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NEW DELHI: Emerging technology think tank, Policy 4.0, has suggested a wallet-based solution for India to tackle the spectrum of regulatory risks the government faces with cryptocurrencies. The report recommended that India should build its own “India Wallet" to tackle know your customer (KYC), the inflow and outflow of cryptocurrency, and monetary concerns.
The government and industry experts recently held talks on how to move forward on cryptocurrency in India. The Centre is reportedly considering regulating crypto as a commodity than a currency.
According to the Policy 4.0 report, for the moment, the default characterisation of tokens as ‘commodities’ may serve as a starting point, even though, according to the think tank, it may not sufficiently capture the true nature of tokens.
Policy 4.0’s advisory board comprises Ashima Goyal, a member of the Reserve Bank of India’s (RBI) Monetary Policy Committee, and Sandeep Parekh, founder of Finsec Law Advisors and former regulator with Securities and Exchange Board of India (Sebi).
The think tank, in its report, suggested that the first phase of regulation can focus on the management of public and private keys, which have the potential to cover the full spectrum of crypto activity in India.
The second phase, as per the report, can take a more gradualist approach in defining the specific nature of tokens in the context of their specific use cases.
While a public key is used for identification, a private key enables ownership and usage. Further, cryptocurrency wallets store public-private key pairs for a variety of crypto assets and help users transact in cryptocurrency.
Policy 4.0 said the first regulatory focus should be on wallets and the onus should be on the citizens to get a verified wallet. “Any crypto industry players then simply have to onboard verified wallets onto their platform," it added.
As per the think tank, “India Wallet" can be used to monitor all crypto activities such as trading, decentralized finance, and can store tokens, collectibles and coins. Also, it can integrate with crypto exchanges as well as non-fungible token (NFT) marketplaces and can differentiate between domestic and cross-border transfers.
“A one-time KYC verification would be required for each citizen at the time of set up of a crypto wallet. In countries without digital identity, the framework for verifiable credential providers can be considered for such KYC verification. In the case of India, the UIDAI or DigiLocker are capable of providing such KYC verification," Policy 4.0 recommended.
According to the think tank, the wallet could be a new infrastructure created by the government or it could also be a technical standard according to which private players build or modify existing wallets.
“These will not be recognized under the Indian law. Whatever crypto assets are managed through the citizens’ wallets will be recognized and legally protected under legislation. Other activity could be deemed black money and treated as such," it said.
To ensure financial stability, a cap could be enforced on the wallet on the amount of investment into cryptocurrency by citizens, as per Policy 4.0. “Such caps can be managed flexibly and imposed only when stability risks are deemed acute. They can also be increased or decreased based on criteria that the government defines."
The think tank recommended that India Wallet can also send alerts to citizens and the government if the prescribed annual limit imposed by regulators is breached or likely to be breached.
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