What would Gandhi have thought about Bitcoin?


Gandhi and His Spinning Wheel: the Story Behind an Iconic Photo

Bitcoin is anti-establishment. It is feared by most governments and banks. Yet Bitcoin is also a driver of innovation – which drives productivity and wealth creation which is what citizens want their governments to focus on.

That is why the relaxed attitude to Bitcoin in wealthy Switzerland, where the government is respected and the Swiss Franc is trusted, is such a game-changer.

Most other governments have reached phase 3 in Gandhi’s famous quote in their attitude to Bitcoin:

First they ignore you, then they laugh at you, then they fight you, then you win.

Switzerland skipped the “then they fight you” phase – the country sees a win/win scenario.

Paytm says thank you Mr. Modi

Lost in the US election news cycle, was a story from Mahatma Gandhi’s country that was quietly almost as earth shattering as Trump’s surprise victory.

In an effort to control the black economy (read, collect more tax revenue), the Modi government did something that shook faith in Fiat currency. The government simply declared that 500 and 1,000 Rupee notes were no longer legal tender. Why is a bank note worth money? The answer is because we all agree that it is because government backs it with some variant of “I promise to pay the bearer on demand the sum of…” The Modi government move, labelled demonetization, breaks that contract with the people.

Indian people have always loved gold as a reliable store of value. Unlike gold, Bitcoin does not look good with a sari and won’t be any fun at a wedding, but it is a controlled supply store of value that no institution can take from you.

So, the Modi government just gave a huge boost to digital cash – perhaps not what was intended.

Nearly two years ago we reported about India’s first Fintech Unicorn, Paytm.

Paytm is not Bitcoin but it is digital money that has reached mass scale in a huge market.

Unlike some wounded Unicorns, Paytm recently raised a lot more money – $300m at a $5 billion valuation – which is a massive round for India.

According to Hindustan Times, Paytm transactions exceed combined usage of credit, debit cards in India.

Paytm is seizing the day with a new ad targeting demonetization that has ignited controversy (read, free media).

For a while, India was making all the right moves to foster innovation such as:

Digital Identity for the Unbanked

Payment Bank Licenses

Now, India has lurched towards control. They are not alone.

America goes after Coinbase

The IRS in America “has demanded bitcoin trading site Coinbase to provide the identities of all of the firm’s US customers who made transactions over a three-year period, because there is a chance they are avoiding paying taxes on their bitcoin reserves.” As this excellent Motherboard article explains:

“In bitcoin-related investigations, authorities will often follow the digital trail of an illegal transaction or suspicious user back to a specific account at a bitcoin trading company. From here, investigators will likely subpoena the company for records about that particular user, so they can then properly identify the person suspected of a crime.

The Internal Revenue Service, however, has taken a different approach.”

In short, regulated Bitcoin businesses have to help the tax collectors – “if you want a license, this is your job”.

Tunisia = nearly but not quite

In December 2015, headlines declared Tunisia to Replace Its National Digital Currency, eDinar, With Blockchain-Driven Monetas Currency

The romantic in me really wanted this story to be true. The Arab Spring began in Tunisia. When Muhammed Al Bouazizi’s attempts to earn a living in the streets of Sidi Bouzid in central Tunisia were halted by a police officer who seized his goods, his rage and frustration led him to set himself on fire in front of a government building. He remained in hospital for 18 days with severe burns and died on January 4th 2011. Ten days later President Zine El Abidine Ben Ali fled to Saudi Arabia and within another 10 days on #Jan25 the Egyptian revolution began.

It would be epic if Tunisia embraced cryptocurrency and became a hotbed of Fintech innovation and wealth creation in a poor country. This story touches on two themes we cover on Daily Fintech:

– Financial inclusion through mobile money.

– The mainstreaming of the Blockchain revolution.

Sadly, we learned that the December 2015 Press Release jumped the gun. It has not yet happened as described.

Maybe it will happen further south in Africa.

Zimbabwe – and then you win?

At the polar opposite of Switzerland is Zimbabwe – the country synonymous with hyperinflation in the modern era. There the government has almost given up on Fiat currency – the people certainly have. This could be the “and then you win” ending.

If money printing leading to hyperinflation is your monster from the deep lagoon, Bitcoin’s controlled circulation  (“they ain’t making any more of it”) could be your savior.

 BitMari (a Pan-African Bitcoin wallet provider) raised money for the Zimbabwe Women Farmers Accelerator and used Bitcoin to fund the effort.

BitMari has the delicious hash tag – #decoloniseyourlife – which Gandhi would have approved of.

This story seems to come from our AfriCoin science fiction fantasy from the summer of 2015.

If Bitcoin can be used as a local currency, it enables remittances via Bitcoin, a long held dream that has been killed by the off ramp regulatory problem

So we reached out to William Nyamukoho, the Fintech Genome moderator who is based in Zimbabwe, to find out what he is seeing on the ground. This is what he told us:

“Zimbabwe last had its own currency in 2009. It then adopted a multi currency system which was dominated by the USD. In 2016 Zimbabwe finds itself with a cash shortage as demand grew larger than supply, mainly because the Reserve bank of Zimbawe was not allowed to print the USD to ease the cash crisis (no financial easing was possible). Recently Zimbabwe has been moving to a cashless society dominated by plastic money and something called “bond notes“. These bond notes are designed to ease the cash shortage, are legal tender only in  Zimbabwe and trade at parity with USD.

This history has paved way for Bitcoin to be adopted in Zimbabwe, even though people are sceptical about any new developments in financial engineering after the recent history of hyperinflation.

 Bitcoin seems to be a good way to protect wealth from the bond notes, which only work in Zimbabwe.”

Those who are moving in the same direction with the rest of the world, who  believe that autarky is not an option in this modern globalized era, are starting to store their wealth in Bitcoin” 

China and control

When it comes to control, the Chinese Communist Party wrote the manual.

Asian countries learned to love capital controls during the Asian Financial Crisis of 1998. Those without capital controls – such as Korea, Thailand and Indonesia – suffered deeply as hot money fled at the click of a mouse. Those with capital controls – such as China and India – escaped relatively unscathed.

Today the problem is the other way round. The boom and bust cycle in China has a simple explanation. Chinese people can only invest in China. So they ride investable assets up to crazy heights and sell fast and hard when it starts to go down. In a free economy we still have booms and busts – but we have options that smooth the cycles to some degree. If we think one market is overvalued we can move capital to a market that is undervalued. China arresting short sellers does not seem like a good solution.

The Chinese people, faced with this problem, have turned to Bitcoin as one way to get money out of China. The government is vehemently opposed to Bitcoin. China is still very much in the “then they fight you” phase (and governments do win sometimes despite Gandhi’s famous phrase).

Regulatory competition

Winning hearts and minds of entrepreneurs was not on the job description of regulators when they signed onto the job, but now they are getting mixed messages from their political masters:

A. Control the money supply and tax collection process and stop bad actors


B. Open up to innovation as that drives productivity and well paid jobs and that is what our citizens want.

Since this post in January 2015, we have seen many moves on the Fintech innovation front by regulators in UK, Singapore and Switzerland and we expect this trend to continue as governments seek the magic quadrant – enough control while also fostering innovation.

Bitcoin miner next to spinning wheel

Gandhi was into self sufficiency. While deeply spiritual, he was also very practical. So I suspect that a modern Gandhi would have a Bitcoin miner next to his spinning wheel (as long as mining does not become something only giant data centres can do, which is another story).

Image Source

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

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