Regulators from developing countries around the world have repeatedly expressed concern about the cryptocurrency trade, such as bitcoin. The gold rush, however, has not diminished, attracting many retail investors, and most exchanges of Indian cryptocurrencies are struggling to meet demand.
As expected, the clamor to introduce a regulatory regime for cryptocurrencies is on the rise.
Since 2013, the Reserve Bank of India (RBI) has periodically reiterated its concerns about cryptocurrencies, but has done very little else. Unlike its counterparts in other places that have banned or severely restricted the use of cryptocurrencies, the studied silence of the RBI is probably progressive in nature, allowing technology to develop in the market while what is at stake is relatively low. .
This has allowed the emergence of a nascent but vibrant industry in India focused on the development of blockchain technology, which underlies cryptocurrencies. However, the continued silence of the RBI (apparently because of its design) is stalling the growth of the industry by creating a legal ambiguity.
The Blockchain technology represents a critical deviation from the centralized institutions that currently regulate us today to a more decentralized future. Attempts to carefully update existing regulations on cryptocurrencies or other applications based on block chains will not only be inadequate but, philosophically, are an absurd choice.
Nowadays, it is not clear if cryptocurrencies can be considered financial assets or investments. For example, the Finance Minister of India, Arun Jaitley, clarified in recent weeks that cryptocurrencies are definitely not "currency" or legal currency. Another approach favors the interpretation of cryptocurrencies simply as "software" and the labeling of all cryptocurrency transactions as essentially the sale or purchase of software. Although this definition sounds true from a legal point of view, it is similar to calling change notes or sharing paper certificates.
Without clear regulation, the blockchain industry is like a time bomb. Anything from a failed initial currency offer (or ICO, where funds are raised for new cryptocurrency companies) to an exchange of dishonest cryptocurrencies will cause a crisis of public trust, forcing the government to make a quick decision that may be more politically motivated of what is based on reason. This tension has already manifested itself in the form of multiple public interest litigation before the Supreme Court of India to facilitate state intervention to regulate cryptocurrencies. Interventions sponsored by the court, although popular for quick results, are not suitable for a topic such as blockchain, which requires considerable research and original academic thinking.
This raises the question: who should regulate blockchain technology and cryptocurrencies, and how should it be? fact?
Since different cryptocurrencies may exhibit different properties, general regulation will be inadequate. It is likely that several regulators such as the RBI and the Securities and Exchange Board of India (SEBI) have jurisdiction over cryptocurrencies, which could generate more uncertainty and confusion and, in some cases, a territorial war.
If regulated as a fiduciary currency, cryptocurrencies will be subject to the control of a central bank, as well as, among others, to various exchange regulations. Due to its inherent decentralized nature, enforcing any of these regulations in their current form will not be practical at best. In addition, regulating cryptocurrencies as a "security" is also a dead end, since very few cryptocurrency forms (such as certain ICO cards) will reflect those characteristics.
Ultimately, it is still regulated as a "commodity", according to existing laws, one of the few viable ways to regulate cryptocurrencies. The United States Commission on Futures and Commodities Trading, for example, considers virtual currencies as commodities. And its treatment as basic products allows greater freedom in the handling of cryptocurrencies since they are regulated in a less onerous way, in comparison with coins and values.
This approach, however, leaves much to be desired, since traditional use cases for cryptocurrencies are more complex and require more nuanced regulation. For example, there is a well-founded concern about the use of blockchain technology for money laundering. And unfortunately for much of the world, the regulation of bitcoins has been reduced to the regulation against money laundering, which as a regulatory response to cryptocurrences basically fails the plot. In the last ten years, it is clear that the cryptocurrency movement has successfully demonstrated both the decentralization of money as a concept, and the durability of the technology that drives it. The cryptocurrency ecosystem is now charging through the dominant economy, having grown well beyond its first users. For regulators, therefore, treating cryptocurrencies simply as objects that facilitate money laundering is an incredibly myopic vision of the technological disruption that is on the way to changing our understanding of money forever.
Japan and Singapore are establishing a progressive example of short-term regulation. The Japanese have quickly lost insecurities around the "preservation" of the yen and have declared that bitcoin is legal tender without the excess baggage of central bank control over circulation. Having learned of the infamous collapse of Mt.Gox in 2013 (the largest cryptocurrency exchange in Japan and the world), Japan has ordered cryptocurrency exchanges to maintain capital reserves, restrict the mix of customer funds and implement strict credit procedures. Know your customer. In Singapore, its regulator is offering a "regulatory safety enclosure" to innovative companies that want to raise funds in an ICO. The sandbox approach shows the opening of the Singapore regulator to work with industry stakeholders to jointly resolve and resolve regulatory difficulties through experimentation and learning in a tightly controlled environment.
Whatever the drawback, the ideal approach to regulating long-term cryptocurrencies will be to treat them as a class of assets of their own. While some may be granted the status of legal tender, it is unlikely that all 1400 "cryptocurrencies" currently on the market obtain an acceptance comparable to that of bitcoin. So it becomes imperative to decide what the legal status of these other digital assets should be, which are, for example, just a securities store, but not a legal currency. In addition to the basics, there will also be a need to create regulations to enable services such as wallet and storage services, custody services, KYC rules for investors, brokerage and negotiation rules for cryptocurrency exchanges, etc.
In the short term, regulating it as a commodity can shake the ship. But in the medium and long term, it is essential that cryptocurrencies and other digital assets are regulated as a class of their own assets. And governments that move progressively and move early will establish benchmarks for others.
For most regulators, including the Indian government, it will be essential to develop the right approach. The decentralized nature of blockchain will allow very limited control of any centralized institution, and its transparent application across borders will also make it difficult for a lone government to regulate it according to its own whims and fantasies.
But the blockchain networks are based on a broad consensus and any effective regulation will also be through consensus, at least among the main governments of the world. As a rising global power, India has the responsibility and the influence to move regulations in a way that suits the developing world.
If the increase of bitcoin or other cryptocurrencies is something that can be expected, it is clear that prohibitions or other suffocating measures will be difficult to apply. Regulators already find it difficult to adapt to the new world order and set aside the absolute control to which they are so accustomed to exercising. Regulatory models will have to evolve or, as the Bitcoin community puts it, they risk getting #Rekt!
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