Crypto Bill: "Find a Middle Path Instead Of a Binary Approach Of Either a Ban Or No Regulation At All"
Cryptocurrencies have been functioning in a regulatory vacuum in India
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The fate of bitcoin, the most popular cryptocurrency, and other digital tokens in India is in a quandary.
In the last one month, the finance ministry has hinted multiple times at a possible blanket ban by passing a law under the The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. However, to everyone's surprise, on Friday, Anurag Thakur, minister of state for finance, said the government is open to evaluate new technologies, including cryptocurrencies.
To discuss the nitty gritties of the world of cryptocurrencies and what a ban would mean for the industry as well as investors, Entrepreneur India called upon the expertise of the industry stakeholders in a webinar titled 'India's Cryptocurrency Call'. Commenting on the noise around the possible ban of cryptocurrencies, Nischal Shetty, founder and CEO, WazirX, a cryptocurrency exchange, said one shouldn't read too much into it as the full document is not available in public domain and some sections talk about ban on private cryptocurrencies with no explanation of the term 'private'.
"There's no clarity on what exactly the bill contains," he said.
Not a threat to national currency
"What we've realised from the developments so far is that the government's biggest worry with respect to cryptos is that no one should build a competing currency to the India Rupee," said Shetty, adding that the problem lies in the misplaced understanding of how cryptos are classified.
"The government has ascribed a blanket definition to cryptocurrencies of them being a form of currency, whereas globally cryptos are classified in four categories—currency, asset, security and utility," he explained. "As an industry, we're trying to dispel this misinformation before the bill reaches the stage of discussion in the cabinet."
Instead of a ban, there are two fundamental aspects to digital tokens that need regulations, explained Akash Karmakar, partner with the Law Offices of Panag & Babu. "First is how India views and treats cryptocurrencies and the second is how we view other blockchain based products that are effectively based on the underlying technology of blockchain but have taken on the colour of a cryptocurrency, such as a soundcoin."
Currently, the problem staring at the ecosystem is that there is no regulation that defines a cryptocurrency to contrast it from other asset classes or products based on blockchain, nor is there any policy or framework that governs how India views these classes of assets and of currencies, adds Kamarkar.
"We need to bucket cryptos in two different categories, of which one falls in the currency category and I believe that the national currency should be within the domain of the sovereign and nothing should compete with the rupee. A nuanced distinction such as this is a better approach instead of a blanket ban."
Need For a Sandbox
Cryptocurrencies have been functioning in a regulatory vacuum in India. The first regulatory intervention came in 2018 from the Reserve Bank of India in the form of barring all forms of financial transactions relating to cryptocurrencies between exchanges and banks and regulated financial institutions. This ruling was rolled back by the Supreme Court in March 2020.
Less than a year later, we are moving towards a ban again, this time by the virtue of a legislation.
"We are oscillating between a ban and having no regulation. Whereas, what we really need to do is find a middle path," said Kamarkar, adding that we should try to understand the use cases of this technology as it evolves instead of banning it straight away. "We need to accept that we cannot preempt every single use case, which is where the concept of a regulatory sandbox comes in."
Within a sandbox, a regulatory body can understand the various use cases of an emerging technology and the regulatory challenges it may yield.
Neeraj Khandelwal, co-founder, CoinDCX, concurred and said there are several possible economic efficiencies that the cryptocurrencies can bring about, so the government should be open to experimentation. "Cryptos is a vast domain having properties of securities, utilities and currency. Regulators and the government should critically evaluate them and take a calibrated action instead of putting a blanket ban on a new technology that they might not fully understand."
Blockchain Without Crypto Not Practical
Despite a negative stance towards cryptocurrencies, the Indian government has repeatedly said it will evaluate and adopt blockchain technology, but in Shetty's opinion blockchain without crypto is not a good idea.
"We've seen this discourse in many other countries where the government talks about banning bitcoin and promoting blockchain, but eventually they have come to understand that it's not practical," he explained.
"In saying blockchain but not cryptocurrencies you're saying that you are interested in a technology that private companies will use but the public won't be able to. You cannot have public blockchain without cryptocurrencies as they secure the network and there is no technology in the world that can allow anyone on the Internet to access and participate without having a crypto that can secure that network."
"As a nation, why should we be backing private databases instead of looking at public projects."