Variables Impacting Crypto Adoption in India

Ashna  |  Aug 19, 2020

With every technological advancement, respective industries affected by the occurrence enter the process of evolving and coping with the product. Same were the factors when it came to cryptocurrency. Introduced to the world in 2009 by Satoshi Nakamoto, bitcoin took the financial space by a storm, raising new and improved opportunities for the technology and finance enthusiasts.

India is considered to be one of the fastest growing economies in the world, with a population of over 1 billion, and access to telecom and internet services for almost half the population. India like most countries across the globe fast forwarded into exploring the opportunities and cryptocurrency sustainability, initiating a new kind of trade, transaction and business phenomena in itself.

Government Influencing Crypto Adoption

Considering the very uncertain and volatile path that India took with cryptocurrency, it had its ups and downs from maintaining a somewhat stable condition from 2012 to reaching an unprecedented high after demonetization to RBI officially declining services to anyone dealing with virtual currency - "In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [virtual currencies]," the bank had said in a statement.

Despite the official release statement from RBI, the practice of dealing with cryptocurrency didn’t face any profound decline in india. However, the continuous warning and concerns raised by the government toward the use of crypto currency, did influence the public and are partially responsible for the bittersweet reputation of crypto trading.

When prime minister Narendra Modi sent the country into a monetary roller coaster on November 8, 2016, demonetizing the paper currency of Rs. 500 and Rs. 1000, the nation lost faith in the sustainability of the traditional currency considering the majority of it was rendered valueless. Large cash holders and business owners with more than substantial amounts of cash holdings required a new way of safe keeping their assets away from the government scrutiny, which led to large purchase orders in cryptocurrency like Bitcoins and altcoins.

Demonetisation led to an increase in the trade volume of cryptocurrency and gave another financial means that was accessible to anyone with a healthy internet connection. This was also the time that led the online and digital payments process to flourish while taking symbolic steps towards crypt adoption.

Through all this, the government didn't exactly ban cryptocurrencies in India but weren't exactly endorsing  the concept.

There have been million doubts and questions, surrounding the use of cryptocurrency ever since Bitcoin crashed in 2017. During this time, the government tried to spread awareness against the use of cryptocurrencies and warned the public against frauds and ponzi schemes after china’s internet finance sector decided to ban all companies that were raising cash or digital currency through cryptocurrency, raising serious concerns over illegal activities involving money laundering and market manipulation.

By the end of the year, instances involving Japan’s acceptance of Bitcoin as a legal currency and US regulator’s confirmation on crypto trading, helped cryptocurrencies regain people’s trust.

Lack of Regulations over Cryptocurrency

Since cryptocurrency has not been declared as a legal tender in India, the exchange and trade of cryptocurrency requires a set of framework for crypto adoption to reduce the risk of loss and illegal activities that come with the territory. The lack of regulations over it have raised concerns for investors regarding the potential risks including, misuse of technology leading to terrorism and traficking, losses for investors and very volatile nature of the cryptocurrencies.

On the grounds, addressing similar issues, the Delmia petition was filed against the Union of India, available on public sources, followed by Bhowmick petition asking for a direction to regulate the flow of bitcoins as well as requesting the committee experts to consider regulation of bitcoins and other cryptocurrencies. 

Despite the monstrous outrage over the trade of cryptocurrency, the blockchain technology has been sufficiently accepted and appreciated, raising news of RBI’s intentions to launch its own digital currency using blockchain technology regardless of its discomfort with cryptocurrency.

Conclusion

The exchange of cryptocurrency, not just in India but over the globe has met many fluctuations with respect to adaptivity, trade volume, legal  recognition etc. Government on the other hand has the most probable factor while identifying and influencing an impact. With cryptocurrency, the official statement did not recognize its exchange in a positive light, but demonetization in 2016, took the virtual currency as a considerable means of trade after almost 86% of the existing paper currency was left useless. Although cryptocurrency has a vast potential, it does bring new markets dedicated to illegal trade and activities to manipulate the opportunity. Thus a definite and justified set of regulations is required in order contain the illegal activities and recognizing concerns over new currency development by private owners and misuse of technology by hackers. 

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