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Fiat impeded the fate of digital currency innovation over a long time until a global economic catastrophe took the world by storm. The ability of a few people sitting at the treasure trove of democratic financial justice completely toppled the trust of everyone, who in one way or the other contributed to the growth and development of the societies. We are talking about everyone who is paying taxes and their right to determine how their taxes are used. It shouldn’t be used as a means to cover up for the mess that government-funded financial institutions create. That’s what occurred during the 2008 financial crisis when big banking institutions, namely Lehman Brothers collapsed and some of its counterparts with the likes of Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester were on the verge of bankruptcy, revived only by significant bailout packages. Their fallacies, recklessness, and greedy capitalism made the commoners pay, and without a doubt, it was one great time for something as revolutionary as BTC to innovate and evolve the financial system. Such were the times of buying the BTC campaign and people having mixed reactions for the same when it spoke about controlling your own money, even when it comes back to printing them.
Without a doubt, everyone should be in control of their own money and how it is utilized, and that’s what crypto business models promise. But with the launch of Bitcoin powered by blockchain, do we really see that the impending problem of fiat resolved with BTC or other ALTCoins? Perhaps not! Just remember ever your visit to the metro station, you see with big letters on billboards or statutory warnings categorically highlighting to “mind the gap.” Perhaps, that is what you see in the cryptosphere where trading exchanges and multiple other crypto intermediaries are not meeting with the traditional regulation standards.
In the absence of the regulations, the prevalence of ICO scams (Karbon, Pincoin & iFan, Bitcard, Opair & Ebitz), no AML compliances, systemic risks in the form of cyber-attacks (Mt Gox, Binance Hack, BitFinex Scam) and illicit payments, DEX scams have given more scope for dark activities to flourish under the garb of crypto-trading. In the absence or complete anonymity of trading ensure you can easily move funds from one place to another without any answerability. The absence of tax obligations, the ability of the crypto exchanges to engage in proprietary trading against the customer’s will, and lack of regulations to minimize risks and protection safeguards have completely called for regulations to make things better in the system.
What is the Way Forward To Regulate the Cryptosphere?
CFTC or Commodity Futures Trading Commission & SEC or (Securities and Exchange Commission) has proposed for declaring Bitcoin as a commodity rather than a currency, but even that doesn’t change anything since decentralized operations do not make their operations accountable or answerable to any centralized authority. With that said, many centralized authorities have recommended incorporating the following to avoid problems of hacking, cyber-attacks, vampire attack, or bypassing government regulations for ulterior motives;
- Regulation on trading by bringing the platform under the purview of jurisdiction.
2. SEC & CFTC for crypto regulation
3. Specific plans to include;
- Customer Asset Protection
- Interest conflicts where one single party has to perform multiple functions
- Record keeping and periodic reporting
- Execution and settlement of all transactions in a competitive, open, and efficient manner.
- Trade transparency
- Efforts to eliminate fraud, manipulation, and abusive practices.
- Ensuring business continuity, disaster recovery, and cyber-security and other backup facilities
- AML & KYC guidelines for the prevention of illicit trading and transfers for greater transparency and accountability.
- The cryptosphere must abide by developing its own regulatory mechanism where the interest of the stakeholders is not compromised under any prevailing circumstances.
What is the Scope of Regulation for Cryptocurrencies in Other Parts of the World?
With cryptocurrencies evolving and crypto business models lately picking up pace with the launch of stable coins like Libra and Tether, the world has started seeing cryptocurrencies as parallel economies and government authorities have advocated for either regulations or a complete ban. To buy Bitcoin and trade in BTC, there are multiple guidelines that countries have set. It is a good move nevertheless. Therefore, let’s have a look at the scope of growth of cryptocurrencies in top economies and the regulations planned;
The United States
Cryptocurrencies: Not a Legal Tender
Cryptocurrency Exchanges: Legalized with regulations varying according to different states in the US.
The United States has been ambivalent about cryptocurrency and exchanges, where the FED has been lying in confused waters regarding cryptocurrencies, and consider them as not legal tender, but they do foresee exchange as money transmitters. The CFTC and SEC have allowed derivative trading in BTC. But they have also tried to dilute the advantage of anonymity in cryptocurrency trading by demanding the revelation of the identity of originators and beneficiaries.
Future Regulations in the US
SEC and CFTC have tied up with the Financial Action Task Force (FATF) for streamlining consumer protection and have suggested ways that could mitigate the problem of criminal activities sponsored by cryptocurrencies. There are over 21 use cases that the regulating authorities are closely monitoring to understand the drawbacks and the grey areas to fill in the upcoming regulations.
The EU or European Union
Cryptocurrencies: Legal Tender, Member states are planning to launch their own cryptocurrencies
Europe has appeared as a haven for cryptocurrencies, with Malta ending up as the most cryptocurrency-friendly country. There are specific regulations with respect to the taxes from trading in cryptocurrencies as well in the European Union. The EU also introduced its 5th Anti-Money Laundering Directives. With such directives, the exchanges will have to perform KYC and CCD. But exchanges have to register with Germany’s Financial Supervisory Authority and France’s Autorité des Marchés Financiers.
Future Regulations in the EU
The 6th Anti-Money Laundering Directives will be underway for the European Union in 2020 that will pave the way to mitigate or dilute more risks that cryptocurrencies at present hold. They are also holding a Public Consultation Initiative that will help in making the crypto-currency adoption mainstream and for the common good.
What is the State of Crypto regulation in India?
The trading volumes have recently picked up the pace ever since March 2020 with complete lockdowns and loss of job opportunities. Many traders and investors have invested in cryptocurrencies and crypto business models are flourishing with over 450% trade volumes at Paxful, a Bitcoin marketplace that reported 883% of growth from US$2.1 million to 22.1 million in a rough span of just a few months. The same has been the case with one of the top growing crypto exchanges that had grown 400% in March 2020 and 270% in April. But despite such a large embrace by the trader’s community in India, the Indian Government is again planning to put an end to cryptocurrency trading by imposing a ban shortly to buy BTC or other cryptocurrencies. After many financial institutions like banks were given restraining orders banning the use of cryptocurrency, there have been a lot of reservations going in the head of institutions who are dealing in cryptocurrencies. At a time, when blockchainization of everything is picking up pace, a restraining order to use cryptocurrencies could significantly push India decades back in comparison to the west, which the country shouldn’t do to emerge as the global leader.
Are We Any Close To Regulating Cryptocurrencies for Mass Adoption?
With more than 5 million cryptocurrency users and an aggressive campaign to build a reputation for cryptocurrency and blockchain in India, there is a greater scope that revival will happen in the mindset of the authorities. There are also concerns with a significant rise in nil GST returns filed by businesses during the coronavirus period. With that said, the adoption of cryptocurrency as a legal tender or legalizing cryptocurrency trading will fill up the gap in the revenue. At the moment, there is a need for the regulators to set-up appropriate guidelines that don’t dilute the concept of blockchain and decentralization yet safeguard consumer protection and establish transparency and accountability. As we see, the campaign of Digital India picking up pace, crypto business models powered by regulations will help wide-scale adoption and trust in cryptocurrency and trading in BTC or other ALTCoins. There will be the possibility of Central Bank Digital Currencies to make ways as China has already planned for a Digital Yuan forcing India, its archrival to follow up on the same lines.
Conclusion
When new technologies come, there is always resilience and reservations in the minds of the early adopters. That was something that happened with the internet when it unfolded in the ’90s. There were challenges of frauds, hacks, and other threats, but with time, the technology has evolved, and it is powering up everything. The same is the case with blockchain and cryptocurrencies. Early adoption is the toughest, but economies flourish only when they have embraced transformative evolutions. Many countries that were slow to adopt the internet had witnessed a slower growth, especially in Africa. Likewise, for India to emerge as the dominator or world leader, they shouldn’t be averse to adopting something that can literally transform the way we see the economy and finances.
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Crypto Regulations in India: Are We There Yet? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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