Time to firm up legalities of cryptocurrency

INDIA is in the midst of a new age. More and more Indians today are investing their money in crypto assets and currencies. The recent spate of television advertisements asking viewers to invest in crypto assets has further propelled this trend. While there is so much of excitement and emphasis on crypto assets and cryptocurrencies, it is important to appreciate that the crypto ecosystem brings across various legal, policy and regulatory issues which need to be appropriately addressed.

India has not yet made up its mind on what it really wants to do on the issue of legality of crypto ecosystem. A couple of years back, the RBI had come up with a notification stating that legal entities engaging in cryptocurrencies would not be provided banking services. Ultimately, the notification was set aside by the Supreme Court, but in a landmark judgment, the court recognised the RBI as the nodal authority to take all decisions on crypto assets and cryptocurrencies and connected aspects. There are announcements that the RBI is coming up with its own cryptocurrency/digital currency. Having said that, India still has to firm up the legalities pertaining to crypto assets and cryptocurrencies.

Most of the Indians who are investing in cryptocurrencies are doing it under the impression that these are currencies and they will ultimately end up making piles of money. There is no doubt that some people will make a lot of money, but there is a huge chance that a large chunk of investors may end up losing it, thereby entering a new phase of economic decline. Hence, today in the absence of enabling legal frameworks, we are virtually in a grey zone.

The Indian Information Technology Act, 2000, is completely out of sync with the crypto ecosystem, since it does not either have any provisions to deal with crypto assets and currencies, nor has it been drafted about keeping in mind the crypto ecosystem. Further, the IT Act was last amended in 2008. Since then, a lot of water has flown under the bridge and more significantly, most developments in the crypto ecosystem have taken place in the past decade.

Today, there is increasing clarity that India cannot adopt an ostrich-like approach. India has to take a cogent policy stand on crypto assets. There was some talk of banning crypto assets and crypto currencies. Banning does not appear to be a successful phenomenon primarily because the world today is a ubiquitously connected world. Most of these crypto assets and currencies are working on international platforms and blockchain technologies. As such, banning is definitely not going to be the answer for addressing India’s concerns.

Hence, a better approach would be that India needs to appropriately legally recognise and enable crypto assets and cryptocurrencies. The only way going forward will be to ensure that India comes with minimal enabling regulation pertaining to crypto assets and crypto currencies. We need to learn from the experiences of other jurisdictions who have already legislated in this regard.

We need to specifically learn from the experience of countries like Belarus and Malta. Malta has got the distinction of being the Blockchain Island of the world which has already enacted three distinct legislations on blockchains. Further, we need to analyse the practical experiences of other countries in the direction of regulating crypto assets and cryptocurrencies. At the end of the day, no one solution can be used on a cut-and-paste basis in the Indian subcontinent. India will have to customise its own approaches on how it wants to go ahead and legally enable and also regulate crypto currencies.

India has great reservations on the currency aspect of the crypto ecosystem. The said reservations are understandable, given that there are no bank authorities behind such crypto currencies. India can just adopt the more conservative approach of targeting the low-hanging fruit, which could be a good starting point.

Ultimately, the important thing is that the people who are investing in the blockchain/crypto ecosystem must be appropriately protected and they must have access to legal remedies which are effective in nature. Further, there is also need for stipulating the rules, regulations and guidelines for the service providers in the crypto ecosystem. There is no denying the fact that the volatility and the speculative nature of crypto assets will continue to keep on increasing with the passage of time and this is one area where legislation will not be of any help. However, the government can definitely step in and try to provide for protection of the rights of Indian consumers and investors, as they go ahead and invest in crypto assets and crypto currencies. This is a very grey zone currently. The time has come when the government must confer with the subject experts and also try not to reinvent the wheel.

It also needs to be noted that whatever decision India takes in the direction of regulating the crypto assets would be very significant as a large number of countries are keeping their eyes on the Indian approach. A holistic, futuristic approach is the need of the hour. We have to realise that crypto assets and cryptocurrencies are the present and represent the future. Hence, we should not, as a nation, try to adopt any approach which hinders the expected growth of the crypto ecosystem.

The Indian policy and regulatory approach to the crypto ecosystem must be evolved in such a manner so as to protect not just the business and legal interests of Indian users and investors, but also the interests of the nation and the sovereignty, security and integrity of India.