By Muthuswamy N. Iyer
India’s G20 presidency was a much anticipated movement, not just for the country but for the rest of the world. This was because of the objectives the country had expressed for benefitting all other countries in the ambit. The most important one among them is international economic cooperation of the global south which will positively impact the citizens and also lead to the development of multilateral financial bodies.
Crypto Assets (Virtual Digital Asset) has been a key point of conversation for G20 countries for the last few years. In 2019, G20 nations recognized the advantages of blockchain technology. They expressed an interest in collaborating with global financial institutions to regulate virtual digital assets.
Echoing the same sentiment, India as G20 president will also follow the working paper developed by the International Monetary Fund and Financial Stability Board and report on developments in their July meeting. The changing stance of India towards virtual digital assets (VDAs) has been a positive development for the country as well as organizations who have a large Crypto user base in the region.
Is collaborative regulation the best solution?
Due to the borderless nature of virtual digital assets, India’s Finance Minister has advocated for uniform regulations across the globe in order to bring more accountability to the transaction of VDAs and prevent any actors from avoiding or manipulating jurisdiction specific laws. It will also enable more transparency for cross border transactions, step up security, and improve compliance for all stakeholders.
While this move by India is an important step towards ensuring a safe environment for adoption of VDAs, the process in itself can be very complicated due to the variegated nature of laws in different countries and existing draft of framework in other countries. For example, the SEC in the US is classifying a few tokens as securities and legally treating them as such, leaving major players doubtful about the future of VDAs in the region. In other countries such as South Korea, Crypto adoption is being supported emphatically because of its popularity, and adequate measures are being taken to position the country as a Crypto innovation hotbed.
Besides this, countries are looking for an opportunity to capitalize on this moment with the huge growth potential of virtual digital assets. The socio economic status of some countries also has the possibility of improving with widespread Crypto adoption. Nations such as EU countries and the UK are already working towards a framework for virtual digital assets to claim their leadership status through this emerging technology. India’s goal with Crypto is also similar as it wants to tap into the domestic Web3 talent to create breakthrough products and receive funding for homegrown innovation. The ambition among the countries might create an ecosystem where they try to compete with each other for the spot of ‘Crypto Hub’.
In the most optimistic scenario, even if countries agree to work together, it will take a while before they come up with a mutual set of rules to abide by and follow them in sync with one another. But that puts Indians at a disadvantage of being left behind in uncertainty as other countries go forward with their domestic regulations and spur the growth of Web3 in their respective regions.
What is the way forward?
The ambitious plan of collaborative regulation by the finance minister of India will prove to be beneficial as it will create equal opportunities for all countries and lower the barrier for adoption of VDAs. It will also ensure that all citizens across the world comply with the same set of rules and no exceptions be made. Besides this, it will be easier to calculate taxes, identify assets held, and trace transactions with the help of global law enforcement agencies in case of any suspicious activities.
A uniform operating ground for virtual digital assets will also boost confidence among potential investors and encourage more innovation. Projects will be able to tap into user bases in far away countries without having to worry about the legal obligations their customers have to meet. Inconsistent regulations will stop posing risks for the ecosystem.
However, it would be ideal if India simultaneously looked closer to home while collaborating with countries for uniform Crypto laws. Since the country has one of the largest user bases in the world besides one of the most sought after tech talent, it will be beneficial if laws are first tailor made for Indians before navigating the complex socio-cultural landscape of other G20 nations. This will be beneficial as the country will start growing in a calibrated manner with respect to Web3 use cases and Crypto adoption and set a precedent for other countries to follow suit. This would also ensure India’s leadership in the growth of Web3 beyond the G20 presidency tenure as it can set a great example for countries across the globe.
This is also the time for India to step up and make the most of the nascent stage of Web3 to retain domestic talent and create products for the world to experience, thus thriving towards its goal of establishing a key position in the global economy. This will only be possible if the country’s approach to domestic regulations go hand in hand with its international regulation agenda.
Domestic regulations will be the flight of success for Indian Web3 builders, users, and lawmakers as they will have several advantages to create a thriving ecosystem that is specific to their needs, at the same time as APAC countries such as South Korea and Australia are working towards the same. The evolving nature of virtual digital assets demands such tailor made solutions for each country while uniform regulations are designed for countries as a whole.
The author is head legal and compliance, WazirX
