Regulatory tools should not outright ban cryptocurrencies, rather build a framework to monitor their use, a report by the Confederation of Indian Industries (CII) has said in a report.
This report by the industry body comes at a crucial juncture when the government is all set to table the new cryptocurrency regulations draft bill in Parliament during this winter session.
The report titled, ‘Cryptocurrencies, Crypto Tokens/Assets & Regulations: The Way Forward’, highlights that digital tokens based on blockchain technology can have several important use cases.
“The crypto industry is currently driving substantial technological innovation globally. Blockchain innovations around the Ethereum main-net, side chains and Layer 2 have the potential to transform the future of payments, remittances, finance, investments, and beyond, with significant socio-economic benefits,” the report reads.
The proposed cryptocurrency Bill has provisions to punish those infringing the new regulations with arrest without a warrant and being held without bail, reported Reuters. The Bill is stated "to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to the listing on the Lok Sabha website.
Pointing out the socio-economic benefits of decentralised finance (DeFi) tools and cryptocurrency tokens, analysts say the technologies can be used for peer-to-peer (P2P) remittance solutions, P2P collateralised lending and borrowing, and creating de-centralised, digital Smart Contracts.
“Early use cases across the world of crypto/digital tokens include P2P payment and remittance solution (using crypto/digital tokens that are stable coins), P2P collateralised lending and borrowing solution, P2P social media platforms, P2P creative digital arts, digital gaming, and diverse other applications around digital smart contracts,” the report said.
The CII report also highlights the benefits of a Central Bank Digital Currency (CBDC) that may be issued by the Reserve Bank of India (RBI) to promote financial inclusion and improve banking services to individuals who live in remote regions with often poor coverage of financial services.
It is for this reason that the report states that India must take a balanced approach towards DeFi and other crypto technologies. “The regulatory tool box should accept, not reject and outlaw, the new world of crypto/digital tokens founded on decentralised, digitally verifiable financial interactions enabled by blockchain technology,” said CII in its report.
Some of the key concerns that are underlined, for a regulatory framework for crypto technology to focus on are; the classification of cryptocurrency tokens as either ‘commodities’ or ‘securities’, preventing money laundering and other malicious actions, ensuring tax compliance when investing in crypto assets, and ways to bring crypto/digital tokens under compliance with foreign exchange laws. Of foremost importance are matters relating to enforcing AML regulations and ensuring tax compliance, states CII.
The report suggests that regulatory mechanisms relating to the two key issues can be centred around transactions and centralised entities, such as cryptocurrency exchanges and marketplaces like CoinDCX, CoinSwitch Kuber, Zebpay, Unicoin, within Indian jurisdiction. Regulatory frameworks like making centralised entities register with SEBI, and bringing crypto/digital tokens under the ambit of income tax law and GST law for tax compliance are also suggested. Technical adaption by regulators would also be necessary to ensure compliance.
“Regulators and tax authorities should commence capacity building to harness the power of big data and analytics, for surveillance of the digital trail that the validation mechanism embedded in the rails of blockchain network on which digital/crypto currencies/assets run,” the report stated.
The CII report also adds that due to the nascent and developing nature of the segment, an advisory body can be set up to provide the government with appropriate suggestions in the future. The advisory body would comprise regulators, policymakers, participants and stakeholders.