- GS-3: Science and Technology- developments and their applications and effects in everyday life
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
On cryptocurrencies and regulation
Context: Government has proposed bringing in a law on cryptocurrencies so as to put an end to the existing ambiguity over the legality of these currencies in India.
What is cryptocurrency?
- A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
- Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers
Regulation of Cryptocurrencies
- The government has, from time to time, suggested that it does not consider cryptocurrencies to be legal tender.
- The disapproval of cryptocurrencies by government is due to fact that such currencies are highly volatile, used for illicit Internet transactions, and wholly outside the ambit of the state.
- In 2018, the RBI did send a circular to banks directing them not to provide services for those trading in cryptocurrencies.
- Those challenging the RBI Circular in Supreme Court had argued that these were commodities and not currencies. Therefore, RBI did not have the jurisdiction.
- The circular was set aside by SC, which found it to be “disproportionate”.
- Regulatory bodies like RBI and Sebi etc also don’t have a legal framework to directly regulate cryptocurrencies as they are neither currencies nor assets or securities or commodities issued by an identifiable user
- This legal ambivalence has not, however, been able to prevent cryptocurrencies from having a growing user base in India.
- Their attraction may only grow now, given that the most well-known of them as also the most valuable, Bitcoin, has hit new peaks in price and is gaining influential followers such as Tesla founder Elon Musk.
- Cryptocurrency exchanges, which have sprung up, are reportedly lobbying with the government to make sure these currencies are regulated rather than banned outright.
- Smart regulation is preferable, as a ban on something that is based on a technology of distributed ledger cannot be implemented for all practical purposes.
- Even in China, where cryptocurrencies have been banned and the Internet is controlled, trading in cryptocurrencies has been low but not non-existent,.
- The government must resist the idea of a ban and push for smart regulation.
Connecting the dots:
- Blockchain and Voting: Click Here