Blockchain Technology: Prospects and Challenges

Exit window likely for crypto holders in proposed legislation on cryptocurrencies

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Banning cryptocurrency

Law to ban private cryptocurrencies

  • The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 aims to prohibit all private cryptocurrencies.
  • It lays the regulatory framework for the launch of an “official digital currency” was set to be introduced in Parliament during the Budget session, but was not taken up.
  • A high-powered inter-ministerial committee has also previously recommended the banning of all private cryptocurrencies.
  • In April 2018, the RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds.
  • In March 2020, the Supreme Court struck down the RBI’s ban on crypto, terming its circular unconstitutional.
  • One of the SC’s reasons for overturning the ban is that cryptocurrencies are unregulated but not illegal in India.

Central bank-issued digital currency

  • The RBI had said central banks are not only exploring DLT (Distributed Ledger Technology) for its application in improving financial market infrastructure but also considering it as a potential technological solution in implementing central bank digital currency (CBDC).
  • DLT and blockchain have been explored extensively by the People’s Bank of China as a possible technology for launching CBDC.
  • Apart from CBDC, PBoC is supporting research on using blockchain for trade finance, especially after the support from the President of China for the blockchain technology, as an important breakthrough for innovations.
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