Editorial: Crypto in the twilight zone

For the past few years, technology evangelists in India and abroad have been harping on about the use cases of cryptocurrencies and blockchain. 

Now, after much deliberation, and numerous instances of back and forth on the Cryptocurrency Regulation Bill, the Central government finally seems to have had a change of heart, and has offered a semblance of legitimacy to Virtual Digital Assets, a superset term used to describe cryptocurrencies, NFTs and more.

The implication of such decisions would become evident when placed in the context of the crypto ecosystem in India. There are as many as 10 crore individuals who have invested in one or the other form of cryptocurrency. 

We have blazed past the likes of nations like the US, which has 2.74 crore crypto owners, followed by Russia with 1.74 crore users and Nigeria with 1.30 crore crypto holders. However, India has taken the fifth spot when it comes to crypto ownership as part of the total population. Essentially 7.30% of the nation’s population owns crypto.

Despite the near universal acceptance of this highly niche, and relatively complex new innovation in computing that many believe would lie at the foundation of the Web 3.0 initiative, the government is still pussy-footing on the matter, after making a big deal of it in the Budget. 

Just two days after the Budget, Finance Minister Nirmala Sitharaman went on record to say that the Centre’s move to tax virtual assets does not mean that the government has legalised it. Sitharaman added that the choice to ban or not ban crypto would be made after consultations.

Advocates of the technology have also criticised the government for its myopic vision on private cryptocurrencies and the business opportunities lost when policies are not conducive towards new innovations. 

A back of the envelope calculation pegs the number of crypto/blockchain start-ups of Indian origin at about 230. Ironically, over 90% of these crypto enterprises have registered their companies outside India, in geographies that are a lot more crypto friendly and accommodative of innovations.

What many stakeholders believe is that by imposing higher taxes, the government is removing any and every incentive for young and fresh start-ups to enter the crypto or blockchain space, and in turn, inspiring them to set up shop abroad. 

This would entail a new wave of brain drain, with some of the brightest minds working in a highly advanced technology, looking towards developed economies to make the most of their skill sets in this emerging new space. 

Apart from the fact that we would be losing out on precious revenue by letting such companies offshore their operations, India might also risk losing its status as a technology-leader and a business-friendly investment destination.

All of these risks seem to be in direct contravention of the roadmap that India is building for itself in making us a technological powerhouse. 

The National Strategy on Blockchain, a public document that was updated by the Ministry of Electronics and IT (MeitY) in Dec 2021, does not contain a single reference to nurturing the homegrown ecosystem of cryptocurrencies and crypto exchanges, save for a mention of crypto as a fundamental aspect of blockchain tech.

And this is the state of the crypto ecosystem in India, where neither the Centre, nor the innovators and stakeholders are on the same page with regard to the technologies employed. Needless to say, if we were counting on crypto to herald the next IT wave, and ring in that $5 trillion economy by 2025, we might be up a marshy creek, and without a paddle.