While everybody is fascinated by technology, people have a definition on cryptocurrency that is ambiguous as they draw parallels with Mobile Wallet Platforms when the technology is totally different. However, cryptocurrency’s essence lies in the anonymity of transactions and how it works as a medium of exchange despite not having government asset backed to it. The question then arises- how does it act as a currency if there is no government asset backed to it? This is the dilemma RBI was under and thus it banned its usage as a whole in 2018 but has now been overturned by the supreme court in a landmark 2020 judgment.
This is an alarming situation for RBI as cryptocurrency fulfills the only criteria that any venture needs to check, disruptiveness. In a new era where digitization is being regarded as the new revolution on a massive scale (case in point, india’s pro crypto community is 5 Million strong and considering the digital penetration is still on an initiative stage for India’s rural community, this is a really large number), digital privacy is something that cryptocurrency is improving for the transaction segment. Advances in technology have left banks vulnerable to data breaches and other governance & compliance issues. They have often been guilty of customer-unfriendly account manipulations, such as applying debits before credits then charging fees for insufficient funds. In a digital age, customers can actually see this happening by glancing at their mobile phones – big banks won’t be able to get away with such practices for much longer. However, this won’t be the case in cryptocurrency where the only trail is a hash. Another pro point could be that if someone makes a payment to you using paper cash, there’s a possibility that the money could be counterfeit. This isn’t the case with crypto-cash since you cannot counterfeit a cryptocurrency. While RBI may not be able to restrict crypto to crypto transactions going forward, the central bank is still the prudential regulator of India’s banking and payments system. This means RBI still has the power to restrict banks from offering fiat services to crypto businesses and might still choose to do so. This ring-fencing of the fiat system from crypto related risks is not unique to India and is essentially a BCBS (Basel Committee Recommendation to Prudential Regulators).
Despite all this, the biggest risk lies with the currency being more volatile than the currency market itself as something as simple as a digital shutdown could threaten billions in savings. A precedent set by the case of OneCoin is enough to give people a feeling of distrust.
Despite all these pros and cons, the biggest question lies as to what is the future of cryptocurrency in regulatory terms and whether or not it has a market?
While Supreme Court did not talk about law enforcement, this is where SEBI could step which is influential as having a single market regulator for both equity-like tokens (many ICOs) and commodity-like tokens (e.g. bitcoin and ethereum) means fewer opportunities for regulatory confusion or regulatory arbitrage. All of this, in turn, means that, when India finally lays out a comprehensive regulatory framework for digital assets, it will be one that is far clearer, efficient and transparent than the rampant confusion we have to deal with in the United States of America or Europe.
While regulatory issues do follow the Indian crypto market, its base is already set up with many individuals getting digitally literate.
The main issue with cryptocurrency is misalignment of interests between the Indian Government which is promoting Blockchain as a technology whereas the Central Bank openly showing its fears from the virtual currency market to the world.