In a recent interview with CNBC TV18, Finance Minister Nirmala Sitharaman said the government would be taking a ‘calibrated’ position on the cryptocurrency legislation. The announcement comes close on the heels of the government’s proposed bill aimed at banning all private cryptocurrencies in the country, like Bitcoin and Ethereum. However, the proposed bill drew flak from all quarters, forcing the government to rethink its stand on cryptocurrencies.
The government is now making moves not to be left behind in capitalising on the benefits of blockchain technology, Sitharaman said. The centre is holding discussions with the Reserve Bank of India to bring out proper legislation to regulate cryptocurrency in India.
FM assured the industry that RBI would lead the country’s crypto-trading efforts. The government will bring new legislation for cryptocurrencies and promote blockchain technology, the base for these digital currencies. The news comes as a huge relief for the crypto stakeholders and encourages companies to reevaluate their crypto-strategy.
Pankit Desai, the co-founder and CEO, Sequretek, said the market forces are already pushing for acceptance of cryptocurrencies in a global economy. Therefore, it will be challenging for an integrated economy like India to stay isolated. “We want the startup ecosystem in the country to take benefit of the expected boom that the cryptocurrencies are expected to reel in,” said Desai.
Impact On Cryptocurrency Industry
While cryptocurrency transactions were banned in India for some time, the Supreme Court lifted the ban in 2020 and asked the government to create a calibrated regulation framework for the sector.
Welcoming Sitharaman’s comments, Vikram Rangala, the CMO of ZebPay, said it is great news for crypto companies and provides opportunities for large scale innovation and job creation in the cryptocurrency industry.
ZebPay is currently launching a new R&D department “to make sure that there is a window available for all kinds of experiments in the crypto world,” said Rangala. “There is so much potential to use blockchain technology for the greater good.”
Sumit Gupta, the founder and CEO of India’s largest cryptocurrency exchange platform, CoinDCX, said that FM’s statement “is a sign of government’s resolve to digitise India and making us Atmanirbhar.” Considering the company works on various global level products, Gupta believes crypto can be a huge asset in scaling the innovation “if properly administered.”
The embargo on cryptocurrencies could have also led to illegal and undercurrent activities at the expense of India’s economic growth. Thus, the announcement has calmed the nerves of all stakeholders.
On this note, Vineet Kumar, the founder and president of CyberPeace Foundation, said, “In the CyberPeace Foundation’s recommendations to the MeitY on the National Strategy on Blockchain, we had also suggested the government to adopt an open approach towards cryptocurrencies. It would ensure India’s involvement in the global cryptocurrency market while allowing us to recognise and identify the risks for the citizens ourselves. This would assist us in developing viable guidelines and a digital currency with limited risks.”
Now that the country is open to experimenting with cryptocurrencies, it needs to develop a mechanism for regulating them. While Bitcoin and Ethereum are public cryptocurrencies, RBI still classifies them as private cryptocurrencies. Thus, “we need to arrive at a consensus regarding the understanding of private and public cryptocurrencies,” added Kumar.
CyberPeace Foundation has established centres of excellence across India to help the government develop a regulatory framework by providing technical expertise on blockchain.
Dealing With New Security-Related Risks
Experts believe, understanding the financial, legal and security-related risks is critical before investing in cryptocurrencies.
Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry said, while the recent announcement by the government to introduce the cryptocurrency and Regulation of Official Digital Currency Bill 2021 is a significant step to regularise the operations of crypto-trading in India, it is one of the volatile assets in the global markets which are highly speculative. Regulatory risks, scalability risks and risk of hacking come with the territory.
Aggarwal said, “The cryptocurrencies need proper and comprehensive regulations and monitoring by a robust institution in India. And investors must comprehend the financial, legal and security-related risks before investing in cryptocurrencies.”
Kumar Ritesh, the Founder & CEO of cybersecurity startup Cyfirma said, the introduction of cryptocurrency presents many cyber threats.
“In our observation, threat actors are increasingly targeting crypto exchanges and digital asset management companies with new malware that can monitor wallet transactions, infect endpoints and mobile devices to gather user behaviour patterns and steal private keys,” said Ritesh. “Our researchers also see the prevalence of fake digital wallets as cybercriminals lure victims into transferring digital assets to hackers-controlled accounts.”
Additionally, Cyfirma researchers have also seen transaction sessions being hijacked using crypto miners and disrupting crypto-exchanges via a denial of service and ransomware attacks. Thus, the regulations need to be stringent enough to deal with these advanced crypto-related hackings.
As per data, seven million Indians own cryptocurrencies worth over $1 billion. While the recent development has brought joy for many investors and stakeholders of the industry, the detailed cryptocurrency bill will remove the ambiguity associated with crypto-trading in India. Currently, the government has provided six months for the stakeholders to straighten out their crypto assets. RBI is also working towards creating a mechanism to operationalise this digital currency.