By Jaydeep Saha, Contributing Writer, HCL Technologies Ltd.
While the future of cryptocurrency in India is still uncertain with the Reserve Bank of India (RBI) backing a ban on it over “risks to financial stability”, unofficial data says the number of investors is up to 20 million and the total holding is about $6 billion.
“Regulations will bring peace and more certainty. Now, the users don't know what will happen with their holdings. Is the government going to ban, not ban, how is it going to be regulated?” Ashish Singhal, CEO and founder of CoinSwitch, which is backed by Andreessen Horowitz, Tiger Global and Coinbase Ventures, was quoted as saying by Reuters.
The popularity of digital assets, like cryptocurrencies and NFTs (non-fungible tokens), is on the rise. Protected with blockchain, the exchange of these digital currencies is known as ‘peer-to-peer’ transaction. This means that there is no bank or third party involved.
Indian policymakers often said that these types of unregulated transactions could “hurt macro-economic and financial stability.” Even though RBI had in the past voiced “serious concerns” and the central government initially planned to ban cryptocurrencies in India, Prime Minister Narendra Modi last year supported the rise of this emerging technology and had said: “We must ... jointly shape global norms for emerging technologies like social media and cryptocurrencies so that they are used to empower democracy, not to undermine it.”
Reuters reported that blockchain and cryptocurrency companies have a large presence at this year’s World Economic Forum in Davos that coincides with a period of crypto prices plummeting around the world.
Are cryptocurrencies crippling sustainability goals?
A recent article by Rahul Singh, President, Financial Services and Digital Process Operations, HCL Technologies, said that Bitcoin’s carbon footprint is notoriously high. In 2020, the bitcoin network consumed a reported 131.80 TWh of power to execute the algorithms that power its “mining” operations. This is equivalent to the power consumed by Argentina.
Paraguay—which has the highest per capita percentage of renewable energy—can become a crypto hub of Latin America in the future. In these situations, countries or organizations dependent on fossil fuel need to rethink their techniques and usage of renewable energy. China, for example, which contributed 75 percent of global bitcoin mining capacity, banned the activity as it would impact its 2060 carbon neutral goal.
The need to mainstream bitcoin and regulate cryptocurrency markets is likely to accelerate research into reducing the cost of storing renewable energy.
From India’s point of view, Singhal feels that moves on taxation and certain advertising regulation have brought some relief, but a lot more needs to be done. “India should develop a set of laws,” he was quoted telling Reuters.
These should include norms for identity verification and transferring crypto assets, while for exchanges, India should put in place a mechanism for them to track transactions and report them to any authority, if need be, added Reuters.
Leading industrialists, concerned about the threatening high carbon footprint of bitcoins, at Davos, voiced similar concerns. Singh confirmed that “environmental costs must be kept in mind,” and Brooks Entwistle, SVP of Global Customer Success and Managing Director for APAC and MENA at Ripple, said blockchain “products must be built with sustainability features.”
There’s no official data available on the size of India’s crypto market with regulatory uncertainty widely felt. The largest cryptocurrency exchange in the US, Coinbase, was launched in April in India but within days, paused use of a state-backed inter-bank fund transfer service, reported Reuters.
Coinbase CEO Brian Armstrong earlier this month said the move was triggered “due to informal pressure from the RBI”, added Reuters.
Regulations will streamline cryptocurrency mining and ultimately lead to the use of renewable energy, bringing it closer to being accepted as legal tender.