ARTICLE 1: 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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      Crypto exchange; Monetary sovereignty; Cyber-thieves;

      • GS Paper 3:  Indian economy and issues relating to planning, mobilization of resources, growth, development and employment.