From UPSC perspective, the following things are important :
Prelims level : Cryptocurrency
Mains level : Issues with Cryptocurrency
The Investor Education and Protection Fund (IEPF) will launch an outreach programme soon to create awareness of cryptocurrencies.
What is Cryptocurrency?
- A cryptocurrency is a digital asset stored on computerised databases.
- These digital coins are recorded in digital ledgers using strong cryptography to keep them secure.
- The ledgers are distributed globally, and each transaction made using cryptocurrencies are codified as blocks.
- And multiple blocks linking each other forms a blockchain on the distributed ledger.
- There are estimated to be more than 47 million cryptocurrency users around the world.
- These cryptocurrencies are created through a process called mining.
Investor Education and Protection Fund (IEPF)
Why is there a concern about cryptocurrency?
- RBI caution: The Reserve Bank of India (RBI) has recommended framing legislation on the sector. It is of the view that cryptocurrencies should be prohibited.
- Fiscal stability at stake: The crypto dilemma stems from concerns about the unregulated currency having a destabilising effect on the monetary and fiscal stability of a country.
- Involved in unlawful activities: Further, crypto exchanges in India are being investigated for their alleged involvement in unlawful practices such as drug trafficking, money laundering, violating foreign exchange legislation and evasion of GST.
- High volatility: Cryptocurrency investing can be a complex and risky endeavour as the category is extremely volatile and works round the clock.
Will an outreach programme help?
- Regulation is must: Apart from the outreach programme, there has to be a regulatory mechanism for the crypto sector.
- Messaging has to be right: If the government takes a heavy-handed approach and starts saying things like virtual currency is not legal in India that will not be entirely true.
Present regulation in India
- RBI has banned banks and other regulated entities from supporting crypto transactions.
- The Government has confirmed that expenditure incurred in mining cryptocurrency is considered capital expenditure and not a cost of acquisition.
- Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was introduced by the Centre.
- Crypto assets are borderless and therefore, any legislation (for regulation or for banning) would require international collaboration to prevent regulatory arbitrage.
- The collaboration must entail an evaluation of risks and benefits and the evolution of common taxonomy and standards.
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