Background:

  • One of the most commonly mentioned benefits of crypto assets is that they make finance more open and decentralized.
  • India, on the other hand, already has Jan Dhan, the largest financial inclusion program in the world.
  • 430 million bank accounts for the unbanked have been opened in the last seven years.
  • The majority of them are women (55 percent ). In terms of scale, cryptocurrency cannot compete with India’s Jan Dhan Yojana.
  • In addition, the regulation of crypto assets such as bitcoin and ethereum is a hot topic all over the world. Various countries have banned, unbanned, rebanned, and controlled crypto assets. We may learn from other nations, but what we really need is appropriate regulation developed in India.

The Reasons for Crypto Adoption in India:

  • Financial inclusion is not the key driver of cryptocurrency adoption in India.
  • However, there are three compelling reasons for Indians to embrace digital assets.
  • Make India a Key Player in the New Financial System: Large global financial institutions and investors are adding crypto assets to their portfolios.
  • Finance companies, banks, fintech companies, and cryptocurrency startups may all benefit from the industry’s rapid growth. Software technology parks (STPs) and special economic zones enabled the IT services boom (SEZs).
  • Through creative ‘crypto export zone’ plans, incubate excellence clusters and establish world-class financial services firms and unicorns.
  • Take Advantage of New Technology and Service Opportunities: Blockchain application development, scalability, security, and analytics are among their next growth opportunities. A large talent pool with knowledge in crypto tech stacks is necessary to meet this demand.
  • The Scope of Financial Innovation: Blockchains have spurred a flurry of technology innovation and business strategy. There are a variety of exciting applications, but new game-changing applications are on the way. New technology’s short-term impact is exaggerated, but its long-term significance is undervalued.

Associated Regulatory Concerns:

  • Investor protection: Indian regulators have prioritized investor protection. Cryptocurrencies are considered speculative and high-risk investments. There is a need for investor education, anti-misselling guidelines, and other safeguards.
  • Rather than digital currencies, crypto assets are now referred to as digital assets.
  • If they’re controlled like commodities and their tax treatment is explained, it’s a win-win situation. The government’s tax earnings may rise.
  • It also has the potential to increase the number of tax filers (now at 64 million) and taxpayers (currently at 64 million) (14 million).
  • It is possible to get around the current requirements: Individuals may be able to dodge securities issuance regulations by holding crypto assets. This might put the economy in jeopardy.
  • If crypto investors are compelled to reveal their holdings above a particular threshold on their tax returns, such concerns may be resolved.
  • Anti-money laundering and counter-terrorism funding restrictions may be jeopardized by anonymous crypto asset transfers. It’s possible that this is a national security issue.

Issues with Decentralized Cryptocurrencies Prohibition:

  • The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is essentially a blanket prohibition. In India, it attempts to make all private cryptocurrencies illegal.
  • However, categorizing cryptocurrencies as either public (backed by the government) or private (owned by an individual) is wrong because they are both decentralized and public.
  • Bitcoin and other decentralized cryptocurrencies are not and cannot be controlled by any private or public entity.
  • Similar to what happened after the RBI outlawed cryptocurrencies in 2018, a ban on cryptocurrencies is predicted to result in an outflow of talent and enterprise from India.
  • Blockchain professionals moved to countries like Switzerland, Singapore, Estonia, and the United States, where cryptocurrency was regulated, at the time.
  • The blanket prohibition will put an end to blockchain innovation in India, which has applications in governance, data economy, and energy.
  • A ban would deprive India, its businesses, and its citizens of a game-changing technology that is fast gaining traction around the world, including by some of the world’s most powerful corporations like Tesla and MasterCard.
  • Unsuccessful Effort: Instead of regulating, banning will just establish a parallel market, increasing unlawful use and therefore defeating the ban’s goal.
  • Because anyone may acquire cryptocurrency on the internet, a prohibition is impossible to enforce.
  • Policies that aren’t consistent: The Draft National Strategy on Blockchain, 2021, from the Ministry of Electronics and Information Technology (MeitY), hails blockchain technology as a transparent, safe, and efficient technology that adds a layer of trust to the internet.
  • In the Future, Regulation Will Be the Solution: To avoid major concerns, ensure that cryptocurrencies are not mistreated, and protect inexperienced investors from market instability and potential scams, regulation is essential.
  • The regulation must be clear, transparent, and cogent, and it must be led by a vision of what it wants to achieve.

Clarification on the term “cryptocurrency”:

  • To begin, a legal and regulatory framework must categorize crypto-currencies as securities or other financial instruments under applicable national laws, as well as identify the responsible regulating body.
  • KYC Norms that are Strong: Rather of outright banning cryptocurrencies, the government should impose strong KYC, reporting, and taxes procedures to regulate their trading.
  • Ensure transparency: Record keeping, inspections, independent audits, investor grievance redress, and dispute resolution may be explored to address concerns about transparency, information availability, and consumer protection.
  • Cryptocurrencies and Blockchain Technology have the Potential to Reignite the Entrepreneurial Wave in India’s Startup Ecosystem: Cryptocurrencies and Blockchain technology have the potential to reignite the entrepreneurial wave in India’s start-up ecosystem and create jobs at all levels, from blockchain developers to designers, project managers, business analysts, promoters, and marketers.

Conclusion:

  • Finally, an appropriate regulatory approach must consider both the potential upside and downside.
  • It encourages financial innovation, safeguards investors, and liberates the bitcoin ecosystem in India.

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