Crypto investors in India were eager to hop on board, but the government is still playing catch up.
The crypto taxation structure is believed to be punitive and unfavorable for the country’s future of crypto.
Should India be so eager to dismiss cryptocurrency?
Is there another method to do the same thing?
In this post, we’ll look at how cryptocurrency may be controlled in general.
Let’s start with the legislator’s point of view. They view cryptocurrency as a fantastic facilitator of money laundering and other criminal operations.
The crypto market is also vulnerable to ‘pump and dump’ scams, phony trade volumes, frauds, and so forth.
Certain criminal actors can conduct transactions anonymously, keeping their identities hidden from law enforcement.
Furthermore, as our economy becomes more reliant on cryptocurrency, it exposes itself to many financial hazards.
Despite the concerns above, appropriate crypto regulation will benefit more than damage.
Crypto-related technologies raise the possibility of additional fintech innovation. These developments take happen in crypto-friendly countries.
Harsh anti-crypto measures will deter individuals from using the legal system and instead opt for grey areas and riskier methods to conduct transactions.
How should it be governed?
While I may be severely under-qualified to make policy and establish legislation, I can surely provide some feedback that may be considered:
Limit the number of ways in which individuals can deal in cryptocurrency
Even if all you need to access crypto is an internet connection, being anonymous from authorities requires substantial technical know-how.
As a result, most people are compelled to rely on exchanges to meet their necessities.
It may become essential to exclusively use cryptocurrency through authorized crypto exchanges.
This unites most cryptocurrency consumers under one roof, where they can be more easily regulated.
A separate licence for dealing in cryptocurrency
We may establish a separate registration or license for trading in cryptocurrency,
similar to how we have a banking license and different registrations for Non-Banking Financial Companies (NBFCs).
This enables the regulation of cryptocurrency exchanges.
Establishment of a regulatory body
We have the Reserve Bank of India (RBI) to regulate the banking sector, the Securities and Exchange Board of India (SEBI) to regulate the securities market, and we might have a separate entity to regulate the crypto area.
Mandate KYC criteria for cryptocurrency clients:
This regulatory body may mandate that all customers provide documentation to verify their identity, similar to how banks do it.
In this instance, the issue of anonymity in crypto transactions will be addressed.
Higher identification verification procedures are required when purchasing high-value assets
Money laundering is divided into three stages: placement, layering, and integration.
Despite all the foregoing precautions, bad actors will continue to use cryptocurrency to support their illicit actions.
They will eventually need to spend their profit to buy high-value items legitimately. Thus, a limit may be set.
It would be mandatory to provide numerous identification documents to be checked and form an essential part of the purchasing process.
Cooperation with international regulatory bodies
Large-scale money laundering does not occur inside the borders of a single country.
Furthermore, exchanges may have an international component.
To evaluate the validity of suspicious transactions, it would be advisable to establish an information-sharing platform specially focused on crypto transactions.
This would also go a long way toward addressing the issue of income leakage.
Accumulation of crypto-reserves
As part of safeguarding its economic interests, India has amassed many foreign exchange reserves. It would undoubtedly be beneficial to keep crypto reserves similarly.
Conclusion
Creating laws in the crypto realm is not a straightforward or easy undertaking. However, as the popularity of cryptocurrency grows among India’s youth, it would be advantageous to implement legislation and a suitable taxation policy that encourages investment and innovation. The advantage might also come in the shape of a new tax revenue stream for the government.