Recently, the Securities and Exchange Board of India (SEBI) has given recommendations on cryptocurrencies regulations in India.
Concerns raised by SEBI:
- Consumer protection and enforcement of any regulatory regime over crypto assets would be challenging due to the decentralised nature of digital instruments.
- There is a great likelihood of execution of unauthorised trades not in consonance with any regulatory framework.
- Clarity needs to be brought on whether cryptocurrencies can be legally defined as securities.
Recommendations by SEBI:
- Crypto assets related to unregulated activities may be entrusted to an investigating authority appointed by the government and take further legal action.
- If crypto assets are not banned, then there is a need for feature-based characterisation of the tokenised version of the assets, which may attract the supervision of different sectoral regulators
- The legislative framework, if proposed, would need to delineate the role for different regulators and authorities including for regulation purposes, it recommended.
- Different regulators currently regulate various entities based on the services and products they offer.
- There could also be a crypto asset referencing goods or services offered by entities, which are not regulated by any sectoral regulator.
- Consumers availing of such products should be protected through the Consumer Protection Act.
- It also suggested possible regulation of crypto trading platforms by the RBI under the Foreign Exchange Management Act (FEMA) as crypto assets are available for trading in a foreign jurisdiction as well and consumers abroad can remit funds to India using such currency.
Challenges of Cryptocurrency:
- Security Risks: Cyberattacks on wallets, exchange mechanism (Cryptojacking).
- They are prone to issues like Hijacking, Routing Attacks, Distributed Denial of Service (DDoS) attacks.
- Shield to Crime: Used for illicit trading, criminal activities and organised crimes.
- Lack of Liquidity and Lower Acceptability: Outside the traditional banking systems.
- Price Volatility: Prone to price fluctuations and waste of computing power.
- Threat to the Indian rupee: If a large number of investors invest in digital coins rather than rupee-based savings like provident funds, the demand of the latter will fall.
- Cryptocurrency is, despite all its risks, perhaps the most exciting asset of the 21st century. A decentralized digital currency that works on the very interesting and likely here-to-stay blockchain technology.
- Establishing safeguards, measures and regulations after taking inspirations from developed countries would be the better way ahead.
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