TelecomLive April-2020

Cryptocurrency www.telecomlive.com 51 Telecom LIVE April 2020 v. Theymay also affect the ability of the Central Banks to carry out theirmandates. vi. China has not only banned trading in cryptocurrencies but also used its firewall to ban crypto currency exchanges. China even blocked crypto currency focused accounts from WeChat and crypto- currency related content from Baidu. However, Chinese traders use VPNs to circum- vent these bans. The report also made certain r e c omm e n d a t i o n s w h i c h included a complete ban on pri- vate cryptocurrencies. 2018, as many as 983 ICOs were issued, through which funds to the tune of $20 billion were raised. iii. V i r t u a l c u r r e n c i e s a r e accorded different legal treat- ment by different countries, which range from barter trans- actions to mode of payment to legal tender. Countries like China have imposed a com- plete ban. iv. The mining of non-official virtual currencies is very resource-intensive requiring enormous amounts of electric- ity which may prove to be an environmental disaster. i. Virtual currency is a digital representation of value that can be digitally traded and it can function as a medium of exchange and/or a unit of account and/or a store of value, though it does not have the status of a legal tender. ii. Initial CoinOfferings (ICO) are a way for companies to raise money by issuing digital tokens in exchange for fiat currency or cryptocurrency, but there is a clear risk with the issuance of ICOs asmany of the companies are looking to raise money without having any tangible products. In the year Box-A: Highlights of Inter-Ministerial Committee report dated February 28, 2019 Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory mea- sures. Paragraph 7 of the 'Note pre- cursor to report' throws light on the same and hence it is reproduced below: “Options 7. The committee has considered various approaches to achieve the objectives andnotes: Achieving the objectives by doingnothing i. Issuing warnings may pre- vent unsophisticated consum- ers from dealing in VCs but it would not deter VC service providers or those raising funds through Initial Coin Offerings (ICOs), mis-sell or runPonzi schemes. ii. The recourse available to customers would be inade- quate. iii. Persons who provide VC ser- vices without necessary fit and proper criteria including capital and technology would continue to pose a heightened risk. Achieving the objectives throughbanning i. Consumer protection is a key concern but a ban might be an extreme tool to address this. There aremany things / activ- ities that may be harmful but they are not all banned. Prob- lems related to information asymmetry, concerns around market risks, law enforce- ment or threat to financial system cannot be adequately addressed through a ban. ii. A ban would make dealing in VCs illegal but simulta- neously it might decrease the ability of the lawenforcement agencies and regulators to track and stop illegal activi- ties. iii. Very few countries have actually banned VCs. A ban might not be in-step with India's position as an impor- tant centre of Information Technology services. Achieving the objectives by regulating i. Penalizing entities or persons who do not opt for regulation under this Act and may choose to operate illegally, may continue to be difficult.” The Crypto-token Regulation Bill, 2018 initially recommended by the Inter-Ministerial Committee contained a proposal (i) to prohibit persons dealing with activities related to crypto tokens from falsely posing these products as not being securities or investment schemes or offering investment schemes due to gaps in the existing regulatory framework and (ii) to regulate VC exchanges and brokers tal currency issued by the govern- ment by enacting a law and impos- ing fines and penalties, including j a i l - t e r m , f o r t r a d i n g i n cryptocurrency. Highlights of this report are given in box 'A'. The panel also finalized a draft b i l l k n own a s “ B a nn i n g o f Cryptocurrency and Regulation of Official Digital Currency Bill, 2019”. It is yet to be seen how law- makers and the government go ahead and adopt a legal framework f o r r e gu l a t i ng t he t r ade o f cryptocurrencies in India. Fo rme r f i nanc e s e c r e t a r y Subhash Garg, headed the commit- tee to propose action on virtual currencies, said after the judgment: “I standby what the committee had recommended. The use of private cryptocurrencies is dangerous. They are not stable and have no sovereign backing, and their use can lead to a lot of problems. They can be used to fund illegal activi- ties. They will never work as a pay- ment system. The government will now have to decide on regulating crypto currencies.” Govt U-turn on crypto cur- rency The Inter-Ministerial Commit- tee, constituted in November 2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation