dollar industry.
Yes, you read that right: trillion. In June 2010 the value of all cryptocurrency worldwide was $0. As of today, it’s $1.1 trillion. Bitcoin alone is worth more than $600 billion. That’s more valuable than any of the tech unicorns founded in the last decade, more valuable than Uber, Airbnb, Stripe, and Slack combined.
So in retrospect, Bitcoin was the most economically important technological innovation of the 2010s, like the internet was to the 90s. And like all great innovations, it’s led to the creation of remarkably valuable companies (like Coinbase, Binance, and Kraken) and technologies (like Ethereum and Zcash). But people still don’t get how large the space is. Let’s give some more numbers.
- Ethereum, the number two cryptocurrency, is worth >$100B. It extends the concepts introduced in Bitcoin to permit so-called smart contracts, which allow engineers to write programs that can send and receive money.
- Ethereum has given birth to an entire sector called decentralized finance (“defi”) which is to traditional finance (“tradfi”) what the internet was to paper-based media. Almost $30B in assets are now held in defi for the purpose of earning interest, taking out loans, or trading assets.
- The Ethereum and Bitcoin networks were used to send >$1T in volume in 2020, more than PayPal.
- So-called “stablecoins” built on Ethereum have allowed the transfer of stable US dollar equivalents to anyone in the world; they too transact billions of dollars in volume every 24 hours.
- The website coinmarketcap.com has a higher Alexa ranking (#324 at last check) than the website wsj.com (last ranked as #440). In other words, a crypto website that lists the price of cryptocurrencies is more popular than the Wall Street Journal’s official website! And that flip first occurred in 2017.
- The research paper describing Bitcoin has been cited at least 13,000 times by professors at places like Stanford, Harvard, and MIT, and cryptocurrencies have stimulated innovations in applied cryptography and distributed computing.
- More than five billion dollars in venture capital has been invested in cryptocurrency and blockchain startups by the world’s top tech investors, including Marc Andreessen’s Andreessen Horowitz, Peter Thiel’s Founders Fund, and Fred Wilson’s Union Square Ventures.
Thousands, millions, billions, trillions – the numbers start to stun after a while. So here’s some qualitative commentary from prominent people and institutions to supplement the quantitative barrage.
- Elon Musk: The world’s richest man has said that Bitcoin is “inevitable” and changed his Twitter bio to simply “#Bitcoin”.
- The IMF: Cryptocurrency could “completely change the way we sell, buy, save, invest, and pay our bills” and “could be the next step in the evolution of money.”
- The World Bank: “Cryptocurrencies and blockchain protocols are
part of a tidal wave of new technologies that is changing the way production and commerce are organized.”
- Larry Summers, Former US Treasury Secretary: “Bitcoin is here to stay” and the “financial industry will adopt the technology underpinning bitcoin.”
At this point you should realize that this crypto thing is kind of a big deal. And that there’s an enormous gap between the economic impact of crypto versus its portrayal in the popular press, and that it might seem a little hasty to cut India off from an emerging trillion dollar industry.
But it’s actually even more important than that. Because crypto isn’t just an economic sector, it’s a civilizational advance on par with the internet, and – if embraced rather than banned – can actually solve many of the issues facing modern India. Starting with national security.
2. National Security: Crypto means India can’t be deplatformed
As noted above, a recent bill introduced in the Indian parliament proposes a ban of cryptocurrencies like Bitcoin in favor of a digital rupee. One of the likely justifications is to protect India’s national security. But as we’ll see, Bitcoin and allied decentralized technologies are actually essential to India’s national security.
Bitcoin prevents financial deplatforming
First, some definitions. A digital rupee would be a centralized currency controlled by the Reserve Bank of India (RBI), while Bitcoin and Ethereum are decentralized international cryptocurrencies that no single actor has control over. The administrators of the digital rupee at RBI would be able to issue wallets, freeze accounts, and reverse transactions. But Bitcoin is more akin to digital gold, and cannot be frozen or seized by any state.
It is this property that makes Bitcoin so precious for safeguarding Indian national security. A network that cannot be shut down by any state is a network that India and its diaspora can rely upon in times of conflict. For the same reason that Germany recently repatriated 3,378 tons of gold from the United States, India should prioritize national support for digital gold as a financial rail of last resort in a situation like the 2008 financial crisis or the 2020 COVID crash.
Ethereum prevents social deplatforming
Similarly, for the same reason that Mexico, Germany, and France expressed concern over the deplatforming of a sitting US president and his followers by a collection of American tech companies, India should prioritize national support for decentralized platforms like Ethereum to create social networks and messaging apps that US corporations can’t shut down. Part of the solution will also be national replacements for Twitter, but non-Indians won’t be on Indian Twitter, and India will still need to get messages out to the world on neutral international platforms. That’s what crypto permits.
Note that the risk of political deplatforming is not theoretical. Once you’ve banned the “most powerful man in the world”, it’s no big deal to ban anyone else. Every day brings another headline to this effect. Recall too (a) that the US already once banned then-Chief Minister Modi’s physical entry for many years and (b) that millions of Indians are currently dependent on American apps like Twitter, WhatsApp, Facebook, Gmail, PayPal, and Google Pay. Given sufficient negative press, American technology companies may ban the Indian Prime Minister or Indian citizens not just from entering the US, but from much of the internet itself. And not just from communicating over the internet, but from sending and receiving payments over US-controlled platforms like SWIFT, PayPal, or Google Pay.
What could catalyze such an event? Well, America is excitable these days. A fake photo of a Brazilian rainforest fire was published in the New York Times and prompted a writer in the Atlantic to call for the invasion of Brazil. Cooler heads prevailed once the photo was revealed to be fake, but next time it’s India that may be the target of official misinformation. And digital hostilities may commence with little warning.
In short, the threat of Chinese espionage against India is obvious and has already been acted upon with the TikTok ban, but the threat that arbitrary deplatforming by US corporations poses to India’s national sovereignty is in some respects even greater. Crypto fixes this, as decentralization defeats deplatforming.
3. Foreign Investment: Crypto brings capital to India
A second concern often voiced as a rationale for the proposed crypto ban is that cryptocurrency will cause capital flight. But the opposite is true.
After all, what do Elon Musk, Marc Andreessen, Jack Dorsey, Peter Thiel, Reid Hoffman, Naval Ravikant, Chamath Palihapitiya, and countless CEOs, founders, angels, and venture capitalists have in common? They all support Bitcoin. So do Russian and Chinese ancestry entrepreneurs like Pavel Durov and Changpeng Zhao. The value of Bitcoin is something leaders in the global tech community agree on, like the internet or open source.
Estimates vary, but if and when Bitcoin hits $200,000 per BTC, my colleague Olaf Carson-Wee at Polychain Capital calculates that roughly half of the world’s billionaires will come from cryptocurrency.
As such, if India bans cryptocurrency, it doesn’t just criminalize the holdings of countless innocent Indians. It repels a trillion dollars in crypto capital from coming to India in the first place. The proposed crypto ban would itself cause capital flight.
And capitalist flight. Lest we forget, Indian entrepreneurs are highly mobile. Major crypto exchanges like Coinbase, Binance, and Kraken are already worth many billions of dollars; so are cryptocurrency mining companies and new digital currencies like Ethereum. All the Indian analogs to those services would happen overseas, as Indian founders are once again forced to move abroad.