The Indian government must not permanently ban cryptocurrency( also referred to as’ token’ or’ coin’ or’ digital currency ‘). Any permanent forbid on cryptocurrency would only reflect a lack of understanding of the positive impact the technologically powerful cryptocurrency can create on the Indian economy.
Many governments have conveyed fear over tokens as there is no central authority to regulate the appreciate or oversee the exchange of tokens. The horror branches from an inability to regulate the crypto sell or monitor the valuation or way the transfer of cryptocurrency. With fiat currency, governments can do all of the above.
Most central banks world over, in conjunction with their respective governments, pass monetary plans every year. The purpose of the monetary plans is to specifically control the global appreciate of money. The government through its monetary policies governs employment, expend, investments and inter alia commands investment.
The Indian government can mitigate the above threat by publish Central Bank Digital Currency (” CBDC “). CBDC shall be backed and controlled by the RBI. CBDC would have legitimacy and is contributing to the public to purchase/ busines. It would have the ability to become mainstream( as it is backed by the Central Bank) and help to push India towards a cashless society.
CBDC can help a significant population group to access the financial system without access to the banking system. Further, if CBDC became popular, the government could adopt it as a mechanism to monitor payments to public officials.
Many nations such as China, Sweden, Canada, Switzerland, and Singapore are engaged in developing a captain of their own CBDC. CBDC can help develop the digital economy and provide for more financial stability once it has the full patronage of the authorities concerned. Moreover, there may be more trust in the financial systems as there shall be less volatility while conducting transactions through CBDC.
A CBDC shall also help reduce the shadow trading or the black cryptocurrency sells and the RBI shall be able to control cash supply more efficiently. A CBDC shall provide effective competition to private cryptocurrencies such as Libra. Moreover, fund laundering issues can be solved if there is a central backing to a digital or crypto rupee.
Concerns regarding the security in dealing with cryptocurrencies is likely to be appropriately dealt with. Cryptocurrency is backed by blockchain technology protocols, which means that every transaction is recorded as a part of Distributed Ledger Technology (” DLT “).
DLT simply meaning that the transaction shall be validated by several computer network before the transaction is recorded on the DLT. DLT is known to be a foolproof technology and an individual’s cryptocurrency wallet cannot be hacked like a traditional online wallet.
If the Indian government were to release CBDC, such cryptocurrency could bear two layers of safety- with one layer through the DLT technology and another through its own centralised system.
The development of cryptocurrency business i.e. Initial Coin Offerings (” ICOs “), Security Token Offerings (” STOs “), cryptocurrency exchanges, the exchange of cryptocurrency for goods and services, and the creation of CBDC would collectively help in building blockchain technology platforms which can have a variety of use examples in other lands.
For example, transfer of region, when migrated to a DLT platform, would create transparency on all land carries-over and potentially reduce litigation on issues concerning illegal region grabbing. Most importantly, it would eliminate all forms of manipulation of land-related documentation, as the transactions are recorded on DLT.
Moreover, land and real estate tokenisation will increase liquidity as the importance and possession is likely to be digitised and put into fractional tokens to be distributed around the globe. This makes investors the right to own a portion of real estate, thereby increasing liquidity of the underlying asset. This ultimately could open yet another avenue to draw in foreign direct investment in real estate.
Banning cryptocurrency negatively impacts early-stage startups from heightening monies. The ongoing COVID-1 9 pandemic has caused widespread recession across India. Early-stage startups are likely to struggle in raising monies.
An Initial Coin Offering (” ICO “) is one such direction for early-stage startups to raise funds. In an ICO, the issuer publishes a white paper with details about the project for which fund/ investment is intended to be raised from the public. Subject to conducting a risk assessment of the proposed project, interested members of the public may subscribe to the tokens are available in the ICO with either fiat currency or other tokens of repute( e.g ., bitcoin ).
Moreover, crowdfunding activities could be carried by the introduction of a token and associating the human rights of it as a normal share ought to have been. Hence, the ban on cryptocurrency would impact such effective alternative sources of funds for early-stage startups.
The government’s position so far seems to be that, in an ICO, there is the potential of laundering money to fund projects and likewise the inability to track the source for the pay for the purchase of coins in an ICO. However, the government’s reasoning is shortcoming.
The RBI in India governs pay systems. It is therefore capable of tracking all coin purchases in an ICO by regulating it in accordance with the arrangements of a payment system. Further, the Indian government can adopt regulations to regulate an ICO. Some steps can include 😛 TAGEND
Limiting the investment amounts in an ICO for each individual investor; Requiring the tokens being issued through an ICO to be under the purview of the Securities Exchange Board of India (” SEBI “) and amending the SEBI( Listing Obligations and Disclosure Requirements) (” SEBI LODR “) to regulate cryptocurrencies published under an ICO; Mandating the ICO issuer to publish their project on SEBI website; andBringing the purchase of coins through an ICO under the Prevention of Money Laundering Act, 2002.
As far as STOs are concerned, the issue associated with it is the volatility in the best interests of the such STO and the ability of the government to regulate the same. The government could treat such STO as any other security and can revise the Securities Contract Regulation Act, 1957 to bring STOs under the framework. As stated above, issuers of STOs may be mandated to construct disclosures as required under the SEBI LODR.
STOs may be deemed to be an unregulated deposit in accordance with the requirements of the Banning of Unregulated Deposit Schemes Act, 2019 (” BUDS Act “), and therefore may involve a monetary retribution of up to Rs 10 lakh, and imprisonment up to five years as per Part 21 of the BUDS Act.
Accordingly, SEBI would do well to take note of the nature of STOs and regulate them, comprehensive classification on how STOs be deemed as securities.
One of the main sources of business in the crypto-asset marketplaces is cryptocurrency exchanges. While cryptocurrency exchanges are currently deemed legal in India, commercial and planned banks have been reticent with regard to offering their services to cryptocurrency exchanges and their customers.
To give solace to banks, national governments and the RBI could extend regulations to obligate cryptocurrency exchanges to conduct comprehensive KYC procedures on their registered customer/ holders of cryptocurrency. Such KYC norms will help the government to track cryptocurrency merchants and their informant of funds.
Moreover, crypto resources may be regulated under the Prevention of Money Laundering Act, 2002 (” PMLA “), by way of making an amendment to include cryptocurrency industries as” designated businesses and profession” within Section 2( a) of the PMLA, and this would also bring crypto businesses under” client due diligence requirements” as given by Rule 9 of the Prevention of Money Laundering( Maintenance of Records) Rules.
Globally, cryptocurrency is gradually moving into the mainstream. A failure to regulate the cryptocurrency marketplace would not have the effect of halting the cryptocurrency sector but instead have the effect of taking it underground, bringing into life all of the government’s fear involve cryptocurrency.
Cryptocurrency can be a way to raise public monies and make productive commercial-grade activity within the economy. Therefore, the government should strive to understand the immense potential and the use of cryptocurrency and take initiatives to regulate the cryptocurrency market rather than impose any form of prohibition.
A note has been moved by the Ministry of Finance for consultations, post which it shall be sent to the cabinet. The note is most likely to introduce the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 to the parliament.
If a Bill banning cryptocurrency is passed, it would cause a huge shock to the fledgeling cryptocurrencies, crypto exchanges, investors and the DLT market space, which is avoidable at best.
( Edited by Kanishk Singh)
( Disclaimer: The views and opinions expressed in this article are those of the author and shall not be obliged to show the opinion of the YourStory .)
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