With the arrival of Jandhan, Aadhar, and mobile access, online payments have become easier. There is the widespread use of digital payment technologies in India, such as UPI. Before, it was unimaginable that monetary transactions would be conducted without currency notes or other physical means like checkbooks. Through the use of digital technologies, India has reshaped financial access. In recent years, the Indian government has studied blockchain technology and cryptocurrency. With this post, we hope to provide insight on the current state of regulation and adoption of cryptocurrency in India.
An Overview
Cryptocurrency is also known as Digital Currency or Virtual Currency and is a medium of exchange created by and for use over the blockchain. It consists of two terms ‘Crypto’ and ‘Currency’. 'Crypto' is the short form of 'Cryptography', and it refers to the art and science of concealing messages to ensure privacy in information security. ‘Currency’ means the money in circulation used as a medium of exchange.
Why choose crypto over fiat currency?
Instant and inexpensive transaction – Almost instantly, it can be sent anywhere in the world. The transaction charge involved here is very low. It is one of the most efficient methods of transferring money around the world.
Decentralized – There is no central body (Govt.) regulating it, and it is governed by consensus among the participating nodes.
Virtual Currency – It doesn’t exist in any physical form but in digital form. Could be used anywhere and counterfeiting is impossible.
People may argue on the other side of a unique feature "User Anonymity", that sometimes aids bad actors to misuse technology. But, bad actors still exist in the fiat currency world.
Cryptocurrency in India
Despite the vulnerabilities in cryptocurrency guidelines, Indian crypto traders and builders are still optimistic about cryptocurrencies. Since crypto is yet another innovation, making regulations for it will require an investment. India has the fastest-growing cryptocurrency market in the world, according to a recent survey. Over the past few years, it has developed rapidly, faster than in other countries. As long as India keeps moving forward in this direction, it will play a major role in the future of cryptocurrency.
Due to the country's dynamic local area and its decision-making government, the future of cryptocurrency in India looks bright. There is currently a policy being formulated by the Indian government regarding Web 3.0. To be a major player in the worldwide Web 3 economy, it must take part in the development of the worldwide strategy and adapt its strategies accordingly. Up to that point, Indian web3 startups should battle with a generally safe administrative climate.
Present State of Crypto Regulations in India
One of the key regulations regarding crypto exchange is the fear of misuse of cryptocurrencies using its anonymity for weakening its anti-money laundering efforts. India, being a part of the Financial Action Task Force (FATF), has to abide by its standards that seek global cooperation between sovereign member nations. FATF, in its 2021 guidance note on Crypto, said
"This Guidance outlines the need for countries and VASPs, and other entities involved in VA activities, to understand the money laundering and terrorist financing (ML/TF) risks associated with VA activities and to take appropriate mitigating measures to address those risks."
Also, if a huge amount of investor base knowingly invests in cryptos and loses money (irrespective of the number of investments), the regulator or government gets blamed.
Technically, there is neither a ban on the use of cryptocurrencies (or crypto assets such as NFTs) in India nor a regulation that governs their actual usage. The crypto bill which has been touted for a long, and yet is pending across multiple sessions of the Parliament, is expected to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”.
India recently decided to tax digital assets like cryptocurrencies and non-fungible tokens (NFT). NFTs are cryptographic assets based on blockchain technology i.e. they cannot be exchanged or traded equivalently like other cryptographic assets. India recently decided to these assets, a 30-percent tax on the transfer of such assets as well as a 1-percent tax deduction at source (TDS) on every transaction. This move has triggered a debate on the legality of such assets and whether taxes on them have legitimized them. The fact is that it is not illegal now to have crypto assets, however, taxing them does not make them necessarily legal either.
Reserve Bank of India on Crypto
Finance Minister's take on restriction in issuance, buying, selling, holding and trading of Cryptocurrency in India was - " RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) vide public notices on December 24, 2013, February 01, 2017, and December 05, 2017, that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks. RBI also issued a circular on April 6, 2018, prohibiting its regulated entities to deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs."
Finance Minister of India, Nirmala Sitharaman specifically mentioned that
“Cryptocurrencies are not a currency because every modern currency needs to be issued by the Central Bank / Government. Further, the value of fiat currencies is anchored by monetary policy and their status as legal tender, however, the value of cryptocurrencies rests solely on the speculations and expectations of high returns that are not well anchored, so it will have a destabilizing effect on the monetary and fiscal stability of a country,".
Reserve Bank of India Governor Shaktikanta Das termed cryptocurrencies a “clear danger". Meanwhile, the government announced a tax on trading virtual assets. Around 30% tax rate on virtual currency assets came into effect on April 1 impacting trading volumes on cryptocurrency exchanges in India.
Adoption of cryptocurrency in India
Blockchain's impact on industries is increasing rapidly. Decentralized and trust-based, this technology has the potential to disrupt every industry in the modern world.
A case study: State Govt. of Maharashtra
e-registration of real estate using blockchain
Maharastra is India's second most populated state after Uttar Pradesh. As a result population of landowners is also huge. Because of this documentation of the property owner became hard.
To solve this challenge Maharastra government introduced a new way of storing data using blockchain technology. In addition, to store the data of property owners. All e-registration data will be stored in a block and will be verified by blockchain. Currently, 417 developers have opted for e-registration in the state.
Around 30 lakh property registrations take place across Maharashtra every year. Of these, nearly 3-4 lakh agreements are for the first sale of properties. To promote e-registration of newly-purchased properties and instill confidence among home buyers, the Maharashtra government has taken measures to protect data attached to such transactions. In a press conference held in Mumbai on Tuesday, Shravan Hardikar, Inspector General, Department of Registration and Stamps, said blockchain technology would prevent duplication of original documents.
The government of #Maharashtra has started the e-registration of properties to be sold by realty developers in a bid to digitise the process that will also involve usage of blockchain technology soon.https://t.co/AhsEqwlJkS
— Economic Times (@EconomicTimes) September 6, 2022
Public response to WazirX case
WazirX is India’s largest crypto exchange. Since its launch in 2018, WazirX has grown to become the most trusted exchange in the Indian cryptocurrency market.
But, The Enforcement Directorate (ED) has been investigating allegations of money laundering against WazirX. The agency has frozen Rs 64.67 crore worth of bank deposits as part of an ongoing money laundering probe against some fraud smartphone-based loan apps "backed" by Chinese funds. After the ED took action, there was a public spat between Binance CEO Changpeng Zhao and Nischal Shetty, the co-founder of WazirX. In response, Binance's CEO distanced himself from WazirX's operations, while the Indian entity said it was exploring legal action.
If you have funds on WazirX, you should transfer it to Binance. Simple as that.
— CZ 🔶 Binance (@cz_binance) August 5, 2022
We could disable WazirX wallets on a tech level, but we can't/won't do that. And as much debates as we are enduring, we can't/won't hurt users. 🙏
Also, it was noticed that WazirX allowed foreign users to convert one crypto into another both on its platform and through transfers from third-party exchanges, such as FTX and Binance.
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