CRYPTOCURRENCY- THE GLOBAL TRENDS AND INDIAN APPROACH
Updated: Dec 4, 2021
Author: Nishant Kumar, I Year of B.A.,LL.B(Hons.) From Hidayatullah National Law University, Raipur, Chhattigarh.
Co-author-1: Yash Arjariya, I Year of B.A.,LL.B(Hons.) From Hidayatullah National Law University, Raipur, Chhattigarh.
Co-author-2: Utkarsh Sharma, I Year of B.A.,LL.B(Hons.) From Hidayatullah National Law University, Raipur, Chhattigarh.
WHAT IS CRYPTO CURRENCY?
A crypto currency is a kind of digital asset based on blockchain technology. Blockchain technology is a chain of digital ledgers which store transactional details about crypto currency. Any detail once uploaded in blockchain tech cannot be altered or updated.
There is no central authority involved in transactions relating to crypto currency. This allows peer to peer transfer of these digital assets in a hassle free manner.
CRYPTO CURRENCY WORLD ACCEPTANCE
Investment in crypto currency still sounds fancy even after a decade of trading in bitcoin. There are apprehensions in minds of people regarding crypto currency as there have been issues with the acceptance of crypto currency by various governments and even some private entities like Tesla. In this segment we will be focusing on the issue of acceptance of cryptocurrency by various stakeholders.
In United States of America, there has been positive sentiment regarding the acceptance of crypto currencies. The chances of crypto currency blanket ban in United States of America are very less now as the crypto market itself is a billion-dollar industry and is slowly becoming a significant part of the economy. There is very less chances of ban on crypto currency by US government but one thing which is very likely and may hurt the market sentiment is harsh regulations by US lawmakers.
The United States Senate recently passed a $1 trillion bill to enhance infrastructure spending over the next 8 years. To help pay for these costs, the Senate inserted a clause requiring cryptocurrency “brokers” to report, with the Internal Revenue Service estimating that such reporting would result in an additional $28 billion in tax revenue over ten years. Even though there is no such indication of ban but practices like these which increase the governments intervention indirectly impacts the acceptance of digital currency as these moves defeats the whole idea of decentralization.
If we talk about private entities, there is positive sentiment amongst them as crypto is more secured, fast and decentralized method of payment, but government regulation is something which is a big concern for them before considering accepting payments in digital currency. In march 2021 Tesla CEO Elon musk announced that tesla will be accepting bitcoin as a mode of payment in USA and company is planning to do the same in other countries too but just after few weeks Elon musk announced that tesla will be no longer accepting bitcoin as mode of payment because of the threat which it causes to the climate as bitcoin mining consumes immense amount of electricity which is harmful for the environment. By this incident we can infer that other than government intervention, threat to climate may also act as a hurdle in the acceptance of Crypto currency.
Countries where democracy does not exist are most likely to Ban crypto currency or regulate it to the point that it becomes of no use to have transactions in digital currency. China Is most populous country and has a huge economy. China is very advanced country in terms of technology and it plays a very important role in world economy as many big multi national companies set up their manufacturing plants in China. Recently China banned crypto currency. China's central bank has declared that all crypto-currency transactions are illegal, thus outlawing digital tokens like Bitcoin. This was a very big move by China as China has one of the largest crypto-currency markets in the world.
The global price of crypto-currencies is frequently affected by fluctuations there. When China banned crypto currency, the price of bitcoin fell by more than 1.4 lakh rupees. Such moves my countries like China who have a big market share negatively affects the acceptance of crypto currency. There have been positive steps taken by some countries, El Salvador became the very first country to accept bitcoin as legal tender. This was indeed a big step but not very much impactful as El Salvador doesn’t have a big economy. Massive positive steps by powerful economies regarding the acceptance of crypto currency are yet to be seen.
THE STANCE OF INDIA
The blanket ban
In 2018, RBI gave a circular forbidding the exchanges in crypto currencies. The circular precluded banks and monetary organizations from offering any types of assistance or helping exchanges which included exchanging of cryptographic forms of money. The services of keeping up with, buying, selling, credits against crypto and so on were halted.
The fundamental explanations for the boycott was the anonymity in exchanges and no central authority controlling and regulating transactions, The cash can be viably diverted through crypto currency for tax evasion, illicit purposes and the exchanges and parties in transactions can't be traced. Likewise, the absence of any focal control makes crypto exceptionally unpredictable. The variance in worth of crypto currency is extremely high and in all actuality capricious.
RBI planned to secure the interest of investors so they may not experience enormous misfortunes by exchanging Crpyto. The apprehension of unlawful utilization and damage to national interest were likewise instrumental in shaping the reasons and foundation for the circular.
There was a fear that by working with exchange and by offering monetary help to merchants of crypto, the monetary organizations may genuinely hurt their monetary design. This might have been unfavorable and contradictory to strength of financial economy of country.
THE INTERVENTION BY SC
The boycott was lifted by Supreme Court by its judgment in IMAI versus RBI. The reasoning behind the judgment was that the boycott did not pass the proportionality check. The sweeping restriction on exchanging Crypto was extreme and did not follow Article 19 (1)(g) of Indian constitution which gives the autonomy of pursuing any trade or occupation to Indian citizens. The sweeping boycott was in disavowal of the right and was not reasonable.
The judgment set forth that however RBI had purview and abilities to direct crypto area, the complete boycott was in abundance. The boycott halted the exchange which was not unlawful (subsequently lawfully substantial) according to existing law, rules and orders. Additionally, RBI could not justify any damage to any monetary institution due to it working with exchange in crypto.
According to my viewpoint, the SC was squarely right in its decision. The sweeping boycott was rarely justified and was not upheld by real ramifications however simple misgiving. Also, if apprehensions were serious, the regulation of the sector and educating the traders, building a robust regulation mechanism would have been a better mechanism.
The boycott totally shut down the chance of Indians going into a crpyto exchange trade. This boycott might have cut the Indian section from market activities of crypto , which are expanding constantly. The market valuation of cryto increments by exponent factor in little range of time. In such circumstance, the restriction would isolate Indians from overflowing opportunities.
A high level inter-ministerial committee setup by Finance ministry advised for the creation of central bank digital currency (hereinafter, CBDC). CBDC will be brought by RBI in the form of legal tender. The CBDC will then be a kind of fiat money and have a status of legal tender in India.
There is no question in the suggestion by the public authority that the crypto currency managed and brought by RBI will have high agreeableness and extremely low volatility. CBDC, as a legal tender, may enjoy one of the most high acceptability rates in all crypto monetary standards. What's more, indeed, since RBI will screen the valuation of CBDC, the incessant high points and low points will be extremely low or none.
Be that as it may, this doesn't entirely tackle all issues related with CBDC.
The principle explanations behind individuals stepping in crypto are twofold. To begin with, the cryto currencies don't include a central authority. This gives a hassle and legal compliance free experience to the traders and owners of crypto. Furthermore, many individuals put resources into crypto with a investment viewpoint. They bank on high instability of crypto for getting exceptionally significant yields on their investment. The frenzy of crypto currency in India has especially expanded due to its exceptional yields.
These two fundamental principles of crypto currency will be missing in CBDC. Since, RBI stays the focal expert in CBDC, the pro that no lawful compliance is looked for, in purchase or sell of crypto won't be there. Additionally, one of the fundamental explanations behind the making of CBDC is that other cryptos are highly volatile. The unpredictability in CBDC will be extremely low and thus the profit from speculation will be exceptionally low. This makes CBDC unsuitable for the speculation reason as well.
CBDC will come up short on the key principles of any crypto currency. In this way, CBDC will be confined to a type of online legal tender. And afterward what is the need of bringing CBDC when lawful tenders can be traded through internet based means like NEFT, RTGS, and IMPS.
Even though there is no Ban on crypto currency in India, but the future of crypto currency in India totally depends on the legislation which government is planning to bring in next year. The possibility of blanket ban by the government is very unlikely for two reasons. First reason is from growth perspective, as USA haven’t banned crypto currency, there are chances that major companies will deal in crypto who have businesses in India and other western nations may also do the same. In this scenario, if India puts a complete ban of crypto currency than it will be very detrimental for Indian economy from the growth perspective. Another reason is constitutionality of complete ban. If government plans to put the complete ban, then it is very likely that this issue will go to supreme court and then supreme court will decide the legality behind such move. In my opinion, Indian government should not ban crypto currency, there should be regulations to stop the illegal practices associated with crypto and a proper taxation system should be adopted by the Indian government to regulate cryptocurrency to a reasonable extent.
CRYPTOCURRENCY: WAY FORWARD
India has always looked at cryptocurrency with skepticism, the reason for such a cynical approach by India for a new world technology is quite obvious, its unprecedented volatility and a possible apprehension of its use in illegal activities. The value of cryptocurrency is derived from demand and supply, media forecasts and finite coin mining. Being platformed on blockchain technology and a decentralized distributed ledger system it has no central authority which approves and maintains a record of the database and determines its value. Despite exponential growth of cryptocurrency throughout the world the countries are still reluctant to include the cryptocurrency in the formal economy. One of the prominent reasons for such skepticism is absence of any intermediary and lack of any authoritarian control or regulation of the cryptocurrency. Recently Chinese government has taken bold steps against the cryptocurrency over alleged leak of finances of the country, India has never shown any penchant for the digital currency since its inception in 2009, Turkey banned the cryptocurrency in its entirety, Argentina is treading cautiously as far as adoption of crypto is concerned, there are several other examples where countries have been antagonistic towards the normalization of crypto in the economy. But we still don’t have any proof that such disinclination towards cryptocurrency would be helpful, the question “Should cryptocurrency be banned in its entirety” needs a skeptical attention of policymakers. There are several countries who have started the normalization of the cryptocurrency in their economy, El Salavador has recently became the first country to introduce cryptocurrency in their system and has given it the legal tender.
Reserve Bank of India in the year 2018 came out with circular disallowing the trade of cryptocurrency in India. Subsequently cross border transactions and illegal trading relating to cryptocurrency surged in the country, strictly reminding that regulation not the prohibition is the way forward. Instead of blanket ban central bank can regulate the digital currency thus allowing the interested traders to trade in the cryptocurrency. This will subdue the illegal trading and financings which may affect the country financial system negatively.
India can take a leaf from the books of countries that have been successful in regulating the cryptocurrency and normalizing its use among their people. For instance, European Union has started the regulation of the crypto assets in the member countries and cryptocurrencies are broadly considered legal across the European Union. Some other prominent countries that are regulating the use of cryptocurrencies are US, UK, Brazil, Russia, and Canada among others.
MAJOR CONCERNS AND SOLUTIONS
In case government is strained with regards to losses which can be endured by Indian retail investors, then, at that point, it should instruct retail Indian financial investors about risks in putting resources into crypto. The multifold approach in this regard is managed in later piece of the blog.
The job of the public authority ought to be to make the financial investors completely mindful of the dangers/risks they consent and bear on putting resources into crypto. A definitive and official choice of investing in private crypto or CBDC should be left on financial investors. The public authority, in no way, can choose and limit decisions of trading in crypto.
Potential of Cryptocurrency to destabilize the system.
There has been perennial concern regarding the volatility of cryptocurrency throughout the world. Cryptocurrencies are still in their nascent stage and like all the new concept it will take time to find its feet in the global market. Although cryptocurrency has gained prominent attention throughout the world, such attentions are mostly due to its notoriety. Many countries are still apprehensive of adopting crypto as a legal tender making volatility all the more imminent. Given the lack of awareness among the traders and absence of any fixed rules and regulation, people tend to deal with crypto ingenuously leading to sudden influx and outgo of money thus affecting the stability of cryptocurrency. Once crypto gains its acceptance throughout the world, the awareness among people with regard to crypto will surge leading to smart investments by the traders. We can take the example of permeance of stock market in India, during 1980’s when the concept was new in India and people had their own prejudices against it, sudden fall and rise of the market was inevitable. But with time and proper acceptance of market ideas and technicalities the market is much more stable and predictable now. Therefore with the regulation of cryptocurrency in India government should also focus on spreading awareness and making people aware about the intricacies and nuances of crypto trading.
Use in Illegal activities and crimes
Of all the major impediments in the acceptance of cryptocurrency, its use in nefarious activities and crimes is the most concerning one. We have enough data regarding the illegal us of cryptocurrency, but the point we should focus on is how to counter such activities and transactions. There are a few ways through which we can cut down on these activities, first and the easiest one is to keep the track of transaction related to cryptocurrency, through this we can trace all the illegal activities relating to cryptocurrencies. As crypto is based on the blockchain technology it maintains the ledger of all the transaction. Another way through which we can impede such activities is tighter regulations and its strict enforceability. The best example of such legislations is EU’s anti-money laundering legislation whereby every transaction related to cryptocurrency has to comply with them. Many countries have made Know Your Customer (KYC) compulsory for anyone dealing with cryptocurrency. Countries can also merge digital currency into existing Anti money laundering laws or counter terrorist laws.
Cryptocurrency and Global Warming
Global warming is a major concern for the world in 21st century and cryptocurrency further exacerbates the concern. According to an analysis of University of Cambridge, Bitcoin mining consumes 12.36 terawatts hours a year, which is more than the estimated use by Google, Apple, Facebook and Microsoft combined. This is getting worse with increasing competition in cryptocurrency market. Another major concern with the cryptocurrency is generation of huge amount of e-waste. NFT’s another new phenomenon amplifies these concerns of global warming by further contributing to it. These are Non fungible tokens of digital files like music, audio and videos with unique codes. Ethereum a prominent cryptocurrency manufactures NFT. The average NFT generates 440 grams of carbon, 10 times higher than the average Ethereum transaction.
There are number of projects striving to mitigate the global warming caused by the cryptocurrency. Crypto Climate Accord supported by another 40 projects is one of the most prominent initiatives in this regard which pledges to run blockchain run on 100 percent renewable energy by 2025 and achieving net zero emission by entire cryptocurrency companies by 2040.
Ethereum one of the most popular cryptocurrencies aims to reduce its energy use by 99.95 percent by 2022. It is planning to transition to an alternative i.e. Proof of Stake which does not require computational power to verify the transactions. Another innovative way which companies are adopting to decarbonize the cryptocurrencies is shifting crypto operations next to oil fields to tap the methane which they can use in crypto mining.