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WHAT IS CRYPTO-CURRENCY AND WHAT RELEVANCE OF CRYPTO-CURRENCY IN INDIACrypto-currency is a digital or virtual currency that uses encryption techniques to secure and verify transactions and control the creation of new units. It operates independently of a central bank and can be transferred directly between individuals without the need for intermediaries.
The relevance of crypto-currency to India is that it has the potential to provide a more accessible and efficient form of financial inclusion for the country's population. India has a large unbanked population, and crypto-currency could provide a means of financial access to those who are currently excluded from traditional banking systems.
In addition, the use of blockchain technology, which underpins cryptocurrencies, could provide benefits in areas such as land registration, supply chain management, and healthcare. It could also create new opportunities for entrepreneurship and innovation.
However, there are also concerns around the use of cryptocurrencies, such as the potential for money laundering, terrorism financing, and other illicit activities. As a result, the Indian government has been exploring ways to regulate the use of cryptocurrencies in the country, to enable their safe and responsible use while mitigating these risks.
Cryptocurrencies have taken the world by storm, and India is no exception. The country has seen a significant rise in the number of crypto-currency users over the past few years. However, with the Reserve Bank of India (RBI) banning banks from dealing with crypto-currency exchanges in 2018, the crypto-currency market in India has been in a state of uncertainty. In this blog post, we will explore the future of crypto-currency regulation in India.
CURRENT STATE OF CRYPTO-CURRENCY REGULATION IN INDIAThe RBI's circular in April 2018 barred banks from dealing with crypto-currency exchanges and warned individuals against investing in cryptocurrencies. This led to a decline in crypto-currency trading volumes in India, as exchanges struggled to operate without the support of the banking system.
However, in March 2020, the Supreme Court of India lifted the ban on banks dealing with crypto-currency exchanges, stating that the RBI's circular was unconstitutional. This decision brought a ray of hope for crypto-currency enthusiasts in India, as it meant that crypto-currency exchanges could operate with the support of the banking system once again.
The government has also taken some steps to regulate the crypto-currency market in India. In January 2020, the Ministry of Corporate Affairs made it mandatory for companies to disclose their investments in cryptocurrencies in their financial statements. Additionally, the Securities and Exchange Board of India (SEBI) has been looking into regulating cryptocurrencies as securities.
CHALLENGES FACING CRYPTO-CURRENCY REGULATION IN INDIAWhile there have been some positive developments in the regulation of cryptocurrencies in India, there are still some challenges that need to be addressed. One of the biggest challenges is the lack of clarity on the legal status of cryptocurrencies.
Currently, there are no laws in India that specifically address cryptocurrencies. This has led to confusion among investors and crypto-currency exchanges, as they are unsure of how to operate within the legal framework.
Another challenge is the potential for cryptocurrencies to be used for illegal activities such as money laundering and terrorism financing. The government is understandably concerned about the use of cryptocurrencies for illicit activities and has been exploring ways to combat this issue.
The lack of infrastructure to support crypto-currency trading is another challenge facing the crypto-currency market in India. While the lifting of the ban on banks dealing with crypto-currency exchanges was a positive step, there is still a long way to go in terms of building the necessary infrastructure to support crypto-currency trading in India.
INDIAN GOVERNMENT APPROACHThe Indian government has been exploring ways to make crypto-currency legal in the country. In 2018, the Reserve Bank of India (RBI) banned banks from dealing with crypto-currency exchanges, but this ban was lifted by the Supreme Court in March 2020. Since then, the government has been considering various options for regulating cryptocurrencies in India.
One approach that has been suggested is to classify cryptocurrencies as digital assets or commodities. This would mean that they would not be considered as currency, but rather as an asset class that can be bought, sold, and traded on exchanges. This approach would require the creation of a regulatory framework to oversee crypto-currency trading, including the establishment of rules around Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.
Another approach that has been suggested is to create a central bank digital currency (CBDC). A CBDC would be a digital version of the Indian rupee that is backed by the Reserve Bank of India. This would provide the benefits of crypto-currency, such as faster and cheaper transactions, while also allowing the government to maintain control over the currency.
The Indian government has also been exploring the use of blockchain technology in various sectors, such as land registration, supply chain management, and healthcare. The use of blockchain technology could provide benefits such as increased efficiency, transparency, and security.
In 2019, a government-appointed committee submitted a report recommending the creation of a legal framework for cryptocurrencies in India. The report suggested that cryptocurrencies be treated as commodities rather than currency and that a regulatory framework be created to oversee crypto-currency trading.
However, there have been some concerns raised about the impact of cryptocurrencies on the Indian economy. Some experts have warned that cryptocurrencies could lead to increased money laundering, terrorism financing, and other illicit activities. Others have expressed concern that the lack of regulation around cryptocurrencies could make it difficult to protect investors and consumers.
Overall, the Indian government has been exploring various options for making crypto-currency legal in the country. While there is still some uncertainty around the future of crypto-currency regulation in India, it is clear that the government recognizes the potential benefits of crypto-currency and is working towards creating a legal framework that will enable its safe and responsible use in the country.
CONCLUSION AND WAY FORWARDThe future of crypto-currency regulation in India is uncertain. However, there are some indications of what we can expect in the coming years. The government will likely introduce legislation to regulate crypto-currencies, combat the use of crypto-currencies for illicit activities, and create infrastructure to support crypto-currency trading.
As the crypto-currency market continues to grow in India, the government needs to take a balanced approach to regulation. While it is important to protect investors and prevent illegal activities, it is also important to encourage innovation and growth in the crypto-currency market.
Firstly, it is likely that the government will introduce legislation to regulate cryptocurrencies. This legislation will provide clarity on the legal status of cryptocurrencies and will create a framework for crypto-currency exchanges to operate within.
Secondly, the government will likely take steps to combat the use of cryptocurrencies for illicit activities. This could involve the introduction of Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for crypto-currency exchanges.
Finally, the government may also look into creating infrastructure to support crypto-currency trading. This could involve the creation of a regulatory sandbox for crypto-currency exchanges to test their products and services, or the introduction of tax incentives for crypto-currency investors.
~Authored by Karan Kumar Agrawal