India's government began examining how to regulate digital currencies after two major cyberattacks in May and June convinced officials that bitcoin posed a security threat. In May, WannaCry hit system
India's government began examining how to regulate digital currencies after two major cyberattacks in May and June convinced officials that bitcoin posed a security threat. In May, WannaCry hit systems across Indian companies alongside targets worldwide, with hackers demanding ransom in bitcoin. Indian firms refused to pay. NotPetya followed two months later, crippling the Jawaharlal Nehru Port Trust, the nation's largest container port, as well as oil companies, banks and multinationals in Russia, Europe, America and Asia. The virus encrypted hard drives, and its creators demanded ransom in bitcoin. According to India's Computer Emergency Response Team, 34 Indian companies fell victim to the two attacks.
The incidents prompted Finance Minister Arun Jaitley to convene meetings about the risks associated with digital currency. His government had already moved in March, when the Finance Ministry formed an interdisciplinary committee to study cryptocurrencies after identifying them as a concern. The committee submitted its report in August. A government official involved in the discussions said bitcoin would not face an outright ban, though officials disagreed on which regulator should oversee it.
"Discussions till now suggest that bitcoin will most likely fall under the ambit of the RBI," the official said. "But some are of the opinion that bitcoin is a security rather than a currency and should be regulated by SEBI."
Japan recognized bitcoin as a currency in April, but India showed no signs of moving in the same direction. The regulatory uncertainty means rule-making could take considerable time, according to the official. Meanwhile, ransom demands denominated in cryptocurrency surged 300 percent across India from 2016 to 2017. With bitcoin trading above $4,000, extortionists found the asset attractive. CERT-In received over 27,000 cybercrime complaints in the first six months of 2017, putting India on pace to surpass the 50,000 cases recorded in 2016.
Bitcoin adoption in India continued despite the security risks. Jaitley acknowledged in August that there had been 'notable growth' in India's bitcoin market in recent years. The 2016 demonetization, which stripped 86 percent of the nation's currency from circulation overnight, had driven the trend. Citizens sought alternatives after the shock.
Aswath Damodaran, a finance professor at New York University known for valuation expertise, contended that younger Indians had swapped gold for cryptocurrency. "All currency is based on trust," Damodaran said. "Cryptocurrencies have taken the role of gold at least for younger investors because they don't trust paper currencies."
The trend aligned with government targets. Jaitley's February budget set a goal of 2,500 crore digital transactions, or 25 billion, for the fiscal year 2017-18, a jump from four billion in 2015-16. As ransomware attacks mount, India needs to clarify cryptocurrency's regulatory status to protect its citizens.
