In last few years, cryptocurrencies have more or less taken the global digital monetary system by storm and amused virtual money lovers all over the world.
1. Lack of Trust & Transparency
Trust and transparency are undermining the reputation of cryptocurrencies. Although, Bitcoin produced phenomenal returns for some investors, there are still some serious concerns regarding its volatility in an uncertain world.
Due to economic risks and ramifications associated with digital currencies, the government of India is mulling on formulating a special law to ban certain transactions of cryptocurrency.
The underlying intent is that special law with dedicated mechanism will fare much better than central banks banning cryptocurrencies.
Based on various reports, an internal note has been circulated for inter-ministerial consultations in India. The reason behind the move can safely be attributed to the recent Supreme Court decision nullifying the Reserve Bank of India (RBI) notification on cryptocurrency ban.
The Supreme Court had observed that RBI notification did not reflect any measure on the damage that could be suffered by its regulated entities. This ruling provided a sigh of relief to entities dealing with the virtual currencies and opened windows for regulation of crypto currency business in the country.
The Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives products to retail investors in the UK. This move will save targeted customers £53 million in losses each year according to the FCA. The ban comes into effect on January 6, 2021.
2. Crime Concerns & Fear of Digital Payments
As of now, Indian banks are not in the mode to encourage the cryptocurrency payments due to crime concerns and the absence of specific instructions from the RBI.
The note on cryptocurrency will be shared with the cabinet and the Parliament following the inter-ministerial consultations.
If this special law on crypto currency ban is enacted (on similar lines with the central government’s prior proposal) – It could land a knock-out punch on the face of investors, stock exchanges and companies dealing with the virtual currencies.
In July 2019, a draft to ban all sort of private crypto currencies was prepared by a high-level government panel. The salient feature of the said draft was to propose a penalty of INR 25 crore and imprisonment up to 10 years for indulging in banned virtual currencies trading.
According to draft law, punishment for dealing with banned cryptocurrency transactions could range between 1 year to 10 years based on the intensity and repetitiveness of the offence. Further, a monetary penalty up to thrice the loss suffered or profit gained by a person or up to INR 25 crore.
3. Weak Regulation and Rise of Government Backed Digital Currencies
Apart from the proposal on ban of certain types of crypto currency transactions, inception of government backed digital currency is also under consideration with the central government.
On the face of it, central government’s proposal could mean absolute decimation of the crypto-industry in the country.
Industry players and experts are hoping that the central government would conduct consultations with all stakeholders prior to giving a final form to the prospective draft on crypto currency ban.
While a ban on illegal and unethical handling of cryptocurrency is a welcome measure – governments should regulate and take into consideration concerns of genuine industry players that are changing the world for the better. This will strike a balance amid the unethical usage of cryptocurrency and genuine concerns of industry players.