Lifting ban will impact entire ecosystem: India well placed to emerge as a leader in blockchain and cryptocurrency
Sethurathnam Ravi | March 17, 2020
Cryptocurrency is a digital currency that runs on blockchain technology. This essentially means that no person or entity can control it. Both nationals and internationals can transact with the currency. India is one of the largest growing economies in the world today. The recent developments, about the Supreme Court lifting the ban on use of cryptocurrency in the country, can have a tremendous impact on the overall economy, in the long run. Not only will the new technology boost job creation, but it will also put India on the global map of yet another up and coming industry.
The ecosystem of cryptocurrency users has grown from thousands to over 30 million people now — growth that substantially outpaces the early internet’s growth rate (approximately twice the rate). This growth includes the use of cryptocurrencies as a lower cost and more efficient alternative for certain financial transactions, the “digital gold” thesis for bitcoin as the ultimate hard asset, and the emergence of the decentralised finance movement (‘DeFi’) that aims to expand financial inclusion and restore user-control over personal finance.
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Abroad, cryptocurrencies have been gaining significant recognition and acceptance. Economic behemoths such as the United States and China have been tussling for blockchain and crypto hegemony, exploiting innovational opportunities within the sector by registering an increasing number of patents. Emerging markets in Asia, such as Thailand and the Philippines, have initiated the process of developing regulatory compliances and guidelines to support the growth of their local cryptocurrency markets. They are approving licences for several crypto exchanges and developing frameworks to boost investor protection.
With India’s pool of skilled and trained IT entrepreneurs and developers, the country is well placed to emerge as a leader in the blockchain and cryptocurrency sectors. Globally, over $5.5 billion has been invested into blockchain startups, with Indian companies receiving less than 0.2% of these capital investments. Singapore, on the other hand, has received more than $744 million as a result of capital inflows into the fintech economy.
Cryptocurrencies can not only provide immense benefits for corporations and institutions, but ordinary people stand to gain equally as well. With access to investments in cryptocurrency, the purchasing power of consumers has a potential to surge. Such a boost to the spending power of ordinary citizens in India could have a domino effect across the economy. This would stimulate wealth creation and encourage further consumption demand in the economy. As it stands, retail investors within India have little access to high-performing international markets. With the legitimization of cryptocurrencies as an asset class, 1.3 billion Indians will gain access to a new asset class with the potential to appreciate over time, as well as the ability to hedge against volatility in traditional markets. Cryptocurrencies can enable unbanked individuals to have access to money management services such as savings and lending for the first time, further improving financial inclusion in India.
Cryptocurrencies and blockchain have the potential to complement and enhance the banking sector’s operational efficiency, offering benefits such as improved financial inclusion, the creation of more jobs, the attraction of greater investment into the economy, as well as generalised economic growth. The traditional financial sector would also gain from cryptocurrency innovations with added security, convenience, and transparency in payments systems, which would in turn provide better traceability and accountability than legacy infrastructures.
For India’s crypto sector to thrive, the creation of clear guidelines — surrounding the process of applying for and meeting compliance requirements to obtain licences for entities and services such as crypto exchanges, financial services, payments processing, and banking — can help provide much-needed clarity and consistency for compliance that can protect investors and improve Know Your Customer (KYC) processes that are in accordance to the Securities and Exchange Board of India’s (SEBI) requirements. As such, having a consistent framework across regulatory requirements will go a long way in charting the growth of India’s crypto sector.
India needs to develop a regulatory framework that governs registration of exchanges, establishment of security procedures, independent audits, mandatory disclosures to customers, maintenance of records and submission of accounts annually to their financial services agency.
Auditing and alteration are not possible, and the transactions remain anonymous. Tax evasion will be impossible as cyber-policing will become stronger. A limit or cap will be placed on the amount of transaction. Transactions need to be thoroughly governed. The RBI cannot intervene in this matter. Cryptocurrency will come under purview of the finance ministry.
Sethurathnam Ravi is founder and managing partner at Ravi Rajan & Co. LLP and former chairman of Bombay Stock Exchange.
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