Title : REGULATION ON CRYPTOCURRENCY
Date : Dec 22, 2021
Based on a News Article published in the ‘The Hindu’ on 20th December 2021 on Page Number 7
Useful for UPSC CSE Prelims and Mains (GS Paper III)
- One of the most frequently cited advantages of crypto assets is that they make finance more inclusive and decentralised. However, India already has Jan Dhan, the world's largest financial inclusion programme. Over the last seven years, 430 million bank accounts for the unbanked have been opened. Women make up the majority of them (55%). Crypto can't compete with India's Jan Dhan Yojana in terms of magnitude.
- Furthermore, the regulation of crypto assets like bitcoin and ethereum is a hot topic around the world. Crypto assets are being banned, unbanned, rebanned, and regulated in numerous countries. We can learn from other countries, but what we really need is Indian-made sensible regulation.
India's Reasons for Crypto Adoption:
- In India, financial inclusion is not the primary motivation for adopting crypto assets. However, there are three strong reasons to embrace crypto assets in India.
- Make India a Crucial Part of the New Financial Ecosystem: Crypto assets are being added to the portfolios of large global financial institutions and investors.
- Finance firms, banks, fintech, and crypto startups may all benefit from the industry's explosive expansion. The IT services boom was made possible by software technology parks (STPs) and special economic zones (SEZs).
- Incubate clusters of excellence and develop world-class financial services enterprises and unicorns through innovative 'crypto export zone' plans.
- Make the Most of New Technology and Service Possibilities: Their next growth potential include blockchain application development, scalability, security, and analytics. To meet this need, a big talent pool with experience in crypto tech stacks is required.
- Financial Innovation's Scope: Blockchains have sparked a wave of technological innovation and commercial strategies. There are a number of intriguing applications, but new game-changing applications will arise. The short-term impact of new technologies is exaggerated, but the long-term influence is underestimated.
Important Regulatory Concerns:
- Investor protection: Indian regulators have made investor protection a primary focus. Cryptocurrencies are regarded as high-risk, speculative investments. Investor education, anti-misselling guidelines, and other precautions are required.
- Crypto assets are now more commonly referred to as digital assets rather than digital currencies.
- It's a win-win situation if they're regulated like commodities and their tax treatment is clarified. Tax revenues for the government may increase.
- It also has the potential to expand the number of tax filers (only 64 million in FY20) and taxpayers (14 million).
- Current requirements may be circumvented: Some crypto assets may allow individuals to avoid securities issuance laws. This could jeopardise economic stability.
- Such concerns could be alleviated if crypto investors are required to declare their holdings above a certain threshold on their tax returns.
- Illicit transfers: Anonymous crypto asset transfers may jeopardise anti-money laundering and counter-terrorism funding regulations. This could be a national security issue.
Issues with the Prohibition of Decentralized Cryptocurrencies:
- The essence of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is a blanket ban. It aims to make all private cryptocurrencies illegal in India.
- However, classifying cryptocurrencies as either public (supported by the government) or private (owned by an individual) is incorrect because they are decentralised but not private.
- Bitcoin and other decentralised cryptocurrencies aren't or can't be controlled by any body, private or public.
- Ban on cryptocurrencies is expected to result in an exodus of talent and business from India, similar to what happened after the RBI banned cryptocurrencies in 2018.
- Back then, blockchain professionals relocated to nations like Switzerland, Singapore, Estonia, and the United States, where cryptocurrency was regulated.
- Blockchain innovation, which has applications in governance, data economy, and energy, will grind to a halt in India as a result of the blanket ban.
- A prohibition would deprive India, its entrepreneurs, and residents of a breakthrough technology that is rapidly being used around the world, including by some of the world's greatest corporations such as Tesla and MasterCard.
- An Ineffective Effort: Banning rather than regulating will just create a parallel market, encouraging illegitimate use and therefore contradicting the ban's objective.
- A ban is impossible to implement because anyone may buy cryptocurrencies on the internet.
- Inconsistent Policies: The Ministry of Electronics and Information Technology's (MeitY) Draft National Strategy on Blockchain, 2021, hails blockchain technology as a transparent, safe, and efficient technology that adds a layer of trust to the internet.
- The Solution Is Regulation in the Future: Regulation is required to avoid significant issues, guarantee that cryptocurrencies are not mishandled, and safeguard naive investors from market instability and potential scams.
- The regulation must be clear, transparent, cogent, and guided by a vision of what it aspires to accomplish.
Clarity on crypto-currency definition:
- To begin, a legal and regulatory framework must classify crypto-currencies as securities or other financial products under applicable national laws, as well as name the regulatory institution in charge.
- Strong KYC Norms: Rather than outright banning cryptocurrencies, the government should control their trading by imposing strict KYC, reporting, and taxation requirements.
- Ensure Openness: To address concerns about transparency, information availability, and consumer protection, record keeping, inspections, independent audits, investor grievance redress, and dispute settlement may be considered.
- Cryptocurrencies and Blockchain Technology Can Reignite the Entrepreneurial Wave: Cryptocurrencies and Blockchain technology have the potential to reignite the entrepreneurial wave in India's startup ecosystem and create jobs at all levels, from blockchain developers to designers, project managers, business analysts, promoters, and marketers.
- In conclusion, an intelligent regulatory approach should take into account both the possible upside and downside. It promotes financial innovation, protects investors, and frees the Indian cryptocurrency ecosystem.
Tags : crypto, online currency