Exploring Cryptocurrency in India: Opportunities, Challenges, and Regulation: This article is written by Syeda Salma Fathima
Imagine a world where money lives on the internet, which is easily accessible to all, even by their cell phones, without any traditional banking system. Yes, it is possible through Cryptocurrencies. Cryptocurrency is a groundbreaking innovation rapidly capturing Indians' attention.
But is it financial freedom or a disruptive technology let us explore the opportunities, challenges, and the future of cryptocurrency in the World's largest democracy.
Introduction:
What is cryptocurrency?
Cryptocurrency is a virtual or digital currency, it is intangible and an alternative to the contemporary currency created using encryption algorithms. Its decentralized system keeps it outside the control of the government and central authorities for its transactions. It doesn’t require any bank and operates independently using Blockchain technology. There are about 21,910 cryptocurrencies, with a market value of $850 billion, each with its own unique features and purposes.
Cryptocurrencies are essentially used as payment currencies and are inbuilt to their blockchains. Example Bitcoin, Altcoin, Ethereum (ETH), Ripple (XRP), and Litecoin (LTC) etc.
Unlike Cryptocurrency, Crypto tokens are digital assets kept on a blockchain database, such as a digital artwork or grant the holder access to a particular service or application. Examples: Utility token, Security tokens, Non-Fungible Tokens (NFTs) and Payment tokens etc.
What is Blockchain Technology?
Using cryptography, digital files (cryptocurrency) are created which are used to send and receive payments between individuals directly through the internet. It is done by a decentralized system which is most reliable and is shared with all its members, it is difficult to change, it cannot be modified or altered, and this system or database is called Blockchain technology. It is an immutable technology that allows transparent information sharing within a business network.
The development of a "blinding algorithm" in the 1980s is considered to be the beginning of cryptocurrency technology. Research on Blockchain technology was started in the 1990’s but was implemented in 2009 by Satoshi Nakamoto an anonymous developer who developed Bitcoin for the first time with the help of blockchain technology. Until now there are about 21,910 cryptocurrencies, with a market value of $850 billion overall.
Cryptocurrency in India:
Cryptocurrencies have witnessed exponential growth over the past decade in India. During the COVID-19 pandemic, there has been a significant increase in the number of cryptocurrencies. During the lockdown period, most people turned to digital methods for financial transactions, including cryptocurrencies. As cryptocurrency provides access to digital financial services with high speed, lower fees, transparency, and low cross-border transactions it has attracted 20% of the Indian population, the popularity of cryptocurrency in the country can be evaluated by the fact that India already has the highest number of crypto owners in the world at 100 million people.
- According to a 2022 survey by KuCoin, 115 million people in India, or 15% of the population aged 18–60, own cryptocurrency. This represents 7.1% of India's total population.
- According to Statista, the Indian cryptocurrency market is expected to reach $343.5 million in revenue in 2024, and $467.2 million by 2028, with an annual growth rate of 7.99%. The market is also experiencing high interest from institutions.
- Blockchain, and Web 3.0, the core technologies behind crypto have been already implemented across industries and are thought to be the foundation of the next big Metaverse trend.
Opportunities of Cryptocurrency in India
Cryptocurrencies with their advancements present several opportunities across various sectors. One of the most prominent opportunities lies in the realm of financial inclusion, to make sure that everyone has access to financial services.
India’s Atmanirbhar Bharat Abhiyan Scheme 2020 had led to tremendous growth in cryptocurrencies industries. Highly skilled Fintech and IT professionals have generated endless business opportunities and are currently employing around 50,000 individuals in crypto industries. Cryptocurrency can empower individuals by providing them with direct control over their finances, independent of centralized authorities. And it eliminates intermediaries, by lowering the transaction fees, benefiting both senders and recipients. This boosted the overseas cash influx with great momentum in the Indian economy. Many SMEs in the crypto sector have been established to fulfill the Atmanirbhar Bharat scheme.
With this cryptocurrency market continues to lead by improving the employment rate across the nation. As per a report, the industry is poised to see massive employment opportunities, pegged at over 800,000 by 2030. Thus India is seen as the investment hub for cryptocurrency.
Challenges of Cryptocurrency in India:
Though cryptocurrencies have created enormous opportunities in employment generation, financial inclusion which enhanced digital payments and investments, because of their ambiguity and uncertainty they face many challenges like price volatility, security concerns, financial risks, and limited legal framework, money laundering, lack of awareness and understanding of cryptocurrency.
In 2020, the Supreme Court's judgment on cryptocurrency presented that owning and trading Bitcoin is legal in India. They are not recognized as legal tender, but crypto has some functions of real currency, and it has created momentum in the crypto market. However, it is important to understand that investing in cryptocurrency can be risky and has the potential for significant gains as well as losses. So there is a need for necessary regulations to be framed for cryptocurrency to have smooth and transparent transactions.
Regulations of Cryptocurrency in India
In India, cryptocurrencies are neither expressed nor regulated in totality. Depending on how we use them, cryptocurrencies might fall under existing regulations for securities, commodities, or foreign exchange. Advertising for crypto has specific guidelines too.
The Cryptocurrency Bill of 2021 is marked as the first step in attempting to regulate the flourishing Indian cryptocurrency market to curb their use in financing illegitimate activities. This bill sets the guidelines for creating the official digital currency from the Reserve Bank of India (RBI) called Central Bank Digital Currency “CBDC”; this currency will support and use existing cryptocurrency technologies while banning all other existing private cryptocurrencies in India.
As of October 12, 2023, 10 banks are participating in the wholesale CBDC pilot, and 13 banks are part of the retail pilot. The retail pilot had exceeded 1 million users and more than 262,000 merchants, underscoring the potential of this digital form of currency to spur innovation and efficiency.
The Finance Act 2022 was the first law to recognize Virtual Digital Assets (VDAs) in India and introduced crypto taxes. The amendment of the Income Tax Act, 1961 (“IT Act”) led to the most significant development for the blockchain, Web3, and crypto industry. However, you can hold, invest, and trade them, Since 2022, income from crypto trading is subject to a 30% tax, and a 1% tax is deducted at source when you buy crypto.
Under the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 (“Rules”), to prevent money laundering, authorities are given greater power to monitor and reconstruct encrypted transactions of cryptos in India. Crypto exchanges and other service providers need to follow Anti-Money Laundering (AML) and Know Your Customer (KYC) rules to prevent illegal activities.
The use of central bank eRupee will allow for faster and cheaper transactions, financial inclusion, and lower dependency on cash. The use of the eRupee as legal tender will make it easier for the government to monitor and track the illicit transaction and crack down on money laundering. This will go a long way in attracting foreign investments into India resulting in the creation of new jobs.
Conclusion
Despite the measured approach of the government, cryptocurrency in India has taken significant development in the last two years. Additionally, if the government brings strong regulatory measures and creates laws for an official digital currency, it will attract huge foreign investments. The official cryptocurrency will forgo the need to depend on other cryptocurrencies. This will provide a huge boost to the FinTech sector and contribute towards a robust and equitable global financial system also in the growth of the Indian economy.
References:
- https://www.statista.com/outlook/fmo/digitalassets/cryptocurrencies/india#:~:text=Revenue%20in%20the%20Cryptocurrencies%20market,US%24467.2m%20by%202028.
- https://m.economictimes.com/markets/cryptocurrency/different-types-of-crypto-trading-and-investment-risks-in-2022-and-the-effective mitigators/articleshow/88894938.cms
- https://www.investopedia.com/terms/c/cryptocurrency.asp
- https://choiceindia.com/blog/cryptocurrency-in-india/
- https://economictimes.indiatimes.com/markets/cryptocurrency/the-future-of-cryptocurrencies-and-its-legalisation-inindia/articleshow/104081432.cms?from=mdr
- https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/india#chaptercontent2
- https://orbitax.com/news/archive.php/India-Finance-Act-2022-Approve-49547
- https://www.hilarispublisher.com/open-access/cryptocurrency-and-its-impact-on-indian-economy-98448.html#:~:text=Employment%20growth%3A%20The%20crypto%20industry,Fitch%20professionals%20and%20IT%20experts.
- https://www.kucoin.com/blog/kucoin-into-the-cryptoverse-india-report-reveals-optimistic-prospects-for-market-growth
- https://cleartax.in/s/cryptocurrency-taxation-guide#:~:text=The%20gains%20made%20from%20trading,in%20the%20same%20financial%20year.
- https://www.mondaq.com/india/fin-tech/1145012/cryptocurrency-bill-2021-the-road-ahead
- https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/india#:~:text=The%20purpose%20of%20the%20PMLA,in%20money%20laundering%20to%20justice.
- https://upload.indiacode.nic.in/showfile?actid=AC_CEN_2_2_00035_200315_1517807326550&type=rule&filename=The%20Prevention%20of%20Money-laundering%20(Maintenance%20of%20Records)%20Rules,%202005.pdf
- https://www.nasdaq.com/articles/different-types-of-cryptocurrencies
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