Opinion by Nischal Shetty, Founder & CEO, WazirX: Why we need regulation in crypto – Economic Times


Even as we congratulate El Salvador on successfully passing laws for officially recognizing Bitcoin as legal tender, we’d be remiss to not address the situation back home. Since the controversial banking ban of 2018, issued by the RBI, India has made significant progress in the crypto space, including the repeal of that ban, thanks to a successful #IndiaWantsCrypto campaign. While yes, the rumors surrounding a possible crypto ban have remained largely unsubstantiated, it is becoming extremely clear that India needs to figure out a way to regulate cryptocurrencies.

But why do we need such regulations?
Looking at the state of crypto today, there is no doubt that there are a plethora of opportunities from an economic stance. Over the last 5 years, we’ve seen cryptocurrencies reach a collective market cap of over $2 trillion. Looking into the future of global economies,
estimates
from the World Economic Forum (echoed by Niti Aayog) suggest that over 10% of global GDP will be stored on blockchain by 2025. India, in particular, stands to benefit significantly from cryptocurrencies.

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Blockchain, in many ways, is widely regarded as an invention on par with, if not superseding, the internet. India, thanks to our tech-savvy populace, was successfully able to tap into the potential of the internet and became a global phenomenon by becoming a global hub for Information Technology services. Over the last three decades, India had successfully managed to grab a $250 billion market in the ITeS sector, and with pro-crypto regulations, India could very well be a part of another $200 billion industry. You’d think that the country is ideally positioned to embrace, adopt and pioneer the crypto space.

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But despite these opportunities, India is yet to successfully tap into the crypto market as well as it could have. The lack of clarity on where the Indian government stands on crypto has put a lot of entrepreneurs and innovative minds in limbo, as the hanging threat of unfavourable regulations looms, while talents from other countries are able to successfully capture a huge chunk of the market share.

This leads to a scenario with potentially two outcomes – either Indian entrepreneurs move abroad to pursue their innovative ideas on the blockchain and crypto sector (called brain drain), or India completely loses out on this inevitable boom, and falls behind other countries in terms of tech and economy – both of which are highly unfavourable. Countries like the United States, Japan, Singapore, Thailand, New Zealand, and Israel to name a few, have already come up with regulations (like Japan’s Payment Services Act, amended 2016, and Singapore’s payment services act, 2020) and that promote entrepreneurship while taking precautionary measures to curtail risk on retail investors.

Even without clear regulations, the Indian crypto startup space is buzzing. With over 300 crypto startups, generating tens of thousands of jobs, and hundreds of millions of dollars as revenue through taxes, the Indian government should see the vast potential that it truly offers. This could very well mean that with favourable regulations, we could see thousands of startups in the crypto space, capturing a major chunk of this 2 trillion market, boosting the Indian economy tremendously.

What can regulations do?
Crypto, arguably, is the fastest-growing technological trend today. Despite that, there is no doubt that there can be potential misuse of blockchain and crypto (as is the case with any piece of technology. All tech advancements carry with them the inherent risk of being misused). Historically, we’ve witnessed crypto being deployed for criminal activities (with money laundering being the most prominent case), hacks and breaches of centralized exchanges, scam coin offerings, among some other potential use cases of crypto which can be harmful to an economy.

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With proper legal regulations, however, these concerns can be sufficiently addressed. For instance, once we have clear legislation on traceability – for instance, every citizen in India would be curtailed to uniform KYC and AML requirements, making it extremely easy to weed out the bad actors in the space. Taxation is another ambiguous area, causing confusion among investors to invest in cryptocurrencies. Not only will these regulations curtail the possibility of potential misuse, but will also encourage new players (entrepreneurs and retail investors) to step in and take part in something that can only be described as the invention of a lifetime.

What can be done?
The Indian crypto scene, despite being nascent (and despite the legislative ambiguity), is extremely serious about getting regulated. Exchanges like WazirX, for instance, have been following strict self-regulatory measures, subjecting ourselves to the same requirements as traditional stock exchanges. We follow strict KYC and AML policies, for instance, and make it extremely easy for the Indian government to step in and regulate the industry.

Recently, Indiatech came up with two brilliant whitepapers, stating the
necessity for regulation of crypto in India
, and
a five-point framework on what regulations are required
. The measures include regulations on exchanges, compliance, verification and reporting processes, taxation on crypto, and advice on how to treat cryptocurrencies. One thing that really drew my eye was the mention of how cryptocurrencies are misnomers, and how cryptocurrencies should be treated as digital assets instead of virtual currencies.

I can’t emphasize enough how much I agree with this view, like crypto, in its current form (with all its volatility), is nowhere near to being a currency, but rather a deflationary store of value. Bitcoin is regarded as the Digital Gold, and not a Digital Fiat for a reason. Though there are definitely use cases where Bitcoin and other cryptos can be used for payments, I am a staunch believer that those trades should be considered barter, rather than an outright purchase using currencies.

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In essence, crypto has the potential to attract significant FDI, generate employment, and enhance India’s global presence. This does come with the associated risks, and the longer the regulators’ silence pesters, the more India loses out on a daily basis. The time for crypto regulation is here, and I’m confident India will react positively. Jai Hind.

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