Solution to Puzzle Tomorrow
Context: Crypto trades continue to grow rapidly, with over 1.5crore investors reportedly holding Rs.15,000 crore of digital assets.
Challenges before India regarding crypto currency
- Volume of Trade: The number of investors growing rapidly.
- Issues to ban: Banning is practically impossible to do in India, especially in respect of its decentralised, open-source system.
- Supreme Court intervention: Supreme Court struck down the circular issued by RBI prohibiting regulated banks and entities from providing services related to cryptocurrency, thus allowing crypto exchanges to use banking channels.
- Risks of Cryptocurrencies: Several risks lurk in allowing cryptos -
- Ill-informed investors could get hurt, lured into investing in a relatively volatile asset class they don’t understand.
- Monetary sovereignty and, therefore, the effectiveness of the policies could be dented.
- Capital flight could hurt the entire capital management framework.
- Crypto could well be a channel for illegal activity and tax evasion.
- Cybercriminals who are flocking to crypto exchanges just like investors are.
- Cyberattacks have doubled in recent times.
Way Forward
- Transparency to cross-border transactions: Crypto exchanges will have to meet the highest standards of governance and countries should collaborate for regulation and learn from each other.
- Amending laws: Especially Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (Fema) in India.
- Create awareness: Investors must be made aware of cyber-thieves seeking access to their cryptocurrency wallets.
- Robust protective systems and protocols: Critical action required for managing cypto related crimes.
- Counter policy: Nations should launch their own digital currencies in due course and to be sovereign-backed, and linked to a reserve asset like the dollar, as opposed to being backed by just an algorithm as today’s cryptos are.
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