Government and regulatory authorities may consider a legislative and regulatory framework for cryptocurrencies

Regulating these instruments is not easy. Japan, Korea, Finland, Estonia, Australia, El Salvador, etc, have regulatory frameworks. It’s easier to do this if the local currency is fully convertible.

But enforcing any ban on them is impossible. It’s legally okay for a resident Indian to open an overseas broking account (which offers cryptocurrency trading) and to remit equivalent of $250,000 abroad every fiscal, for a wide variety of purposes, including investing in overseas assets. Shutting down that route would make life impossible for importers, exporters, Indians studying abroad, and so on.

The first thing regulatory authorities must do is define a tax treatment, outlining incidence of long-term and short-term capital gains for investors. It’s rumoured an approved list of cryptos will be announced — the framework must go beyond that to define “good” cryptocurrency versus “bad” ones.

There are over 7,000 recognised cryptocurrencies in existence as of November 2021. The list would grow; any smart coder can create a new crypto. Some cryptos are created by fraudsters seeking to fleece the gullible; others are well laid out with carefully defined structures and peer-to-peer verification systems.

A good cryptocurrency includes a secure peer-to-peer verification system, an assurance of some anonymity, a method of mining that allows for predictable growth in money supply, which cannot be manipulated, and so on. The regulatory framework should include a definition of what makes a good crypto. It must include some reference to the most common use cases for cryptos. One is remittances. A remittance of, say, dirhams to rupees, involves bank charges and delays while the Reserve Bank of India (RBI) processes payments. Instead, you can buy cryptocurrency with dirhams and hand over the relevant codes to somebody who sells the crypto in rupees. There are no bank charges, and much faster processing, if the counter-parties are comfortable with price volatility.