Riya Sharma, is a student Of Nirma University
Introduction
Crypto assets provide a whole new universe of possibilities, but with that allure comes increased volatility. Before introducing the Cryptocurrency and Regulation of Official Digital Currency Bill, Ms. Nirmala Sitharaman, India’s finance minister, muses on the growing concerns over the extremely unpredictable cryptocurrency market.[1] The same problem is brought up in nearly every nation in the globe that is attempting to regulate the market. The emergence of frauds like LUNA[2] and FTX[3], which caused the market price to reach an all-time low, is another factor contributing to the growing fears.
In recent days because of the low valuation of currency, the developers behind Floki Inu ($FLOKI), the Shiba Inu dog breed-themed cryptocurrency project, have proposed an ambitious proposal to burn nearly $55 million of its FLOKI tokens and reduce a transaction tax.[4] In an effort to revive the market, many other cryptocurrency owners are also turning toward coin burning.
The Practice of Coin Burning
Burning is a term used in cryptocurrency to describe taking a certain number of tokens out of circulation to increase the value of the existing tokens already in circulation. This typically involves sending the coins or tokens to a wallet with no known private keys. This wallet can only receive assets, thus effectively making them inaccessible. To burn tokens, there are a few alternative methods, but the most popular is to send them to a wallet where they will be destroyed. According to technical standards, all a user has to do to burn bitcoin, is to send them to a wallet with an incorrect address.[5] But for burning tokens, the majority of cryptocurrencies have particular guidelines and procedures in place.
In order to stabilize the cryptocurrency market, it may be useful to adopt this practice of burning coins, which may be taken into consideration while developing regulations. This approach can be beneficial in promoting market stability and may be worth exploring as part of the regulatory framework.
Regulatory Frameworks in Different Countries
Many countries are close to introducing ground-breaking laws to regulate cryptocurrencylike the European Council approved the Markets in Crypto-Assets (MiCA) Regulation under which MiCA gives its own definition of “crypto-asset”, as meaning “a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology”. The United States Securities and Exchange Commission (SEC) has recently announced a big increase in staffing for its cryptocurrency enforcement unit, and many crypto issuers have already been subject to SEC enforcement.
India is planning to introduce new legislation for cryptocurrency and under India’s G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins, and DeFi.[6] The market’s extreme volatility and how to control such erratic swings remain the primary points of concern.
Token Burning: Legislative Perspectives and Implications
The emergence and proliferation of stable cryptocurrencies necessitate the establishment of first-order design principles for them and the principal idea for creating a stable currency is to determine when and how to print and destroy money. Token burning can be introduced as a measure to control the fluctuating price in the economy. Same as RBI uses monetary policy as a tool to control inflation and deflation in the market, coin burning can be used to control inflation in the market which is one of the primary causes is fluctuations in the price. By the way of this technique, the government can easily regulate the fluctuation in the market.
This is comparable to the fiat currency management techniques now employed by the RBI, such as the implementation of the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). Currently, RBI adjusts the percentage of these ratios in accordance with the current condition of the market. If virtual money regulation could be established in a similar way, it would be simple to implement.
To put this into practice, the RBI may order coin burning when the market price of these currencies reaches an all-time low, leading to an increase in the price of the currencies. Conversely, when the price of these currencies increases, the RBI may request that coin burning cease, allowing the market to have balanced currency conditions in the economy.
This requirement may be written into the legislation together with other provisions to enable the market to become more sustainable for the macro and micro-economies of the country rather than taxing every transaction with such a high percentage, which would cause the market to collapse.
Conclusion, With A Hope for New Beginning
Virtual digital assets and the country have had a turbulent, roller coaster-like relationship It began with its introduction in 2008, followed by a subsequent ban in 2019. However, the situation took a positive turn when the Supreme Court provided relaxations on the ban in a judgment, leading to the taxation of virtual currency in 2022.[7] Indian citizens have witnessed significant fluctuations in the market, emphasizing the need for the introduction of comprehensive laws to ensure smooth and stable functioning in this domain.
The implementation of the new act, incorporating these techniques, holds the potential to yield fruitful outcomes for both the nation’s economy and individual satisfaction. The economy may gain from improved virtual currency regulation and monitoring by passing comprehensive laws, which will also support financial stability and integrity. Simultaneously, individuals engaging in virtual currency transactions may feel more secure and content, knowing that their activities are governed by clear and effective laws.