Finance Minister Nirmala Sitharaman made two announcements in Union Budget 2022-23 significant for the crypto asset industry of India.
The Indian government will levy a 30% tax on the profit earned by crypto-assets.
The Digital rupee will be introduced in the fiscal year 2022-23.
After being apprehensive and reluctant to adopt cryptocurrency. The Indian government has finally decided to open up to the virtual form of money.
There is still confusion about the future of cryptocurrency. But these announcements have given a clear signal to crypto aficionados. That crypto is one step closer to being legal in the country.
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Cryptocurrencies have been in circulation since 2009 but for the last couple of years, unprecedented growth has been seen in this asset class.
Crypto assets are very popular among younger investors who have a better appetite for risk and are enthusiastic about acquiring adequate financial education to reap the benefits of the ever-changing landscape of digital finance. According to a report by The Economic Times, around 20 million Indians are dealing in cryptocurrency.
As per the 2021 Global Crypto Adoption index issued by Chainalysis, a company specializing in blockchain analysis, the world witnessed an 880% jump in crypto adoption. An index score of 0.37 garnered India second place in the index behind Vietnam. The Indian crypto market saw a growth of 641% in a year. Clearly, the crypto market world over is showing great potential and is emerging rapidly. It seems to be a promising industry for India too.
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Crypto Ownership in India
The Chainalysis 2021 Global Crypto Adoption Index indicated that India is second in the overall index rating after Vietnam. This is despite the rumors that the government will be taxing crypto transactions up to 30%.
According to Finder’s Report, as of November 2021, crypto ownership in India already reached 14.7% of the population. In April 2022, this doubled to 29.9%.
Technology Involved
Cryptocurrency is a virtual currency that is encrypted by codes using Blockchain technology. The encryption process makes the currency secure against counterfeit. At the moment cryptocurrencies are legal financial assets but they are not recognized as legal tender by countries except El Salvador which means. These assets hold value but cannot be used for the sale or purchase of commodities yet.
Finance Minister Nirmala Sitharaman clarified in an interview that since cryptocurrency is not issued by a centralized authority it does not have the intrinsic value that makes a currency acceptable as a medium of exchange. So, cryptocurrency is an asset, not a currency.
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How secure is cryptocurrency?
The security that cryptographic proof provides to digital asset transactions is not easy to break. Every transaction that gets initiated in the crypto-financial system needs to be verified by the majority of the ledger network distributed across the internet. The transaction gets rejected if this does not happen. Also, transactions are verified through mining, a process of solving complex algorithms. This process consumes a lot of energy making it expensive and takes a significant amount of time to get noticed if anything is fishy.
Any user from any part of the world able to access the web can transfer crypto, there is no geographical barrier or conversion fee. The utility of digital money has been recently witnessed by the world amid the ongoing Russia-Ukraine war. People from all around the world extended their support to Ukraine by making cryptocurrency donations. Ukraine’s Deputy Digital Transformation minister.
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Alex Bornyakov confirmed. That the country has raised around $100 Million to withstand the Russian invasion.
The supply of the currency is limited because new currency only comes into circulation when blockchain miners verify any transaction.
The demand for cryptocurrency is increasing each passing day because more people are getting aware of the potential of this asset. Limited supply and more demand for cryptocurrency make the crypto market highly volatile and risky.
Conclusion
Acceptance of the digital currency system by the Indian state is a prudent move considering the pace at which the crypto financial system is expanding itself. Although, it would be a challenge for the state to devise a mechanism that lets cryptocurrency function without losing its essence.
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