Regulation of Cryptocurrency

India’s cryptocurrency investors were eager to jump on board, but the government is still catching up. The country’s crypto taxation regime is viewed as punitive and unfavorable for the industry’s future. Should India be so eager to dismiss cryptocurrencies? Is there a different way to do the same thing? We’ll look at how crypto could be controlled in general in this essay.

Need for Regulation

Let’s take a look at this from the standpoint of a legislator. They regard cryptocurrency as a fantastic tool for money laundering and other illicit operations. ‘Pump and dump’ schemes, fake trading volumes, frauds, and other scams abound in the crypto market. Certain illicit actors can carry out transactions anonymously, keeping their identities secret from law enforcement agencies. Furthermore, as our economy becomes more reliant on cryptocurrency, it exposes itself to a slew of financial hazards.

Despite the aforementioned concerns, appropriate crypto regulation will do more good than harm. Crypto-related technologies open the door to more fintech innovation. These developments are taking place in crypto-friendly countries. People will hunt for grey areas and riskier ways to conduct transactions if the government takes harsh measures against cryptocurrency.

How should it be regulated?

Limit the number of ways in which users can conduct crypto transactions. Even though all you need to use crypto is an internet connection, you’ll need a lot of technical know-how to keep your identity hidden from the authorities. As a result, the vast majority of people are compelled to rely on exchanges to meet their necessities. Only using crypto through licensed crypto exchanges could become required. This centralizes the majority of crypto clients under one roof, making regulation easier.

A separate licence for dealing in crypto. We may have a separate registration or a different licence for dealing in crypto, just as we have a banking licence and separate registrations for Non-Banking Financial Companies (NBFCs), etc. This enables crypto exchanges to be regulated.

Setting up of a regulatory body. We have the Reserve Bank of India (RBI) to regulate the banking industry, the Securities and Exchange Board of India (SEBI) to regulate the securities market, and we might create a separate agency to oversee cryptocurrency governance.

Mandate KYC norms for crypto customers. This regulating authority might mandate that all consumers provide documentation to authenticate their identification, similar to the KYC requirements imposed by banks. In this instance, the issue of anonymity in crypto transactions would be addressed.

Higher identity verification standards are mandated for the purchase of high-value assets. Money laundering is divided into three steps. Integration, layering, and placement. Despite all of the foregoing, bad actors will continue to use cryptocurrency to support their illicit actions. They will eventually have to utilize their profits to buy actual high-value assets. As a result, a limit could be set above which numerous identity certificates must be provided, which will be checked and constitute an important part of the purchase process.

Cooperation with international regulatory bodies. Money laundering on a large scale is not limited to the geographical boundaries of a single country. Furthermore, exchanges may have an international component. To evaluate the validity of suspicious transactions, it would be prudent to build up an information-sharing platform that is expressly focused on crypto transactions. This would also go a long way toward addressing revenue leakages.

Accumulation of crypto reserves. India has acquired a considerable quantity of foreign exchange reserves in order to protect its economic interests. Keeping crypto reserves in a similar manner would undoubtedly be beneficial.

Final Thoughts

Bringing rules to the crypto world is by no means a straightforward or easy undertaking. However, as the popularity of cryptocurrency grows among India’s youth, it would be helpful to introduce legislation as well as a taxation policy that encourages investment and innovation. The upside might potentially be a new tax revenue stream for the government.