As the focus around cryptocurrency and blockchain technology grows worldwide and in India, the implications of taxation and its eventual regulation are being weighed. While some view the emergence of this decentralised system with caution, the others are trying to wrap their heads around how to fit it in a world that already has its set financial systems. A. Damodaran, professor of economics and social sciences at the Indian Institute of Management, Bangalore, argues that the potential of cryptocurrencies as decentralised finance is over and India should focus on creating a national blockchain strategy to make it a global player.
Edited excerpts from the interview:
Should cryptocurrency be considered a currency or a digital asset?
Cryptocurrencies have failed as means of payment and, hence, as currencies. They have morphed into the category of digital money as assets. Today, cryptos are speculative assets as evident from their volatility.
Why are governments around the world rushing to ban or regulate cryptocurrency?
Governments feel that cryptocurrencies threaten macroeconomic stability and lead to revenue leakages. Cryptos are viewed as assets floating on thin ice, which pose a serious risk to its investors. The role of cryptocurrencies in the dark web is a serious concern.
Also Read: India Has A Crypto Dilemma
Many critics say that cryptocurrency is the West's way of controlling financial systems around the world. How do you see it?
Cryptos were designed to be unalloyed global commons. They were premised on the maxim of distributive justice. The first generation of blockchains had serious monetary ambitions, as they focused on creating a currency with a strong deflationary touch. These dreams were abandoned by the subsequent generations of blockchains, like Ethereum, where the focus was on improving the quality of exchange through smart contracts. Despite all this, the trading platforms for cryptos were far removed from the ideals of distributed networks. This has led to excessive concentration of cryptos and digital assets with a handful of the super rich in the West.
But, there is another way of viewing this scenario. According to an estimate, there are over 100 million crypto asset owners in India. We are ahead of the US here. With the blockchain industry transitioning to staking [that is, earning rewards on verifying transactions] in a big way, the large base of crypto-owning Indians could spawn multiple, technologically competent enterprises in the blockchain space. If played well, we could emerge as a major countervailing force to the crypto power of the West.
What are your views on the blockchain sector in India? Is it strong enough to support the crypto sector?
India has contributed to a formidable pool of blockchain specialists, some of whom have developed amazing, globally reputed blockchain platforms—Polygon, for instance. In recent years,
governments of many states, like Telangana, Kerala and Tamil Nadu, have initiated blockchain-related skilling programmes to enhance India’s talent pool.
The National Strategy on Blockchains, which was released by the Ministry of Electronics and Information Technology in December 2021, has two features which will make a critical difference to the growth of blockchain enterprises in India—a strong focus on customer support and on asset creation and tracking.
How do you see the future of the crypto sector in India?
In the absence of a national policy, the industry is living in uncertain times. This needs to end. If we are able to initiate a national-level programme to tokenise public services under the Digital India programme, we can create a unique trajectory for our national blockchain strategy.