Blockchain Technology: Prospects and Challenges

Embracing cryptocurrency

Note4Students

From UPSC perspective, the following things are important :

Prelims level : What are cryptocurrencies

Mains level : Paper 3- Regulating cryptocurrencies

As India struggles to come up with an appropriate approach towards cryptocurrencies, the growing trend of the adoption of cryptocurrencies across the world offers a lesson.

Rising global trend of embracing cryptocurrencies

  • El Salvador became the first country in the world to adopt bitcoin as legal tender.
  • The U.K. has classified cryptocurrency as property.
  • The U.K. has sought to regulate the functioning of crypto-businesses while still imposing some restrictions to protect the interests of investors.
  • On the other hand, while there is no exact legal classification of cryptocurrency in Singapore, there is now a legal framework for cryptocurrency trading.
  • In the U.S., the open approach taken by the authorities has resulted in the trade in cryptocurrency being both taxed and appropriately regulated.

India’s approach

  • Between 2013 and 2018, the government’s response to the rise of virtual currencies was cautionary, alerting users to the potential risks posed by cryptocurrency transactions.
  • Instead of developing a regulatory framework to address these issues, the Reserve Bank of India (RBI), in April 2018, effectively imposed a ban on cryptocurrency trading.
  • This ban was overturned by the Supreme Court in 2020.
  • The court reasoned that there were alternative regulatory measures short of an outright ban through which the RBI could have achieved its objective of curbing the risks associated with cryptocurrency trading.
  • India’s next move lies in the draft Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
  • The draft Bill proposes to criminalise all private cryptocurrencies while also laying down the regulatory framework for an RBI-backed digital currency. 

What should be India’s approach?

  • The global regulatory attitude towards cryptocurrencies offers valuable insights into the alternative ways to achieve balanced regulation.
  •  In India, the absence of an existing legal classification of cryptocurrency should not be the impetus to prohibit its use.
  • The government should use this as an opportunity to allow private individuals the freedom to harness a powerful new technology with appropriate regulatory standards.

Consider the question “As India finds itself at a crossroads of prohibition and regulation in its tryst with cryptocurrencies, globally, the inclination towards permissive regulation recognises the freedom of choice given to people. In light of this, examine the advantages and concerns with the cryptocurrencies and suggest the approach India should adopt towards the cryptocurrencies.”

Conclusion

Regulations to avoid the pitfall and not the outright ban is the right way towards the cryptocurrencies.

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