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.

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.

Way forward

• 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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