With the creation of bitcoin in the year 2008, cryptocurrencies have made their long journey to date. The gains in the crypto market, since the start of the COVID-19 pandemic in January 2020, are mind-boggling. It is known that the “crypto market” increased by more than 500% since the pandemic. However, in the budget speech of 2018-19, the Finance Minister pointed out that cryptocurrencies are not recognized by the government.
Considering the fact that India has been a late adopter of all phases of the digital revolution so far be it semiconductors or internet or smartphones. So now there is a need to change the views on these virtual currencies and give them legitimacy as it will be India’s first step towards entering the new phase of India’s digital revolution.
Evolution of cryptocurrencies
The first cryptocurrency, Bitcoin, traded only $0.0008 in the year 2010 and the value of a single coin reached up to $63,729.5. Several new cryptocurrencies like Ethereum, Ripple, Dogecoin have also entered the market since the launch of bitcoin and as of May 2021, their total market capitalization is $2.5 trillion.
Cryptocurrencies as a problem solver
The first important utility of these currencies is the prevention of Corruption. Since cryptocurrencies work on a blockchain system i.e. peer-to-peer network, it helps in preventing corruption by tracking the flow of money and transactions.
Besides, cryptocurrencies can help in saving substantial time for the sender and receiver of money as it operates completely over the internet. It runs on a mechanism that involves very low transaction fees and is almost instantaneous.
Moreover, intermediaries such as banks, credit cards and payment gateways charge about 3% of the $100 trillion global economy as fees for their services. Integrating blockchain in these areas could save hundreds of billions of dollars.
Also read: What Is Dogecoin? Why Is It So Much In News?
India and Cryptocurrencies
In the year 2018, RBI issued a circular prohibiting all banks from working in the field of cryptocurrencies. Later, this circular was declared unconstitutional by the Supreme Court in May 2020.
Recently the government has announced the introduction of the Cryptocurrency and Official Digital Currency Regulation Bill, 2021 to create a sovereign digital currency as well as ban all private cryptocurrencies. However, in a recent development, the government is reconsidering the banning clause and formed a panel to provide suggestions in this area.
Funds going to Indian blockchain start-ups in India account for less than 0.2% of the money raised by the sector globally. Due to the current attitude towards cryptocurrencies, it is almost impossible for blockchain entrepreneurs and investors to make huge economic gains.
Why a complete ban is not advisable?
The new bill proposed a ban all private cryptocurrencies in India. However, it is wrong to classify cryptocurrencies as public or private as cryptocurrencies are decentralized but not private.Decentralized cryptocurrencies like bitcoin cannot be controlled by any entity, private or public.
A ban on cryptocurrencies could result in an exodus of both talent and business from India, as was the case after the RBI’s 2018 ban.At that time blockchain experts from India went to Switzerland, Singapore, Estonia and the U.S., the countries where crypto was regulated.
Moreover, the complete ban would hinder the use of blockchain in the areas of innovation, governance, data economy and energy.
The ban will also deprive India’s entrepreneurs and citizens of a transformational technology that is being rapidly adopted around the world, including by some of the biggest enterprises like Tesla and Mastercard.
Another threat from a complete ban on private cryptocurrencies is the creation of a parallel economy. It will encourage illegal usage that would defeat the original purpose of the ban. The ban is not possible as anyone can buy cryptocurrency on the internet.
Another contradictory aspect of banning cryptocurrencies is the Ministry of Electronics and IT’s (MeitY) draft National Strategy on Blockchain, 2021, which acknowledged blockchain technology as a transparent, secure and efficient technology.
What needs to be done?
Regulation is needed to prevent serious problems and to ensure that cryptocurrencies are not misused and protect investors from excessive market volatility and potential scams. Regulation needs to be clear, transparent, consistent and animated with a view to what it is intended to do.Besides, the legal and regulatory framework must first clarify the definition relating to cryptocurrencies. Under national laws, these would fall under currency securities or be defined as other financial instruments.
To prevent the misuse of cryptocurrencies the strong KYC Norms are required. Instead of a complete ban on cryptocurrencies, the government can regulate the trading of cryptocurrencies by including stringent KYC (Know Your Customer) norms, reporting and taxability.
Ensuring transparency is also imperative before acknowledging cryptocurrencies. Recordkeeping, inspections, independent audits, investor grievance redressal and dispute resolution may also be considered to address concerns about transparency, information availability and consumer protection.
Cryptocurrencies and blockchain technology can fuel an entrepreneurial wave in India’s start-up ecosystem and create jobs at various levels from blockchain developers to designers, project managers, business analysts, promoters and marketers.
India is currently on the cusp of the next phase of the digital revolution and can emerge as a leader by channelizing its human capital, expertise and resources into this revolution. For this, policy formulation needs to be corrected. Blockchain and crypto assets will be an integral part of the fourth industrial revolution Indians should not bypass it