India has developed a somewhat paradoxical relationship with cryptocurrencies, blockchain and other emerging technologies. On the one hand, the Indian government is a huge proponent of distributed ledger technology, with several government-led initiatives gaining ground across the country, wrote Sumit Guta in an article for Cointelegraph. On the other hand, the Reserve Bank of India (RBI) imposed a de facto ban on cryptocurrencies when it prohibited banks from conducting any transactions or dealings involving digital assets and related services in 2018.
This measure came as a huge blow to the country’s crypto ecosystem, and since then, India’s crypto community has been grappling with the central bank over the legitimacy of the ban. Eventually, petitions filed by industry leaders reached the Supreme Court of India.
Following several postponements last year, the case was finally put before the Supreme Court in a hearing that took place from January 14 to 23. The Internet and Mobile Association of India (IAMAI) presented the initial arguments on behalf of the cryptocurrency sector, arguing that the RBI was acting beyond its authority by laying down a nationwide blanket ban on banking with digital currencies. Ashim Sood, counsel for the IAMAI, put across strong and convincing arguments that were supported with hard facts, stressing the need for sensible regulation.
Looking outward
Looking outward, jurisdictions such as Singapore, Malta and Japan have demonstrated how adopting positive regulation for crypto can provide significant economic benefits. By taking an open regulatory approach, each of these countries has seen its local crypto economy flourish, bringing job opportunities and capital investments to their shores.
Furthermore, regulation could help deter the misuse of cryptocurrencies for money-laundering purposes. To date, India’s leading exchanges and cryptocurrency service providers have gone to great lengths to self-regulate, implementing “know your customer” (KYC) and anti-money-laundering (AML) procedures. However, they can only do so much to ensure that industry best practices are followed by everyone.
If cryptocurrency assets are regulated, exchanges and traders would be required to maintain detailed KYC documentation, which not only puts the government in a better position to monitor fraudulent activity, but allows it to attain revenue through cryptocurrency taxation. Meanwhile, the assertion that cryptocurrencies are in any way more exposed to criminal activities and money laundering than fiat currencies becomes less convincing as transaction monitoring technologies, documentation within the crypto sector, and KYC systems become more sophisticated.
Additionally, the use of crypto may, in fact, lead to far greater transparency within the Indian economy than currently exists, as studies show that more than $770 billion worth of “dirty money” entered India between 2005 and 2014.
Considering the government’s positive sentiment toward blockchain, outright bans on cryptocurrencies could become an obstacle to the continued support and promotion of distributed ledger technology. On a fundamental level, blockchain and cryptocurrency are intrinsically linked, and a blanket ban could end up discouraging the growth of blockchain in India.
US regulatory framework
Meanwhile, the US’s top commodity regulator has pointed to New York’s licensing framework for digital assets as a market regulatory success story, Investable Universe reported. Speaking at a gathering of the Economic Club of New York on Monday, chairman Heath Tarbert of the Commodity Futures Trading Commission (CFTC) pointed to the BitLicense standard as a positive development toward “less burdensome, more business friendly” regulation to encourage innovation and enhance market participation.
Reviews of the licensing standard have been mixed. Since its 2015 rollout, BitLicense has granted just 22 companies an official blessing to conduct cryptocurrency transactions with clients in the state.
In his speech on Monday, Tarbert cited overregulation and market fragmentation – the existence of multiple, incompatible market centers– as key threats to the effective functioning of US commodity markets.
While the CFTC regulates cryptocurrency trading – dominated today by the world’s two largest cryptocurrencies Bitcoin and Ether –cryptocurrency laws are based upon a patchwork of state-level regulations.
Based on recent remarks, it appears that crypto is an area where the chairman is keen to guide the CFTC in a progressive direction. In an interview with Bloomberg television days ago, Tarbert reiterated his view that the United States should take the lead in cryptocurrency market innovation.