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Web3 – The regulatory abeyance impact
Web3 – The regulatory abeyance impact

September 19, 2022

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Web3 – The regulatory abeyance impact

Web3 – Explained

Web3 is a new version of the web built on blockchains which provides peer-to-peer and decentralized features shifting the data control towards the users and eventually abolishing platform / third party intermediation. At its core, Web3 uses blockchains, cryptocurrencies, and NFTs to give power back to the users in the form of ownership. Currently, cryptocurrency has been making a buzz with millions of people investing in crypto trading globally. The digital currency does not rely on a central authority like a central bank or the government and as a result, transactions done through Web3 technologies, such as peer-to-peer payments, are free from the control of any central governing body.

Web 3 is still at its infancy stage, and therefore with the ownership moving to the users, laws are continuously being created to regulate the industry to ensure the users are technologically aware and protected from any financial instabilities and data-related frauds.

Current global take on Web3 regulations

Globally, major countries with developed economies have laid the foundation of the bills in the last 2-3 years to fuel innovation and protecting the consumers. Countries have been working on the acts from a long time before the introduction while India is still to make a significant progress and give a regulatory indication and directives. These countries are currently embracing the innovative, yet policy concerned start-ups and providing them the positive environment to build their solutions for the world.

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Why does India need Policy and Regulatory Framework right now?

Grabbing the opportunity and play on the strengths India already possess: Talent, Economic growth and Demographics

Various countries have been working on the acts from a long time before the introduction while India is still to make a significant progress and give a regulatory indication and directives. These countries are currently embracing the innovative, yet policy concerned start-ups and providing them the positive environment to build their solutions for the world.

Although, the Indian technology talent pool is increasing exponentially, the movement of startups and founders to different countries is leading to brain drain in India and a loss of great mentors and talent in Web3 space. Consequently, fresh, and growing talent pool might lack direction and correct guidance required in this space and thus curbing the Web3 space growth in the country.

Further, India’s 2% of population are active crypto users and ranks 2nd after the US in terms of user base. This base is certainly going to grow with millennials and GenZ’s being the major crypto investors and Web3 savvy users leveraging play-to-earn models and NFT assets. With ~7% annual real GDP growth rate expected through the 5-year 2022-26 period, this would be a great time to for India to come up with regulatory framework so startup companies can be retained, and India can also be established as one of the biggest Web3 consumer market.

Fostering innovation and talent

Although the country has seen significant increase in the number of startup in the recent years, startup founders are mainly concerned regarding lack of political and regulatory clarity. India plans to launch its official central bank digital currency (CBDC), or the Digital Rupee, in FY2023, however little is known about its implications on the private cryptocurrency market. Therefore, this uncertainty and lack of progress update on this subject is leading to founders and innovators lose confidence and eventually moving outside the country.

Creating awareness and education regarding the crypto and digital assets

Currently, cryptocurrencies and digital assets trading activities are being conducted regardless of border or country barriers. With crypto users increasing in the country, India should now think of ways to educate and make crypto holders aware of hacking and cyberattacks. The country should also think of how crypto assets issuers can also be hold by horns and ensure that there is a responsibility on them in case of any loss. Regulatory and policy frameworks will shake up any ponzi scheme makers claiming themselves as crypto assets and come to light, reducing any kind of scams or hacking.

Few recommendations to begin with:

Global Alignment: Recently, India has pitched for a global framework to regulate crypto currencies and restrict their use in money laundering and terror financing – the biggest risks for all countries. Since crypto assets are being traded across the border, significant international collaboration and alignment is important for evaluation of the risks and benefits and evolution of common taxonomy and standards.

Bridging the communication gap between Founders’ and policy maker groups: Founders, Web3 evangelists and policy makers should come together to brainstorm around the framework and policies which can be beneficial for the users, founders and the country.

Looking cryptocurrency trading as one of the Web3 and blockchain based applications: While we are pondering over regulatory and political framework for crypto trading, we need to look at Web3 and blockchain space beyond the cryptocurrency. Currently there are many innovative startups which are creating NFT and Metaverse based solutions which does not mandatorily involve crypto trading.

Transparency and progress update on regulatory framework: A timely progress update on the policy development would be a tentative relief and might nurture the faith in crypto users and Web3 startups.

Sources:

https://triple-a.io/crypto-ownership-data/

https://eur-lex.europa.eu/resource.html?uri=cellar:f69f89bb-fe54-11ea-b44f-01aa75ed71a1.0001.02/DOC_1&format=PDF

https://economictimes.indiatimes.com/markets/cryptocurrency/crypto-influencers/u-s-senators-unveil-bill-to-regulate-cryptocurrency/articleshow/92071834.cms

https://bsabh.com/knowledge-hub/news/the-new-virtual-asset-regulation-what-you-need-to-know


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