Cryptocurrency Regulation in India
Current situation:
- There are currently 462 cryptocurrency exchanges and 17,697 crypto coins in use.
- The use of cryptocurrencies in India is now unrestricted and unregulated by any restrictions.
- Place of RBI Prior to a March 2020 Supreme Court ruling, banks were not allowed to support cryptocurrency transactions in India under Reserve Bank of India (RBI) regulations.
- The RBI has frequently emphasized how deeply concerned it is with cryptocurrencies and how perilous they are for the country’s macroeconomic and financial stability.
- Government position on cryptography: The Indian government is drafting legislation to control this sector.
Cryptocurrency: What is it?
- Any kind of money that exists digitally or virtually and uses encryption to secure transactions is referred to as a cryptocurrency, sometimes known as crypto-currency or crypto. Cryptocurrencies employ a decentralized system to track transactions and create new units, in contrast to fiat currencies, which are created and governed by a central body.
- The blockchain, a decentralized peer-to-peer network, underpins it.
What is blockchain technology’s mode of operation?
- Blockchain technology ensures that every bitcoin transaction is recorded in a public database of financial activities.
- Ripple, Ethereum, and Bitcoin are the top three cryptocurrencies in terms of popularity.
- Electronic databases or ledgers that store data as “blocks” that are connected together to form “chains” are referred to as “blockchains” in the term.
- It provides a unique synthesis of auditability, real-time transaction transparency, and tamper-evident permanent record keeping.
- Every user or computer connected to other devices in a network has access to the blockchain.
- Each new piece of information that is added or changed via a new block requires review and approval from more than half of the users.
Advantages of blockchain:
- Large-scale vital information management, archiving, retrieval, and security chores can all benefit from advancements made available by blockchain technology.
- Managing medical information, and academic materials, preserving data on property ownership, managing professional references, and managing financial transaction data are some of these (such as in the case of cryptocurrencies).
- Blockchain is a decentralized technology, therefore the system and the data kept there are trustworthy, open, and fraud-proof.
- What is the state of cryptocurrencies in India right now?
- A digital currency was also suggested for implementation in the upcoming fiscal year in the Union Budget 2022-2023.
- Owning bitcoins is still lawful in India even if there is currently no legislation covering cryptocurrencies.
- As already mentioned, virtual asset profits will now be subject to a 30% tax.
- El Salvador has recognized Bitcoin as legal tender, in contrast to China, which has essentially barred all cryptocurrency transactions.
Why Is Cryptocurrency Regulation Necessary?
- The government must create a separate rule for cryptocurrencies because it is not treated as legal tender and needs to be recognized as a separate class.
- According to the RBI, peer-to-peer lending—which obviously needs regulation—might be possible if individuals started utilizing cryptocurrency as money.
- Cryptocurrency regulation is crucial to avoid significant issues, ensure that they are not handled illegally, and shield novice investors from high market volatility and potential scams.
- Why is cryptocurrency considered an asset rather than an exchange mechanism?
- The fundamental benefit of cryptocurrencies is that they allow for much faster and more affordable transaction processing because they do away with the need for middlemen and enable transactions to go straight to their intended recipients. These benefits, however, are not available in India.
- By recognizing cryptocurrencies as digital assets, the Indian government can only gain from price increases, while the rest of the world will use them for the original intent.
What concerns do people have about cryptocurrencies?
- There is a deluge of marketing touting the bitcoin market as a means of making rapid cash. There is an abundance of offline and online advertising to entice people to speculate in this market.
- Meanwhile, there are worries that these are attempts to deceive young people by “overpromising” and “non-transparent advertising.”
- Money laundering and terrorism financing are both possible on unregulated bitcoin exchanges.
- Macroeconomic and Financial Stability: There is a risk to macroeconomic and financial stability because of the scale of Indian retail investors’ exposure to this unregulated asset class.
- One of the issues with the stock market is that the Securities and Exchange Board of India (SEBI) has no authority over the “clearing and settlement” of cryptocurrencies and is unable to provide counterparty assurances as it can for stocks.
- In addition, it’s not clear whether cryptocurrencies are investments, commodities, or money.
- There are several issues with blockchain technology, which is a prerequisite for cryptocurrencies.
- Low Scalability: Blockchains perform best with a small number of users. The transfers take longer to process as more people join the network, though.
- The transactions were, therefore, more expensive than normal. It also limits the access of more users to the network.
- Blockchains’ vulnerability to network assaults stems from the fact that they were not initially intended to be used with network protocols. As demand for Blockchain services increases, there are issues with the introduction of hazardous files and inflammatory material.
- This brings up concerns about invasions of privacy, perhaps illegal data, infringements on copyright, infections, etc.
How to Continue Ahead:
- Solid KYC Standards: Instead of outright banning cryptocurrency trading, the government could implement strict KYC guidelines, reporting requirements, and taxability.
- Since customers utilize their bank accounts to initiate transactions, the KYC documents are always held at two levels at the time of the transaction: the exchange level and the bank level.
- The meaning of the term “cryptocurrency” Cryptocurrencies must first be classified as securities or other financial products under the relevant national laws by a legal and regulatory framework. The regulatory body that holds this authority must also be identified in this framework.
- Prioritizing transparency To address difficulties with transparency, information accessibility, and consumer protection, record keeping, inspections, independent audits, investor grievance redress, and dispute settlement may also be used.
- Bitcoin and blockchain technology may lead to employment opportunities for blockchain developers, designers, project managers, business analysts, promoters, and marketers in India’s startup environment, renewing the nation’s entrepreneurial surge.
- Regulatory Structure: The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which has not yet been passed in India, would lay the legislative groundwork for the development of an “official digital currency.”
- Therefore, it’s imperative to hasten the bill’s passage and create a legal framework to manage cryptocurrencies.
Conclusion:
- Due to the numerous technical developments taking place in the contemporary financial scene, a new integrated regulation for both the currency markets and the securities markets is now feasible. One of these innovations is cryptocurrencies.
- India cannot afford to miss out on this new digital technology revolution at the same time as it cannot afford to let its guard down when it comes to internal security and other related issues.
