Issues related to cryptocurrency assets and regulation of crypto
It is often believed that crypto-assets make crypto finance more inclusive and decentralized. But India already has the world’s largest financial inclusion program in the form of ‘Jan Dhan’. Bank accounts of 430 million people have been opened in the last seven years without access to banking. Of these, the majority have been women with 55%. Crypto cannot match with the sheer scale of Jan Dhan Yojana implemented in India.
Furthermore, the regulation of crypto-assets such as Bitcoin and Ethereum is a topic of discussion globally. Different countries are going through different phases like banning, lifting, re-banning, and regulating with respect to crypto assets. Of course, we can take some cues from the experience of other countries, but we need efficient regulation developed in India to suit Indian needs.
Reasons for adoption of crypto in India
Financial inclusion is not the main reason for crypto assets adoption in India, but three compelling India-specific reasons that drive crypto adoption.
Desire to establish India as an integral part of the new financial ecosystem: Large global financial institutions and investors are also adding crypto assets to their portfolios.
Financial firms, banks, fintech, and crypto startups can take advantage of the broader growth of the industry. Software Technology Parks (STPs) and Special Economic Zones (SEZs) have enabled the development of IT services.
Creative ‘Crypto Export Zone’ schemes can develop clusters of excellence and create world-class financial services firms and unicorns.
Leveraging New Technology and Service Opportunities: Blockchain application development, its scalability, security, and analytics create next-stage growth opportunities for IT services. A large talent pool with crypto tech expertise is needed to meet this demand.
Scope of financial innovation: The use of blockchain has led to a huge increase in technology innovation and business models. There are many blockchain-related applications presently and their number may increase in the future.
major regulatory concerns
Investor Protection: The safety of investors has been a top priority for Indian regulators. In India, crypto assets are often seen as high-risk assets. In such a situation, measures need to be taken to educate investors and issue guidelines against ‘mis-spelling.
Crypto assets are now viewed more as digital assets rather than digital currencies.
Regulating them like ‘commodities’ and clarifying their tax treatment would be a win-win. This can increase the tax revenue of the government.
It may also increase the number of tax filers (only 64 million in FY20) and the number of taxpayers (14 million).
Bypassing Existing Regulations: Some crypto assets may provide an opportunity for people to circumvent securities issuance laws. This poses a potential risk to economic stability.
Such concerns could be mitigated if crypto holders were made mandatory to display holdings above a certain level on their tax forms.
Illegal transfers: Anonymous transfer of crypto assets can undermine anti-money laundering laws or existing rules to control terror financing. This could pose a potential national security problem.
Problems associated with banning decentralized cryptocurrencies
Complete Ban: The ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ bans all private cryptocurrencies in India.
However, classifying cryptocurrencies as public (government-backed) or private (owned by an individual) is flawed, as cryptocurrencies are decentralized, but not private.
Decentralized cryptocurrencies like bitcoin cannot be controlled by anybody, private or public.
Brain-drain: The ban on cryptocurrency could result in both talent and business exodus from India, as was the case after the Reserve Bank’s 2018 ban.
At that time blockchain, experts had migrated to countries such as Switzerland, Singapore, Estonia, and the US, where crypto was regulated.
A complete ban would hinder the widespread use of blockchain innovation in the fields of governance, data economy, and energy.
Lack of Transformational Technology: The ban would deprive India, its entrepreneurs, and citizens of a transformational technology that is being rapidly adopted around the world, including by some big and leading enterprises like Tesla and Mastercard.
An unproductive effort: Imposing sanctions instead of regulation would create a parallel economy and encourage its illegal use, defeating the very purpose of the ban.
It is not even possible to impose this restriction, as anyone can buy cryptocurrency on the Internet.
Contradictory Policies: Banning of Cryptocurrency is incompatible with the Ministry of Electronics and IT (MeitY)’s ‘National Strategy Draft on Blockchain, 2021’, which has acknowledged Blockchain technology as a transparent, secure, and efficient technology, which trusts the Internet. forms a layer of
the way ahead
Regulation is the solution: Regulation is necessary to prevent serious problems from emerging. This will ensure that cryptocurrencies are not misused and excessive market volatility does not arise, as well as protect unsuspecting investors from the risk of potential scams.
Regulation should be clear, transparent, and consistent and at the same time, it should be fully aware of its objectives.
Clarifying the definition of cryptocurrencies: Any legal and regulatory framework must first define cryptocurrencies as securities or other financial instruments under relevant national laws and identify the regulatory authority in charge.
Stringent KYC norms: Instead of a complete ban on cryptocurrency, the government should try to regulate the trading of cryptocurrencies with stringent KYC norms, reporting, and taxability.
Ensuring transparency: Recordkeeping, inspections, independent audits, investor grievance redressal and dispute resolution may also be considered to address concerns regarding transparency, information availability and consumer protection.
Inspire Entrepreneurial Spirit: Cryptocurrency and Blockchain technology can propel an entrepreneurial wave in India’s startup ecosystem and generate employment opportunities at various levels from Blockchain Developers to Designers, Project Managers, Business Analysts, Promoters and Marketers Is.
Conclusion
In short, an efficient regulatory approach must consider all possible pros and cons. It can contribute to fostering financial innovation, protecting investors, and opening up opportunities for the Indian crypto ecosystem.
