An era of regulatory restraint and optimistic uncertainty in the cryptocurrency industry was ended when Arun Jaitley, Union Finance Minister in his budget-speech declared that the government doesn’t consider cryptocurrencies legal tender, and will take every action to abolish utilization of these crypto-assets in financing illegal activities or as part of the payment system.
Some interpreted this statement as the death sentence for the blockchain industry whereas others took a more optimistic interpretation and believed that it’s a clampdown on cryptocurrencies and initial coin offerings, but not blockchain technology-based products. Perhaps, the later interpretation has some of the credibility as Jaitley’s speech had additionally highlighted that the government will look at the utilization of blockchain technology.
The cryptocurrency industry in India has been damaged by uncertainty, given the laissez-faire approach adopted by the government and the fear that regulators will not value the nuanced dissimilarities between blockchain technology and blockchain products. It is for this very reason that blockchain technology supporters have been hardly attempting to split-up the underlying technology from cryptocurrencies, but the two have been growing inextricably, making it tougher to carry away blockchain-based products from government’s severe regulations associated with cryptocurrencies.
With the Union cabinet’s approval of the Banning of Unregulated Deposit Schemes Bill, 2018 in the wake of Jaitley’s speech, the question raised regarding the actions taken to clamp down on crypto-assets. The government seems to have adopted a binary approach towards it. Having abandoned them up to this point unregulated, and now attempting to boycott them altogether, the Indian government has now accepted the considerable accountability of forcing controls on an industry designed to stay unregulated.
Since there have been a growing number of initial coin offerings pulling investors with blithe promises of exponential returns, there has been notable concern relating to the authenticity of these cryptocurrency offerings.
It hence comes as no surprise that the government has decided to clamp down on unregulated solicitation of public funds with the anticipated legislation which seems to be target "illicit deposit-taking activities in the country" and "companies/ institutions running such schemes to exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings".
Now, the burning question is what would be brought inside the circle of the term "deposit-taking activities" for if it is defined indistinctly, or interpreted over-zealously by those imposing it. It could be fatal to the evolution of the blockchain and crypto industry in India.
With the diversification of blockchain products, the "initial coin offering" label has become an omnipresent misnomer for blockchain-based token offerings. Blockchain-based "tokens" often stand for the simple "tokenization" of certain rights and can be used for goods or services. If such tokens are devoid of any implicit or explicit portrayal that the tokens themselves will acknowledge in value, they represent value analogous to an assignable ticket.
Basically, utility tokens have never been intended to offer the appeal of appreciation in value but are called so since they are a substitutable and tradable "right" to receive certain goods or services that offer some benefits and are similar to buying "rights" to goods and services. Since utility tokens derive their value from the rights they represent, one could perhaps argue that such tokens, while clearly irrelevant to digital forms of money, are a tradable appropriate to utilities, products, and administrations, and bear a nearer association with subordinates than stores.
What remains to be seen is whether the definition of "deposit scheme" would be able of being defiantly translated to bring blockchain-based products such as utility tokens within its boundaries. Without a clearly defined government policy for cryptocurrencies, targeted legislation anticipated to address the threats of Ponzi schemes masquerading as initial coin offerings could be interpreted by overzealous regulators to be a forbid on all blockchain products and cause collateral damage to this industry.
Even as the future of blockchain-based products keeps to staying uncertain in the coming days, one thing is certain. Indian regulators will start making attempts to regulate crypto-assets and the future of the blockchain industry can't be predicated on the interpretation of vaguely worded statutes. Therefore, it is essential that the government form a clear policy and circulate to govern the blockchain industry as a whole so that emerging industries based on blockchain don’t turn out as accidental victims of cryptocurrency regulations.