By Roshan Aslam
Over the last decade, cryptocurrencies have grown from strength to strength. From being a digital novelty that no one really understood to technologies worth trillions of dollars that has the unique potential of disrupting the entire global financial ecosystem as we know it. Today, Bitcoin and hundreds of the any available cryptocurrencies can be used to buy goods and services across the spectrum.
A perfect example of a government accepting the potential of cryptocurrency are the Governments of El Salvador and the Central African Republic where Bitcoin has been accepted as legal tender. There are schools of thought that believe that this decision can help both countries reduce their dependency on the US Dollar and bring about a steady economic change for both the currently struggling nations. If Governments around the world legalize cryptocurrencies as legal currency, it will go a long way to attract entrepreneurs in the fields of technology and finance to invest and develop in the nation. This will then snowball into the creation of new jobs which will lead to increased economic growth and expansion. Acceptance of cryptocurrencies as legal tender for exchange of goods and services will show the willingness of the Government to trust and accept cutting-edge and emerging technologies.
Unfortunately, despite the sky-rocketing popularity of cryptocurrencies, most governments the world over, including India still have a very unclear and hands-off approach to cryptocurrencies. However, trends show with the fast ascent and evolution of the sector has forced Governments to at least begin to start thinking about crafting regulations to monitor and put some checks and balances for the safety of the citizens who engage in trading in cryptocurrencies. The important and critical challenge faced by all governments is to balance innovation while minimizing financial risks.
Let us look at what a few governments are doing to deal with the rapidly escalating reality. In the United States, policymakers are moving slowly but steadily towards regulating cryptocurrencies and building more avenues for the emerging decentralized finance sector.
Lugano in the country of Switzerland has been making all the right moves and noise to be perceived as the Blockchain Capital of Europe. The city is looking to implement a visionary initiative to integrate cryptocurrencies into everyday like by legalising crypto as a legal accepted form of payment within the physical borders of the city. Citizens and businesses can opt to use any of the three well known cryptocurrencies, Bitcoin, Tether or LVGA i.e., the stablecoin of the city of Lugano itself as a legal tender of exchange.
The country of Singapore is also experimenting with Decentralized Finance (DeFi) solutions to bring about modernization and technological innovation to its financial systems. Australia too is fairly progressive in its attitude towards using cryptocurrency. Several cryptocurrency trading platforms and exchanges can be very easily found in Australia. Technology powerhouse countries like South Korea and Japan have been one of the early leaders when it came to adoption of cryptocurrency. Governments of both countries are extremely encouraging and supportive of blockchain technology, and a slew of initiatives have been implemented to promote cryptocurrency as tender.
Whereas in Canada, cryptocurrencies are considered a taxable commodity, and the Canadian government has established a strict regulatory framework to prevent money laundering and financing of terrorist or anti-national activities through the use of cryptocurrencies. India on the other hand has a complex relationship and timeline with regards to cryptocurrencies. From instituting a complete ban on the trading of any kind of cryptocurrencies, which was later lifted to now the pledge made by the Finance Minister to supporting the use of blockchain technology in payment systems, India has seen multiple ebbs and flows.
Governments of every country are watching carefully what each country is doing when it comes to cryptocurrency and their future as an accepted financial medium of exchange. for In an attempt to stay in touch with digital financial innovation but yet at the same time, not allow cryptocurrencies to dominate the financial exchanges, Governments are introducing a digital currency called Central Bank Digital Currency or CBDC. These are a form of digital currency that are issued by the Central Bank of a country. Similar in function to cryptocurrency, the only difference being that the Central Bank fixes their value keeping it equivalent to that of the fiat currency.
Cryptocurrencies are not controlled by any monetary or financial organisation and therefore offer more privacy. CBDCs must adhere to multiple compliance requirements as they are linked to the monetary guidelines of each country which takes away the freedom, speed and control of conducting transactions that transacting in cryptocurrencies offers investors. Last but not least, trading in cryptocurrencies offer investors the opportunity to make a substantial profit which no CBDC can come close to matching. While the Government of India has yet to recognise crypto as legal tender, they have imposed a 30% tax and 4% cess on the gains incurred by trading cryptocurrencies and is also levying a 1% TDS on the transfer of crypto assets.
However, due to prolonged processes, India is not as mature a market to accept cryptocurrencies for at least the next 5 years. The Central Bank or the Reserve Bank of India is extremely sceptical of introducing cryptocurrencies as a legal medium of exchange to pay for the buying of goods and services. This is predominantly due to the high risks and volatility in the prices of these digital assets. In India, thus, the future of cryptocurrencies is being debated by members of the G20 and will be decided by a mutual consensus on the same. According to Statista, India’s cryptocurrency market is estimated to reach INR 18,450.98 million by 2023. Seen as an alternative to traditional money because of the security and financial stability it offers, it is highly likely that despite the best efforts of some government to curtail its growth, cryptocurrencies are going to be a very important in the overall future timeline of money.
(The author is Roshan Aslam, Co-founder & CEO of GoSats, and the views expressed in this article are his own)
