What Union Budget'22 means for the Crypto Space in India

The legality of cryptocurrencies has been hanging in limbo in India for quite a while now, from rumors about their all-out ban to the introduction of Rupee in a digital format.

With the announcement of a 30% tax on "any income from transfer of any virtual digital asset”, the good news is an official acknowledgment of the crypto space in the country. But the "good" part ends there.

Here are a few points of concern:

"Crypto, at best, will be classified as an asset and not a currency, implying that it will likely be treated and traded like stocks."

• Firstly, if it's not a currency, it loses its primary use case. A cryptocurrency like Bitcoin is NOT a company with an operational business model that is valued by way of stocks or tokens being traded on the exchange. It's more like the $100 bill that you buy a stock with.

• Secondly (and more importantly), crypto technology, which uses a blockchain architecture at the core, is based on the philosophy of "decentralization" - the removal of central authorities, regulators, and intermediaries - the exact opposite of what the government is doing with it.

This "trustless" functioning becomes possible due to blockchain, which can validate transactions using code, eliminating the need for central authorities to keep a record of transactions for us.

Some obvious advantages of decentralized systems include lesser transaction fees, immutable and verifiable record-keeping, quicker cross-border transactions, and digitally secure transfer of ownership, leading to a fairly-paid creator economy with positive implications for artists, musicians, collectors, graphic designers, and even contract workers.

• Thirdly, a digital Rupee controlled by the government defeats the purpose of having a currency based on crypto-tech. It's like banning all major tech services (like Instagram, Google, or LinkedIn) and forcing everyone to use a government version of these services. This is clearly just a way to make sure that the government can continue to keep tabs on the nationwide money supply, whatever that means in today's time.

• And finally, crypto will probably have to be held in some de-mat equivalent overseen by a regulated entity. Combined with a 30% tax rate that exceeds even STCG tax on stocks, this will simply act as a deterrent against the innovators and early adopters who are coming up with new use cases and business models to leverage this new paradigm. This implies that India will yet again be sluggish in terms of technological advancement in this space.

One of the most important tools that any government has is the ability to print money and control its circulation in the economy by way of monetary and fiscal policies. With the advent of crypto, it is clear that the government is fearful of losing such control, even as the younger crowd is moving towards crypto despite the added risk.

So apparently, it's okay when banks (a government-regulated sector) screw up due to rising NPAs, adversely affecting the wealth of the shareholders (PNB/SBI sure come to mind), but it's not okay when the same shareholders start exploring decentralized methods of transacting and exchanging value that is free from regulation.

Not cool, government!