The Indian government announced on Tuesday that it is going to introduce a bill on cryptocurrency along with 25 others in the upcoming Winter Session of the Parliament that begins on November 29. The government has been on the fence about the use and trade of cryptocurrency in the country and has been concerned about these being "allegedly used for luring investors with misleading claims and for funding terror activities".
The statement regarding the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 on the Lok Sabha website states that the Bill "seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology and its uses". The main idea behind this seems to be to pave the way for the official digital currency that is going to be issued by the Reserve Bank of India, as the statement adds.
While the statement has gotten most crypto investors worried, understandably, many are of the opinion that one must wait for the Bill to be tabled to understand who exactly this is going to pan out.
According to reports, talks regarding ow to move ahead with cryptocurrency in India was recently held between the government and industry experts and the Centre is reportedly considering regulating crypto as a commodity and not a currency.
Technology think tank Policy 4.0 is of the opinion that a wallet-based solution for crypto might help India tackle the regulatory risks and has recommended in a report that India should build its own wallet to handle KYC (know your customer) details, monetary concerns, along with the inflow and outflow of crypto.
The Policy 4.0 report, which was launched recently at its anniversary event, states that characterising tokens as commodities does not "sufficiently capture the true nature of tokens". The think tank suggested that the first phase of regulation can deal with how public and private keys are managed and this will help cover the "full spectrum of crypto activity in India". A public key is used for identification, while a private key is used to define ownership and usage. Crypto wallets work by storing public and private key pairs for crypto assets, allowing users to carry out transactions.
The second phase, according to Policy 4.0, should deal with how the crypto tokens can be defined based on their specific use cases.
The think tank report suggests that the first step towards regulation should be on wallets and the "onus should be on the citizens to get a verified wallet." "Any crypto industry players then simply have to onboard verified wallets onto their platform," the report states.
It suggested that an "India Wallet" can be used to monitor all activities involving cryptocurrency including trading, and also store coins, collectibles, and tokens. Policy 4.0 suggests that a wallet can also integrate with crypto exchanges as well as non-fungible token (NFT) marketplances and "can differentiate between domestic and cross-border transfers".
"A one-time KYC verification would be required for each citizen at the time of set up of a crypto wallet. In countries without digital identity, the framework for verifiable credential providers can be considered for such KYC verification. In the case of India, the UIDAI or DigiLocker are capable of providing such KYC verification," the Policy 4.0 report states.
The report recommends that the government could create a crypto wallet or the concept of one could serve as a technical standard for private players to build or modify existing wallets.
"These will not be recognised under the Indian law. Whatever crypto assets are managed through the citizens' wallets will be recognised and legally protected under legislation. Other activity could be deemed black money and treated as such," the Policy 4.0 report said.
The think tank added that to keep a check on financial stability, a cap could be enforced on the amount citizens can invest in cryptocurrency on the wallet. "Such caps can be managed flexibly and imposed only when stability risks are deemed acute. They can also be increased or decreased based on criteria that the government defines," the report explained. A crypto wallet could also be used to send alerts to citizens and the government if the "prescribed annual limit", that's been prescribed by regulators, is breached or is about to be breached.
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