The rise of virtual digital assets (VDAs), commonly known as cryptocurrencies or crypto-assets, marks a very important shift in global finance and technology. By 2025, VDAs have grown into a vast market with complex regulatory and economic implications. This overview explains the evolution, types, challenges, and regulatory responses surrounding VDAs, with a particular focus on India’s stance amid global developments.
Origins and Evolution of Virtual Digital Assets
VDAs originated from the cypherpunk movement and the 1988 Crypto Anarchist Manifesto, which advocated for private, anonymous transactions free from government control. The release of Bitcoin’s whitepaper in 2008 introduced a peer-to-peer cash system without intermediaries. Since then, the crypto landscape has expanded beyond digital cash to include utility tokens, security tokens, stablecoins, and non-fungible tokens (NFTs).
Types and Functions of Crypto Assets
Crypto assets serve various roles. Utility tokens grant access to services. Security tokens represent digitised financial assets. Stablecoins aim to maintain a fixed value by pegging to fiat currencies. NFTs represent unique digital ownership. The core debate is whether VDAs fulfil money’s three functions – unit of account, store of value, and medium of exchange. Most cryptocurrencies, except some stablecoins, fail to meet these due to high volatility.
Market Size and Global Impact
By mid-2025, the global market capitalisation of crypto assets reached approximately $3.9 trillion. Stablecoins accounted for $255 billion, with adoption in emerging and developing economies. This growth poses risks such as currency substitution or cryptoisation, where stablecoins replace local currencies, threatening monetary sovereignty and complicating capital controls.
India’s Crypto Market and Regulatory Approach
India’s crypto sector is projected to generate $6.4 billion revenue with over 107 million users by 2025. Despite this, the government imposes a 30% tax on crypto income and a 1% tax deducted at source on transactions. This approach is seen as punitive and discourages innovation. Many Indian crypto entrepreneurs are relocating to countries with clearer regulations and lower taxes.
Global Regulatory Trends
Worldwide, regulatory frameworks are evolving. The US’s GENIUS Act aims to legitimise stablecoins. The European Union’s Markets in Crypto-Assets Regulation (MiCA) emphasises transparency and consumer protection. Japan and Australia have licensing regimes for crypto service providers. In contrast, India remains cautious, citing macroeconomic risks and systemic concerns.
Central Bank Digital Currency versus Private Crypto
India promotes a central bank digital currency (CBDC) as a safer alternative to private crypto assets. While CBDCs offer controlled digital currency benefits, they lack the innovation and efficiency of blockchain-based crypto assets. Both can coexist within a regulated ecosystem to balance innovation and stability.
Challenges and Opportunities for India
India’s risk-averse regulatory stance risks losing out on technological innovation and economic growth. The global borderless nature of VDAs means fragmented regulations cause businesses to migrate to friendlier jurisdictions. A balanced approach addressing consumer protection and financial integrity while encouraging innovation is crucial for India to lead in this sector.
Questions for UPSC:
- Discuss in the light of global financial stability the challenges posed by stablecoins and their impact on emerging economies’ monetary sovereignty.
- Critically examine India’s regulatory approach towards virtual digital assets with reference to economic growth and technological innovation.
- Explain the concept of Central Bank Digital Currency (CBDC) and discuss how it compares and contrasts with private cryptocurrencies in terms of benefits and risks.
- With suitable examples, discuss the role of blockchain technology in transforming traditional financial systems and the regulatory challenges it presents globally.
