TAMING CRYPTO MONSTER

 Lot of debates are going on within the Parliament and outside regarding the control and monitoring of private crypto currencies or assets.The crypto currency and regulation of official digital currency bill 2021to be introduced is expected to bring appropriate clarity not only in the control and regulation of private crypto currencies or assets but also to Reseve Bank of India's plan for phased introduction of official digital currency.

      Private crypto currencies are treated differently in different countries. The barter transactions are followed in Canada and Russia,it is accepted as a mode payment in Japan, Switzerland and Thailand.On the other hand while El Salvador treated as legal tender China imposed complete ban on it.Crypto currency ownership records are stored through distributed ledger technology known as block chain which serve as a public financial transaction database.The block chains are resistant to modification of their data which cannot be usually altered.It has been observed that well regulated digital currencies can provide much public benefits with greater efficiency and lower costs particularly in overseas payments.Despite these merits there have been increasing concerns by Governments about possible crypto currency usage in dubious activities like money laundering, smuggling,drug trafficking, terrorist financing, and tax evasion along with vulnerabilty of hacking.

 Recently crypto currency  drug scams were reported from Karnataka estimated to involve more than rupees 5000 crores.The hacker himself confessed to have hacked several pocker websites and Bitcoin exchanges in addition to hacking state govt's e procurement site itself and stealing rupees 11.5 crores.Regulators like RBI and SEBI have already raised concerns about many  individual investors collecting money in small towns with businesses models of several investment schemes launched by individuals and crypto currency exchanges that are similar to chit funds. Regulators have raised concerns about how some individual investors are collecting money in small towns with businesses models resembling those of chit funds for investing in crypto assets. Indians have even started accepting crypto currency payments for export services posing broader systemic risk .There are many instances where in the hinterlands of  states like UP and  Bihar collective investment schemes or chit funds have been floated to pool money for alleged investment in crypto currency.Unfortunately many of these chit funds multi level marketing schemes are operated by some unscrupulous  entities. More over anyone can launch their own crypto currency and  start raising money. While trading can be banned in India in a highly globalized economy it will continue in other global trading platforms,which can be easily accessed by people.In any case the ramifications associated with crypto currencies are growing into monstrous proportions. 

   Furthermore it has been observed  increased activity on decentralised finance (DeFi) platforms that operate on block chains and which can be used to trade in crypto currency without any intermediaries like banks or standard crypto exchanges. According to data from Chain analysis 49% of the $256 billion worth of crypto activity in China in the 12 months upto June 2021 was already operated through DeFi platforms without any identity. Currently in India top crypto exchanges are doing KYCs.It would be very dangerous if millions of crypto users in India adopt DeFi platforms without KYC barriers. Already an estimated $1.25 billion worth of crypto transactions have happened on such platforms in India and around 2.5million users visited DeFi website from India in November alone.

 Blocking DeFi platforms will not be possible because it would mean blocking other genuine software that use particular port.As technology is constantly evolving and changing crypto currency regulation require collective effort.Globally the application of Distributed ledger technologies (DLT) may be applied in the areas of digital management or KYC requirements. DLT allows the recording,sharing and transfer of data or value without the need for a central record keeping as in the case of a traditional ledger. This can be applied not only for all cross border fund transfers but also for domestic ownerships including land registries transactions and settlement systems like insurance, collateral and securities etc. Advantages of DLT include reduction in administration and transaction costs, improving accuracy of data, speed and efficiency of transactions and most importantly in detecting frauds. 

 In short,any outright ban on private crypto would not yield desired result.An effective solution requires further research and innovation in block chain and related technologies, along with a multilateral approach is required for effective regulation and control of crypto currencies/assets both at the national and global level. 

Comments

nmanikoth said…
Crypto currency will take time to be widely accepted as most are not aware of the ramifications and security involved.
4 December 2021 at 23:47
Unknown said…
Crypto currency will be there.So, as Geetha Gopinath pointed out there must be a combined effort at the global level to regulate it
KCS
19 December 2021 at 09:57
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