With the introduction to Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, a whole new debate of regulating cryptocurrencies has started. As in every debate, people holding polarized opinions brings many of us to confusion: Is Cryptocurrency providing wealth creation or the ongoing discussions are mere facade?
Since the inception of Bitcoin in 2008, many users find it attractive and the future of investment. While some people view them as an independent payment system, free from the intervention of third parties, others find it as a lucrative investment yielding huge returns.
With new technologies, comes potential risk factors. There are market players who find cryptocurrencies as a tool to execute their illicit criminal practices. Cryptocurrencies uses a technology called Blockchain, which allows an investor to keep their real identity anonymous. This feature has given some investors a way to operate in the world of the Dark Web.
While one watches it as a financial revolution and others view it as a scam.
For a layman, it is important to understand how Bitcoin came to the surface of the public domain.
In October 2008, Satoshi Nakamoto published a white paper describing a technology promoting peer-to-peer payments, using a public decentralised ledger known as a blockchain, and cryptography, a process of decoding tough mathematical coded messages which a sender constructs for the receiver.
This White paper got published just six weeks before the 2008 financial crisis reached its peak with the collapse of Lehman Brothers on September 15.
When the world was witnessing the dark days of the global financial crisis, the white paper paved the way for Bitcoin. And, In Early 2009, Bitcoin became operational. To date, no one knows whether Satoshi Nakamoto was a person or a company, but its white paper proved to be a watershed movement in the history of virtual currency.
Earlier, the concept of Bitcoin was difficult to comprehend, but these days it is far from such obscurity. Now on global platforms, we have several virtual currencies like Ethereum, Zcash, Dash, Ripple etc. Meanwhile, in India currencies exchanges like Zebpay, Coinsecure, Unocoin, Koinex and Pocket Bits are letting the investors delve deep into the virtual currency arena.
With the whole new advent of virtual currency and the interest of people in it, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is likely to be tabled in the Indian Parliament. As of now, there are only market players’ anticipations that are doing rounds, and no concrete proposal has been put forth by the Finance Ministry.
Earlier, Finance Minister Nirmala Sitharaman presented the Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 in Lok Sabha. The draft sought to criminalise the possession, selling, issuing and transferring the cryptocurrency. Not only this, it said to give 90 days windows to the investors to dispose off the cryptocurrency they own. Though the bill banned cryptocurrency, but allowed the use of blockchain technology.
If we go a few years back, then In 2013, the Reserve Bank Of India (RBI) issued a notice concerning the legal, financial and operational risks of cryptocurrency, as it is neither a fiat currency nor a legal tender. Again in 2017, RBI expressed concerns over the unintended result of demonetization, driving many tech-savvy customers to Cryptocurrency exchanges seeking options for cashless transactions. In 2018, RBI passed strict orders to the financial institutes that fall under its purview, and banks shall not deal with crypto-related business. But In 2020, the Indian apex court order of striking this RBI provision to ban the crypto brought a wave of positivity among the Virtual currency traders.
At present, the famous Bitcoin is at around 40 lac per Bitcoin, making the market bullish, where bulls are buying in and taking the crypto as high as possible. But what if the sentiments of the market changes? And with unexpected bad news at night, the market sees bears coming in front, accelerating the panic selling. The prices of the market will go upside down, making many investors will lose money. Over this uncertainty, and illicit use of crypto, many experts conclude ‘ban’ as the only option. They also see crypto as a safe haven for tax evaders and anonymity as a big risk factor.
At present, the famous Bitcoin is at around 40 lac per Bitcoin, seeing a steep bullish push. It saw a 68% rise in the first two months of the year 2021. When Tesla bought Bitcoins, the prices reached $60k. Now Bitcoin is trading around $56k. Some experts see it as a correction since the prices were skyrocketed.
Does the volatility in the cryptocurrency market outweighs the benefits its technology has?
Cryptocurrency uses the decentralised public ledger. Thus, removing the role of any third-party intervention. It means, when a person needs to send money to another person, the bank facilitates such a transaction acting as a third party.
But, Blockchain provides an infrastructure of transaction involving two parties, no transaction fees and a secure medium. As per the recent reports, the Government of India is planning to ban private virtual currencies but ready to use the technology of Blockchain. It can be tantamount to a mobile phone internet connection but not the facility of e-transaction.
The ban on these virtual currencies seems a daunting task to undertake. Such bans cannot prevent Investors to trade overseas, owing to the decentralization factor. In the same fashion, the mining and maintaining of the open ledger can be done through scattered networks across the globe. Even if one country puts an end to mining, other countries can come to play.
Indian Government should also let its people grab new opportunities offered by the crypto world with no mala fide intent. They can opt for stringent regulations and learn from the developed countries like the US, UK, Switzerland, Japan, and New Zealand, and try to lay down the possible best model for regulating crypto assets.
Recently, the Indian government asked the companies to disclose in their financial statements ending 31 March, 2021, about their investments and trades in cryptocurrency. This seems as a step to regulating the bandwidth of cryptocurrency trade in India.
Drawing from this, the government can regulate every person involved in the transaction cycle. To avoid the chances of fraudulent activities, the authorities must make KYC essential. Above it, the government can think of imposing Gst on each transaction and imply capital gain tax as same as on the equity market.
Crypto has the potential to be the new fuel in the Future Financial spectrum. Recently news came, where US-based Cryptocurrency exchange Coinbase filed a registration statement with the U.S. Securities and Exchange Commission for direct listing of its stock on NASDAQ. Not only this, VISA is planning to facilitate buying and selling of cryptocurrency through its platform.
Cryptocurrency is secured by cryptography and is limited in numbers. In India, if the government plans for bringing its own digital currency for transaction purposes, then instead of banning private cryptocurrency, it can be used as an asset, just like gold.
The technology of Blockchain can play a vital role in the “Insurance Industry”. It can detect fraudulent activities due to the decentralized ledger system. Saying that, the technology will help in maintaining transparency and quick claim processing in the Insurance sector, solving the ongoing challenges.
As per IAMAI (Internet & Mobile Association of India), in the crypto community, over 10 million crypto holders are having crypto assets worth over USD 1 billion. Over 300 startups generate tens of thousands of jobs and hundreds of millions of dollars in revenue and taxes.
Crypto trading can open up or create jobs in various sectors like legal, compliance, tech, marketing, business development, finance, etc. – in India and abroad.
Good governance and a strategically devised regulating framework can provide a stimulus to Digital India vision. Also, regulation would save the existing investors from losing money. Reports suggest that a daily trading volume of USD 350 million – USD 500 million is happening in the crypto world.
By criminalizing the possession of cryptocurrency, investors will be left with no option but to escort underground ways to pull-out their worth of crypto assets. However, there is no definite definition of goods under FEMA.
But, as the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, goods and software are treated alike, and “software means any computer program, database, drawing, design, audio/video signals, any information by whatever name called in or on any medium other than in or on any physical medium”. Since virtual currencies are information, it seems to fall within the ambit of aforesaid definition of software.
There should be a middle ground found out in the form of a regulation to administer the operations of the players and in redressal of money laundry concerns. If cryptocurrencies do not get the status of legal tender, lest they should be permitted as an asset class just like bonds and stocks.