Ban

Light-touch Regulation for Social Media

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There’s suddenly a lot of talk about how governments need to regulate social media. From a public policy perspective, the immediate cause underlying this policy change is an egregious case of misuse of social media. Policy changes that arise out of crises can often go overboard in the policy instrument deployed.

Using the simple threefold classification of carrots, sticks, and sermons, it means that governments are more likely to use sticks rather than carrots or sermons in such cases. Under the garb of user protection, governments will use the ‘need for regulating the conniving social media‘ narrative to suppress dissent. So, assuming that at least a few governments will choose to intervene, which instrument should be used?

I would advocate for a sermons approach: the government can instruct social media companies to carry a user login banner which explicitly states that

the opinions on your timeline are not be verified and may not be reflective of the truth. User discretion is advised.

Think of the banner that appeared in the beginning of the World Wrestling Entertainment telecasts:

fights are performed by professionals solely for the purpose of entertainment. Any attempt by our fans to emulate our Superstars physicality is extremely dangerous and irresponsible.

The result was that there was no ambiguity in the minds of the viewer that WWE was an entertainment show and not a gladiator fight. Perhaps, a regulation of this kind has some lessons that are relevant now.

Banning Cryptocurrency is a Terrible Idea

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The RBI released a notification recently on virtual currency. In essence, the central bank is trying to ban cryptocurrency in India:

In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs.

For those who are already engaged in the practices mentioned above, the RBI has given them three months to exit it.

This form of blanket ban has been feared for sometime. There were whispers that such a daft move would be done and the RBI didn’t want to disappoint. They have carried out the ban in order to protect consumer interests, market integrity and to prevent money laundering.

There are several problems with this:

  1. Ineffective: Such a ban will be completely ineffective. By its very nature, and as the name suggests, cryptocurrencies are hard to track and provides anonymity for its users. How does the government actually plans to ban it?
  2. Loss of control: By not banning it, RBI had a better chance of regulating some aspects of cryptos. Now, it has lost all control and all the transactions will go underground. Those who want to use Bitcoins will continue doing so by using cash, or other discreet financial instruments to trade. And as Rahul Matthan says in his editorial, “The only people who abide by the terms of a ban are those who always intended to use the service for legitimate purposes”.
  3. You can’t have one without the other: The government, it seems, is quite keen on developing and using blockchain technology for various public purposes, such as maintaining land records, public health records, etc. However, the best use case of blockchain is cryptocurrencies. By banning one, there will be no innovation and test cases of blockchain in India.

It will be interesting to see how this pans out. My guess is that RBI will soon realise that it has no control over this and will backtrack on this move. However, it might have already set a bad precedent and the narrative that these are inherently dangerous and risky.