News Editorial (September 19, 2022) – Drishti IAS | Jewelry Dukan

For the preliminary round: Blockchain Technology, Market Volatility, Money Laundering, United Nations Conference on Trade and Development 2021 Report, Bitcoin, El Salvador, Wannacry Virus, Fractional Reserve Scheme, Digital Rupee

For mesh: Current crypto regulation scenario in India, gray areas regarding cryptocurrency, central bank digital currency

cryptocurrency has grown in size and popularity among investors to facilitate the financial activities like buying, selling and trading in India and around the world. According to that Report of the United Nations Conference on Trade and Development 2021, 7.3% of Indians owned cryptocurrency in 2021

As remarkable as it is that India is moving fast towards it digitalization In almost every aspect of life there is a fundamental concern that requires immediate attention that is present India has no regulatory framework to govern the crypto assets market.

The lack of a regulatory framework not only creates uncertainty for companies looking for this space but also exposes investors to avoidable scams. An unregulated ecosystem can also facilitate this money launderingfraud & Terrorist Financing.

What is cryptocurrency?

  • A cryptocurrency is one medium of exchange, like the rupee or the US dollar, but is digital in format that uses encryption techniques to control both the formation of monetary units and to verify currency exchange.
  • Most Cryptocurrencies are not regulated by national governmentsthey are considered an alternative currency or financial medium of exchange, outside the scope of government monetary policy.

    • But in September 2021, ElSalvador was the first country in the world to introduce Bitcoin as legal tender.

Where does India stand in terms of cryptocurrency regulation?

  • in the 2017the Reserve Bank of India (RBI) warned against it Virtual currencies/cryptocurrencies are not legal tender in India.

    • However, a ban on virtual currencies did not take place.

  • in the 2019that was published by the RBI Trading, mining, holding or transferring/using cryptocurrencies is punished in India with a fine and/or imprisonment of up to 10 years.

    • The RBI also stated that it could introduce the digital rupee as legal tender in India in the future.

  • in the 2020, the India’s Supreme Court lifted the ban on cryptocurrencies imposed by the RBI.
  • In 2022, the Indian government has clearly mentioned in the Union Budget 2022-23 that the transfer of assets in virtual currency/cryptocurrency is subject 30% tax deduction.

    • Gifts of virtual assets/cryptocurrencies are taxed in the hands of the recipient.

  • in the July 2022That Reserve Bank of India (RBI) recommended a ban on cryptocurrencies, citing ‘destabilizing effects for the country’s monetary and fiscal health.

What are the gray areas when it comes to cryptocurrency?

  • Volatile Nature: Cryptocurrency is speculative. Investing in large amounts leads to market volatilitywhich means prices fluctuate and people can suffer huge losses as a result.
  • Reliability and security: Cryptocurrency has become a very important one due to its characteristic of being a digital transaction method common platform for hacking, terrorist financing and drug transactions.

    • This has brought fatigue among people to a greater extent than it brings lower security and lack of reliability.
    • For example, wannacry virus was used by criminals to make ransom payments in Bitcoin.

  • Lack of regulatory framework: The Indian government follows a wait and watch policy towards cryptocurrencies. The lack of a regulator has led to increased likelihood of investor protection fraud and threats money movements in the economy.
  • Flood advertisement: There has been an explosion of advertising in the crypto market to entice people to speculate because it is seen as one quick way to make money. However, there are concerns that these efforts will be too Misleading young people with “exaggerated promises” and “non-transparent advertising”.
  • stock market problems: That Securities and Exchange Commission of India (SEBI) has indicated that it has no control over the cryptocurrency “Billing and Settlement” and cannot provide counterparty guarantees like stocks do.

    • In addition, cryptocurrency was neither classified as a currency, commodity or security.

  • Scalability concerns: The scalability of crypto remains a major concern as it is based on Blockchain Technology. In blockchain technology is the data storage mechanism only append That means it cannot be changed, and as demand grows, storage capacity remains limited.
  • money laundering: There’s a big possibility that humans could start investing Money laundering and it is very easy as you can send money from country to country without being responsible.
  • Possibility of economic imbalance: Rising cryptocurrency market can unbalance the money cycle Indian economy. The creation of cryptocurrency is very different from the actual creation of cash in the economy.

    • In India, for example, only the The RBI has the power to create money only after maintenance of fractional reserve system. This creates a balance between demand and supply.

      • However, cryptocurrency does not rely on them Financial Institution Regulations but are encrypted and protected, which makes it difficult to increase the money supply above a predefined algorithm rate.

  • No ombudsman: Currently there is no forum, where a user might be able to get help or grievance mechanism related to crypto assets that consumers are exposed to Transaction and Information Risks.

What should be the way forward?

  • Define cryptocurrency: cryptocurrencies should be defined explicitly as securities or other financial instruments according to the respective national laws.
  • Linking Startup Ecosystem to Crypto: India’s startup ecosystem can be revitalized by cryptocurrency and Blockchain Technology, who can create employment opportunities, from blockchain developers to designers, project managers and business analysts to promoters and marketers.
  • The linchpin of international cooperation: There Crypto assets cross national borders, They serve as the linchpin for the international coordination of governance of financial markets.

    • However, regulation of crypto assets is still in its infancy for many Emerging and Developing Countries (EMDEs) like India.
    • A risk-based and context-specific international collaboration to regulate cryptocurrency flows is crucial.

  • India towards CBDC: That Finance Minister of India announced the launch of a Central Bank Digital Currency (CBDC) for India in the form of Digital rupee. There will be a big push Indian digital economy.

    • Digital currency will also lead to a more efficient and cheaper one currency management system.
    • However, CBDC should exist in harmony with other cryptocurrencies to take full advantage of blockchain technology.




Question about the Drishti network

“The time is ripe for India to move beyond its wait-and-watch cryptocurrency policy.” Comment.

UPSC Civil Services Examination, Previous Year Question (PYQ)

front matter

Q.1 Regarding “blockchain technology”, consider the following statements: (2020)

  1. It’s a public ledger that anyone can see, but no single user controls.
  2. The structure and design of the blockchain is such that all the data it contains is related to cryptocurrencies only.
  3. Applications that depend on fundamental blockchain functions can be developed without permission.

Which of the above statements is/are correct?

(a) 1 only
(b) 1 and 2 only
(c) 2 only
(d) 1 and 3 only

Answer: (d)

Q.2 The terms “WannaCry, Petya, and EternalBlue” sometimes mentioned in the news lately refer to (2018)

(a) exoplanets
(b) cryptocurrency
(c) cyber attacks
(d) mini satellites

Answer: (c)


network

Q.1 What is cryptocurrency? How is it affecting global society? Has it also influenced Indian society? (2021)

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