Cryptocurrency has become a hot topic among the youths and financial enthusiasts in this country today. It is common to see your finance friends staring at bitcoin price graphs, hoping that it would go up. The analysis of this recently popular commodity is very unorthodox as it is a very recent innovation. Governments constantly debate how they should proceed with regulating this tool which is meant to make regulatory bodies obsolete. Joining this conundrum, the Lok Sabha is about to discuss a bill in the upcoming winter session about the future of cryptocurrency and how they propose to regulate it.
Why is a prohibition required?
Bitcoin, the first of the cryptocurrency tokens, started off as a currency out of the regulatory bodies’ hands— promising unprecedented anonymity and cybersecurity. People had just undergone a major economic downturn—the 2008 crisis. They were dissatisfied with the banks and were looking for alternatives. This concept of anonymity and regulatory freedom appealed to a lot of people. With more and more tweaks came other cryptocurrencies like Ethereum, Dogecoin, etc. What followed was a sudden popularity boost especially with celebrities hyping up this newfound coinage. However, financial institutions still frown upon this system.
The financial machinery in a country is a matter that if not kept in check, may lead to disastrous outcomes. The economic system is controlled in order to ensure proper wealth distribution, change in the value of goods, and economic incentives. Taking them away is like trusting the system to self-rectify, which is a dangerous thing to do with finance in any country. Furthermore, anonymity enables a lot of illegal activities like drug trafficking, money laundering, etc.
There are also a lot of environmental considerations, as maintaining this network draws a lot of power, contributing considerably to the world’s emissions. Blockchain utilizes a proof of work concept which helps to distinguish between valid and fraudulent transactions. Thiinvolveses a lot of computers around the world randomly generating long numbers. These computers consume a lot of power for such fast computation and lead to a considerable increase in carbon footprint. This problem is tried to be tackled with newer concepts like proof of stakes, a type of consensus mechanism used to validate cryptocurrency transactions. With this system, owners of the cryptocurrency can stake their coins, which gives them the right to check new blocks of transactions and add them to the blockchain. It is much more energy-efficient and a good alternative to proof of work.
Is this to argue that cryptocurrency is entirely absurd? Not necessarily. Cryptocurrency is quite safe compared to digital currencies as it uses blockchain, which makes it very very tough for someone to forge money as it uses distributed systems and verification techniques like proof of work. It is more efficient and secure than traditional payment models. Blockchain itself is a useful concept that things unrelated to cryptocurrency have started adopting as well. Lots of applications revolved around its application as a decentralized server for storing information. Certificate of authenticity is a popular use and NFT is one example of such application.
This is why governments are facing a double-edged sword. The safest bet is to regulate it so that the illegal activities are curtailed and checks can be put into place so that we can make the most of this new form of payment. If we outright ban it, we may miss out on an opportunity to establish a faster and more secure transaction method.
What plans does India have?
During the present Winter Session of Parliament, the Central Government plans on introducing the Cryptocurrency and Regulation of Official Digital Currency Bill 2021. In the past, there have been talks that the government can possibly outright prohibit cryptocurrencies but none were ever confirmed. The proposed rules for regulating cryptocurrencies and other facets of the crypto industry in India, specifically decentralised autonomous organisations (DAOs), non-fungible tokens (NFTs), and the metaverse, are by extension on the agenda of the Lok Sabha under this bill.
According to a draft summary of the bill, the Indian government reportedly intends to impose a blanket prohibition on all activities by any individual on mining, generating, holding, selling, or dealing in digital currencies as a mode of trade, a store of value, and as a unit of account. The bill is said not to be an ultimatum to prohibit public cryptocurrency usage. However, it can be noted that the new regulation will now classify cryptocurrencies as “crypto-assets” in India and place them under the direct jurisdiction of the Securities and Exchange Board of India (SEBI).
The action is part of the Indian government’s aim to distinguish ‘private’ cryptocurrencies like the aforementioned bitcoin and ethereum from its impending ‘official’ cryptocurrency, which will be produced and controlled by the Reserve Bank of India (RBI) in the near future. This also means that once the bill becomes law, citizens would be required to register their cryptocurrency assets and retain them on Indian exchanges. They will no longer be permitted to own cryptocurrency on overseas exchanges or in personal wallets.
Any infringement of any of the above criteria would be considered “cognizable” which implies that an arrest without a warrant is conceivable and non-bailable, alongside penalties ranging anywhere from ₹5 crore to ₹20 crores. The RBI is reluctant to impose a partial ban since it might not fix the problem at hand.
The move towards banning cryptocurrency however is neither standalone nor unprecedented. Governor of RBI, Shaktikanta Das has reiterated several times his anti-crypto outlook, emphasising that cryptocurrencies pose significant risks to any financial system since they are uncontrolled by central banks. The RBI itself has long been at odds with the usage of cryptocurrency in the past.
According to estimates, the cabinet is still rewriting the law and will most likely propose its postulates in the budget session instead. Experts say that India might not go the way of banning as it is difficult to implement and instead regulations will be put into place.
How have other countries fared in the anti-crypto movement?
China made headlines this past year when it outlawed cryptocurrency, but it is only one of over 50 nations that have either outright banned or severely curtailed cryptocurrency use in recent years. In addition to China, eight other countries have unreserved restrictions on digital currencies. Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia have all voted to unilaterally prohibit cryptocurrency exchanges and services. The bulk of the other 41 nations that have adopted an implicit digital asset ban are either in Africa or the Middle East.
This figure has more than doubled since 2018. Some nations that have banned cryptocurrency have claimed that it is being used to divert money to illegitimate sources and that the emergence of cryptocurrency might disrupt their overall financial systems. Of course, not all nations are seeking to prohibit crypto, several are still investigating how to control digital money, notably the United States, which has labelled crypto as “the Wild West” and aims to arbitrarily put more restrictions on digital currencies.
El Salvador became the first country to legalise bitcoin along with USD as the legal tender. EU has soft regulated the industry. There is no consensus on this matter as the crypto landscape is changing very fast and governments are confused about whether the risks outweigh the benefits. This follows a CoinGecko analysis that indicated the crypto market had risen to more than $2.5 trillion in 2021 and briefly surpassed $3 trillion this last quarter.
With its rapid expansion, more nations are incorporating cryptocurrency into their tax systems, as well as passing legislation to combat money laundering and terrorism funding, according to the research. Moving forward, the safest method is to regulate it so that criminal activities are stopped and checks can be put in place so that we can make the most of this new form of payment, as we see most countries doing.
Conclusion
There is no consensus on this matter as the crypto landscape is changing very fast and governments are confused if the risks outweigh the benefits. The safest way is to regulate it so that the illegal activities are curtailed and checks can be put into place so that we can make the most of this new form of payment, which we see most of the governments doing. Whatever be the decision of the Government of India, the experts are sure that payment methods will undergo a huge overhaul in the coming years.
Written by Adil Khan and Neetigya Poddar for MTTN
Edited by Swagat Sarkar for MTTN
Featured Image via Depositphotos.com
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