Cryptocurrency Confusion: Demystifying what Indian government wants to do
Should the Narendra Modi government's move to bring in regulation in cryptocurrency make investors panic? What is the government really proposing? Let's understand.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which the Narendra Modi government will introduce in the next session of Parliament, has sent Indian investors in cryptocurrency in a tizzy. The wording of the provisions of the Bill added to the confusion. While it said that it sought to prohibit all private cryptocurrencies in India, at the same time, it said that there would be certain exceptions to promote underlying technology. The Bill move triggered panic-selling on crypto exchanges. But should there be panic? What is the government really proposing? Let's understand.
What is the government actually proposing?
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 prohibits all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses. It means the government is not looking to ban prominent cryptos such as Bitcoin, Ethereum etc., but those who would pose a risk of it being used for illicit activities.
Is there a need for regulation of the crypto market?
Governments throughout the world are looking to bring cryptocurrencies under regulations to save investors' money. Regulation would help the investors be governed by a regulatory body as we have it with Mutal Funds, which SEBI governs.
What are the apprehensions in investors' minds at the moment concerning the Bill?
The day the Bill was announced, it created a mass panic situation on Indian crypto exchanges, forcing the investors into panic selling. Many crypto investors feel that this Bill could force the cryptos to be devalued in India or even banned. Previously, India had banned Bitcoin in 2018. Last year, the ban was later reversed when the Supreme Court lifted the ban on Bitcoin, allowing the traders and investors to trade in various cryptocurrencies freely.
What are private or privacy coins?
Private coins or Privacy coins are types of cryptos that are built on public blockchain networks that obfuscate the transaction information to offer privacy to users, like not saving transaction history as they are routed through multiple networks.
Unlike Bitcoins, where the transactions are tracked primarily due to the wallet address, the privacy coins, because of their ability to keep the information private, has often been used for illicit activities.
Are Central Bank Digitally Currency different from cryptocurrencies?
Central Bank Digital Currency or CBDCs are a digital form of fiat currency issued and regulated by the competent monetary authority of the country like RBI. Cryptos, unlike CBDCs, are primarily operated by private exchanges or blockchain projects and, in a way, are mainly volatile. CBDC, as the banks regulate it, will largely be regulated.
What are things to watch out for when investing in cryptos?
Investment in any crypto needs to be done with proper research. Before investing in cryptos, one needs to do adequate research as they are mainly volatile in nature, and the prices vary up and down on minute by minute or day to day basis.
Essentially one should invest in crypto with a robust blockchain-based system and not fall for something that is either not developed or backed by a team. As we witnessed, people recently lost a lot of money in the Squid Games crypto, which was not supported by any team or even by the Netflix team.