The legal status of cryptocurrencies and their role in the national economy, perhaps more than in other regional markets, have been put under the microscope in India. This is particularly true since the Reserve Bank of India (RBI) implemented restrictions in 2018 preventing cryptocurrency businesses from receiving any form of financial support from banking institutions, leaving the cryptocurrency sector in a state of regulatory limbo for the past two years.

Since the implementation of the RBI ban, the cryptocurrency sector in India has tirelessly fought its case, culminating in a series of hearings this year in the Supreme Court. While the proceedings have concluded, a verdict has yet to be reached. We maintain high hopes, however, that our arguments and the potential of digital assets to bring significant growth to the Indian economy will be well received by decision makers.

Crypto can fuel economic growth

The cryptocurrency sector has presented India with a profound opportunity for economic growth. To miss out on this new wave of innovation would be a lost opportunity that India cannot afford. Globally, over $5.5 billion USD has been invested into blockchain startups, with Indian companies receiving less than 0.2% of these capital investments. Singapore, on the other hand, has received more than $744 million as a result of capital inflows into the fintech economy. Taking into account the dramatic difference in size between the Singaporean and Indian economies, this disparity is cast in even starker relief.

The Reserve Bank of India implemented restrictions on cryptocurrencies in 2018. Photo by Ishant Mishra

The economic benefits that the cryptocurrency sector can potentially offer are significant, and other jurisdictions are already reaping the rewards. Outside of India, cryptocurrencies have been gaining significant recognition and acceptance. Economic powerhouses such as the United States and China have been in the race for blockchain and crypto hegemony, capitalizing on innovations within the sector by registering record numbers of patents. In Asia, emerging markets such as Thailand and the Philippines have begun the process of developing regulatory guidelines to support the growth of their local cryptocurrency markets, developing frameworks to boost investor protection and approving licenses for several crypto exchanges.

It is therefore imperative that India does not lose out on the promise of growth offered by cryptocurrencies to others who are already establishing themselves as innovation hubs. Cryptocurrency innovation can be a means of significant economic growth for India, and a tremendous opportunity to bolster the strength of our economy. With India’s pool of trained and skilled IT developers and entrepreneurs, the country is already well-positioned to emerge as a leader in the blockchain and cryptocurrency sectors, leveraging its existing talent pool to boost the local technology ecosystem.

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Crypto complements existing markets

While some commentators have suggested that cryptocurrencies seek to supplant the legacy banking system, the cryptocurrency sector in India does not aspire to replace central banks, traditional financial institutions, or fiat currencies that have existed for centuries within the dynamics of complex economies. Instead, leaders within the cryptocurrency sector aspire to create a more dynamic ecosystem in which both digital assets and traditional financial mechanisms can co-exist and function in parallel.

Some believe that cryptocurrencies can exist in tandem with traditional financial sectors in India. Photo by Pau Casals

Far from replacing traditional finance, cryptocurrencies and blockchain have the potential to complement it and enhance its operational efficiency, offering benefits such as improved financial inclusion, the creation of more jobs, the attraction of greater investment into the economy, as well as generalised economic growth. The traditional financial sector would also gain from cryptocurrency innovations with added security, convenience, and transparency in payments systems, which would in turn provide better traceability and accountability than legacy infrastructures.

Everyday people can benefit

Though cryptocurrencies can provide immense benefits for corporations and institutions, ordinary people can equally stand to gain. With access to cryptocurrency investments, the purchasing power of everyday consumers has a potential to increase. Such a boost to the spending power of ordinary citizens in India could have a ripple effect throughout the economy. This would stimulate wealth creation, and raise the living standards of Indians, who have a significantly lower per capita income than other developed nations. As it stands, retail investors within India have little access to high-performing international markets. With the legitimization of cryptocurrencies as an asset class, 1.3 billion Indians will gain access to a new asset class with the potential to appreciate over time, as well as the ability to hedge against volatility in traditional markets. A 2017 report indicated that as many as 191 million Indians over the age of 15 don’t own a bank account. For these unbanked individuals, cryptocurrencies can enable them to have access to money management services such as savings and lending for the first time, further improving financial inclusion in India.

A need for clearer regulations

For India to realise the benefits that crypto can bring to our nation, we need to have clear, undisputed definitions pertaining to cryptocurrencies, crowdfunding, crypto-based products and other industry-related activities. This would help to create a clear legal stance on crypto in India and support the sector in bringing sustainable and equitable growth to the technology sector, in turn promoting economic development and stability for the country.

Cryptocurrencies could allow the unbanked to circumvent obstacles posed by fiat currencies. Photo by rupixen.com

For India’s crypto sector to thrive, the creation of clear guidelines — surrounding the process of applying for and meeting compliance requirements to obtain licenses for entities and services such as crypto exchanges, financial services, payments processing, and banking — can help provide much-needed clarity and consistency for compliance that can protect investors and improve Know Your Customer (KYC) processes that are in accordance to the Securities and Exchange Board of India’s (SEBI) requirements. As such, having a consistent framework across regulatory requirements will go a long way in charting the growth of India’s crypto sector.

Supporting crypto’s growth

Fostering new technologies and building new industries from scratch will always be an uphill task. In order to leverage the profound benefits the cryptocurrency sector can bring to India, supporting its growth and nurturing innovation is of the utmost necessity.

We are currently at an important crossroads in India’s history. In the midst of ongoing proceedings involving the RBI’s cryptocurrency banking ban, the nation waits with bated breath on the Supreme Court’s judgment. While a decision has yet to be made, we believe that the potential for the crypto sector to birth countless new entrepreneurs, innovations, start-ups, businesses, products and services, and new markets speaks for the industry. We remain hopeful that the nation’s decision makers will take the steps needed to support this new economy, and work in tandem with the emerging technology sector to bring India into a new stage of growth.