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With the growing popularity, the different nature of cryptocurrencies and the increased use of it in different activities such as money laundering and funding terrorist activities have brought cryptocurrencies under the scrutiny of global regulatory authorities and Government.
To check such misuse, cryptocurrencies are coming under the regulatory net. The first country to regulate cryptocurrency is Japan; Now the United States is also quickly laying down regulatory guidelines as well, and the United Kingdom and Australia continue to work on the formalities, but recently China has banned the ICOs.
As India is having relatively small segment in global cryptocurrency market it accounts around 2% of the $170 billion global cryptocurrency market cap, RBI has warned about their potential, financial, legal customer protection and security related risks prevalent in the market regarding media rumours of the possibility of RBI launching its own cryptocurrency named Laxmi.
Incidences of theft of cryptocurrency and rapid increase of cryptocurrency in the ecosystem of India has raised doubts in relation to the safety of IT infrastructure used by such entities.
With the maturing global landscape and the evolution of cryptocurrency ecosystem, the Centre had appointed an Inter-Disciplinary Committee that is going to draft the measures for dealing with cryptocurrency issues related to consumer protection, money laundering etc.
Though the draft proposal isn’t public yet, some panel members are said to be in favor of stricter regulations to govern cryptocurrencies and even introduce a tax policy for cryptocurrencies similar to those in place for gold.
To ensure the transparency in cryptocurrency ownership is it vital to have a well-settled regulatory framework. As with the well-settled regulatory framework, it will help to create a secure and scalable cryptocurrency trading environment, which will bolster trust among Indian cryptocurrency owners.
It’s now essential that the Indian Government and other stakeholders maintain momentum and take concrete steps toward laying a strong foundation for cryptocurrency regulations. It would also be prudent to adopt and implement some of the best global regulatory practices governing cryptocurrencies.
While the three biggest Indian Bitcoin exchanges – Zebpay, Coin secure, and Unocoin have been operating self-regulated trading platforms with strict KYC and AML systems, the same should now be enforced by all entities (exchanges, wallets, etc.) dealing in cryptocurrencies. Linking users’ PAN/Aadhaar number to their accounts/wallets would boost transparency in cryptocurrency ownership and trading.
The RBI should make it mandatory for cryptocurrency service providers to follow its ‘Cyber Security Framework’ and to put fully auditable IT infrastructure and cybersecurity measures with similar rigor as that of the BFSI sector.
The Ministry of Finance should also clearly define tax implications for cryptocurrency trading. Since such cryptocurrencies are unlikely to be used in transactions, they should probably be treated like equities and exempted from long-term capital gains tax.
The SEBI should not only commence research in fundraising activities such as ICOs but should also coordinate with other global capital market regulators to stay abreast of the best practices being implemented in the more mature capital markets.
To sum things up, establishing a regulatory landscape is not a one-time exercise. Rogue elements will continue to seek new ways to exploit system weaknesses. The Indian regulatory authorities on timely basis need to ensure that regulatory framework keeps pace with cryptocurrency’s technological advances.