Context:
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The government is considering the introduction of a regulatory regime for virtual or crypto currencies, such as Bitcoin, that would enable the levy of the Goods and Services Tax on their sale.
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The new regime may possibly bring their trading under the oversight of the stock market regulator, Securities and Exchange Board of India (SEBI).
Benefits of regulation of these currencies:
Proper regulation of these currencies will “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.
Why regulation is needed?
Cryptocurrencies have gained popularity in the last few years. Currently, they are neither illegal nor legal in many countries including India. The market cap for all crypto-currencies has just crossed $100 billion, with most of the increase coming in the past few months. On April 1, 2017, the total market cap was just over $25 billion, representing a 300% rise in just over 60 days. One bitcoin today is worth as much as 60 grams of gold.
How different agencies look at Bitcoin?
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Ministry of Finance: Bitcoin is illegal.
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Financial Action Task Force: Virtual currencies are potential modes for money laundering and funding of terrorist activities.
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The Enforcement Directorate views threats from virtual currency as real and extreme. Cryptocurrency use has been detected in crime and money laundering.
Why banning cryptocurrencies altogether is not a good idea?
Banning will give a clear message that all related activities are illegal and will disincentivise those interested in taking speculative risks. It will also impede tax collection on gains made in such activities and that regulating the currency instead would signal a boost to blockchain technology, encourage the development of a supervision ecosystem (that tracks legal activities and may also assist in tracking illegal activities) and promote a formal tax base.
What are the negatives of cryptocurrencies?
PIL was filed in SC to seek curb on cryptocurrencies on following grounds
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Virtual currency was being traded anonymously over the Internet and used for a host of anti-national and illegal activities, from terror funding to illicit trade of arms and drugs and so on.
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The use of the parallel currency is having a negative impact on Indian currency.
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The online use of this currency, was without any border restrictions or geographical constraints, resulting in danger to the integrity and sovereignty of the nation.
Concerns associated with this move:
However, the government is wary that regulation will provide legitimacy to “what is currently ambiguous,” and may lead to further rise in its valuation and end up contributing “to the investment bubble”.