In a span of two years, India has done a 180-degree turn on virtual currencies. In December 2013, the Reserve Bank of India issued a press release “caution[ing] users of Virtual Currencies against Risks.” The release highlighted the danger of hacking, the absence of “an authorised central agency which regulates such payments,” the “[h]uge volatility in the value of [virtual currencies],” and the use of virtual currencies for “illicit and illegal activities.” The announcement rippled through the Indian economy, leading a number of bitcoin platforms to suspend operations.
But last December, almost exactly two years after its initial warning, India’s central bank appears to have come around, issuing report on financial stability that included a statement highlighting the potential benefits of the blockchain technology underlying bitcoin and other digital currencies. The statement emphasized the blockchain’s “potential to fight counterfeiting” and likely effect on the “functioning of financial markets, collateral identification…and payments systems.”
The Reserve Bank of India’s change of heart should not come as a surprise. In fact, it follows in the well-trod footsteps of other governments around the world, many of which expressed initial skepticism toward a new technology associated with drugs and child pornography, but have come around after developing a more nuanced understanding of Bitcoin and the blockchain. California seemed poised to crack down on bitcoin as an illegal payment method in 2013, but passed legislation formally authorizing virtual currencies one year later. The regulation of virtual currencies in Russia, the United Kingdom, Singapore (and others) has followed a similar path.
We should keep this trend in mind when assessing the long-term viability of virtual currencies and other “disruptive” technologies. Initial skepticism—Senator Tom Carper, chairman of the Homeland Security and Governmental Affairs Committee, noted at the first hearing on virtual currencies that it “confused the heck out of many of us”—often yields in time to a more nuanced understanding of a technology’s potential benefits and costs. It’s been said that we fear that which we don’t understand, but, fortunately, more and more governments are understanding the value of virtual currencies and blockchain technology.