As speculations about an impending ban on cryptocurrencies refuse to die down, stakeholders in India are pulling out all stops to get the government on their side. Besides engaging in a dialogue with government agencies to allay their fears about nefarious use cases of cryptocurrencies, industry stakeholders in India have also been suggesting what could be salient features of a regulatory framework for virtual currencies.
On October 2, BuyUCoin released the first draft of ‘Regulatory Sandbox: The Key To Cryptocurrency Mass Adoption In India’. Through the document, the exchange has put forth arguments in favour of cryptocurrency adoption and suggested some of the features which could form the core of a model government regulation for cryptocurrencies in India.
The BuyUCoin document mentions that if India were to ban cryptocurrencies altogether, the fallout would be felt in the jobs sector as well, where the demand for proficiency in blockchain technology is being seen currently. The report cites LinkedIn’s “2020 Emerging Jobs Report India” that mentions blockchain developer as the most sought-after career over the last five years.
Source-based media reports have mentioned that even the draft bill that proposes a blanket ban on cryptocurrencies, talks about the adoption of blockchain technology for managing land records, pharmaceutical drugs supply chain or records of educational certificates. However, banning cryptocurrencies would rob the blockchain developers of a prominent use case for their skills, not to forget the several Indian crypto exchanges which would have to shut shop if the ban comes through.
To bolster its argument, the document cites the examples of countries such as Canada, Japan and Australia, among others, which chose to regulate cryptocurrencies, consequently giving a boost to job creation in the sector.
Robust Bank-Led KYC For Crypto
As part of its suggestions for a regulatory framework for crypto in India, the BuyUCoin draft document talks about the need for robust bank-led KYC (know your customer) as well as Anti-Money Laundering (AML) regulations to build compliance.
Rashmi Deshpande, partner at law firm Khaitan and Co also feels that KYC norms could help address the government’s concerns about cryptocurrencies. “Regulations would primarily be required when cryptocurrencies are traded as commodities. Specific KYC norms for cryptocurrency platforms for boarding traders should be put into place,” says Rashmi.
“Regulations around ICOs making the whole fundraising process more transparent would be helpful with a regulatory body like SEBI (Securities and Exchange Board of India) overseeing the process,” she adds.
ICO or initial coin offering is the crypto equivalent of an IPO (initial public offering). ICOs are used to raise funds. A company looking to raise money to launch a new coin, app or service, issues an ICO.
Self-Regulation For Crypto Exchanges
The BuyUCoin draft document also talks about a self-regulation charter in the short term, which could further a model code of functioning among all crypto exchanges in India.
Last month, Nischal Shetty, CEO and founder of Mumbai-based crypto exchange WazirX, told Inc42 that major Indian crypto exchanges were working together under the aegis of the Internet and Mobile Association of India (IAMAI) to come up with a self-regulation charter.
“We don’t want to further the notion that because there is no law, so crypto exchanges in India have a free hand. We have a draft version ready for our code of conduct and are updating the guidelines in line with the technology changes that have happened in the last few years,” said Shetty.
Bring Crypto Earnings Under Tax
The recent draft document also suggests bringing crypto earnings under the purview of tax. “This will allow Indian citizens to become active participants in the global blockchain economy and provide new revenue sources for the government,” reads the document.
It suggests that working professionals should have to claim their crypto earnings under a separate provision of the Income Tax Act. These suggestions in the document seem to be aimed at addressing the government’s concerns about cryptocurrencies being used for terror financing because of their decentralised nature. Requiring traders in cryptocurrencies to declare their crypto earnings for tax purposes would help weed out illegitimate and nefarious use cases of crypto.
Deshpande feels bringing crypto earnings under the purview of tax would be a welcome step.
“Considering the volumes being traded on a daily basis, clear tax regulations from the Income Tax as well as the GST perspective would only help the government generate more revenue in an ever-growing market,” she says.
The document also suggests that investors in the crypto industry could be enabled to claim dividends from the same with reasonable security policies such as pan card linkage and a minimum income.
Most importantly, BuyUCoin talks about the need for inclusion of cryptocurrencies in the Reserve Bank of India’s (RBI) Regulatory Sandbox. A regulatory sandbox is a scheme adopted in many countries to test emergent technologies with less stringent regulations and hence, the environment is more conducive for innovation.
Such an environment allows innovators to test their products and technologies, gain an understanding of their real-world implications and accordingly tweak their product before launching it on a larger scale.
In 2018, the RBI constituted a regulatory sandbox for fintech innovations, but banned cryptocurrencies for the same. Crypto industry experts and stakeholders have been urging the government to allow cryptocurrencies to work within the sandbox, which is a virtual space.
One of the anticipated benefits of opening the RBI sandbox to crypto-led innovations is that it would help widen the government’s understanding of cryptocurrencies. By showing that there are more positive than negative use cases of cryptocurrencies in India, the industry might just be able to convince the government to bring in regulation for good.
Last month, Sagar Sarbhai, the head of regulatory relations at Ripple, a global payments company that utilises blockchain technology, also told Inc42 about the need for opening up the sandbox for crypto-based technologies on a case-by-case basis.
It is worth noting that BuyUCoin’s draft document has been prepared after numerous consultations with Indian crypto industry stakeholders. Inc42 has learnt that the India chapter of the Government Blockchain Association (GBA) has partnered with BuyUCoin, and would take the suggestions mentioned in the draft document to relevant government agencies in the country. The GBA is an international nonprofit association which promotes blockchain technology solutions to governments all over the world.
As for BuyUCoin, the crypto exchange won’t stop here. In a whitepaper, it has proposed the launch of a sandbox, where crypto-based technologies can be tested. The crypto exchange feels that an open-source sandbox API (application programming interface) holds the key to solving transactional anonymity and KYC/AML concerns of regulatory bodies, as these concerns have long been a thorn in the side of the crypto industry in India.
At the time of writing, Bitcoin was trading at $10,707, a 0.7% fall from last week’s price of $10,748. Its market cap was $198 Bn.
Ethereum was trading $345.91, registering a 3.39% decline from last week’s price of $357. Its market cap was $39 Bn.
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