Crack the Crypto Crossword

Context: Parliament must discuss and clear the haze around cryptocurrency before talking about regulation.

Evolving cryptocurrency ecosystem in India

• Blanket ban in 2018: RBI banned regulated financial institutions from providing services to businesses dealing with cryptos.
• RBI cautioned against risks to consumer interests, market integrity, credit system, of money laundering, and use in terrorist financing.
• Inter-ministerial committee report in 2019: Recommended banning of private cryptocurrencies.
• Lifting the ban: In 2020, Supreme Court struck down the 2018 RBI circular proscribing any services to cryptocurrency players.
• The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021: Introduced to create an official digital currency and simultaneously ban all private cryptos.
• Towards Central Bank Digital Currency (CBDC): RBI Deputy Governor stated that RBI is considering a ‘phased implementation strategy’ of a Central Bank Digital Currency (CBDC).
• CBDC aren’t cryptic: They are digital currencies issued by central bank and guaranteed by some kind of asset, whether currency reserves, bonds or gold.

Concerns associated with cryptocurrencies

• Proliferation of cases of illegality: In April 2018, RBI issued a circular banning regulated financial institutions from providing services to businesses dealing with cryptos. 
  • RBI’s cautioned against risks to consumer interests, market integrity, the credit system, money laundering, and use in terrorist financing.
  • The Enforcement Directorate (ED) recently issued a show-cause notice to WazirX, for facilitating money laundering and for infringement of Foreign Exchange Management Act (FEMA) to the tune of Rs 2,800 crore.
• Regulatory gap:  The Internet and Mobile Association of India (IAMAI) has set up Blockchain and Crypto Assets Council (BACC) to implement a code of conduct for the industry, however, may not be enough.
  • Dilemma of classifying cryptocurrencies: Are they assets, a currency or a payment system? Can they be slotted as private or public? Should GST be applicable, or an equalisation levy?
  • No successful standards set yet: An accommodative approach in Japan, a heavily regulated one in the US, practically no regulation in India, and a ban in China make up the spectrum.
  • A blanket ban is neither feasible nor helpful: Prohibition will only push things underground, create a parallel economy.
• Huge power consumption and environmental impact: According to Cambridge Centre for Alternative Finance (CCAF), bitcoin currently consumes around 110 terawatt-hours a year, 0.55% of global electricity production, or roughly annual energy draw of Malaysia or Sweden.

Way forward: It is time GoI clears the haze around cryptocurrency.

• Parliament should discuss it: GoI, in conjunction with RBI, must put together suitable legislation and policy to govern cryptocurrency industry and categories it.
• Only after the regulatory process is set should we transition to ‘soft touch regulations’ to allow innovation to thrive and the industry to expand.
• Lead role in setting global standards: India should initiate a round table to bring in the best minds from across the world to prepare a multilateral agreement defining global standards.