India's Minister of Finance and Corporate Affairs Nirmala Sitharaman reiterated the country's negative attitude towards cryptocurrencies such as Bitcoin (CRYPTO: BTC) during a recent International Monetary Fund (IMF) panel.
What happened: Local news outlet Outlook India reported that during the IMF meeting on Monday Sitharaman raised concern over the risks posed by cryptocurrencies circulating in unregulated environments, highlighted the need for coordinated efforts to mitigate them and the development of central bank digital currencies (CBDCs). She was taking part in the high-level panel "Money at a Crossroad," hosted by IMF managing director Kristalina Georgieva.
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Sitharaman argued, "currency is that which is backed by a bank, the central bank of the country or the government of that country." She also said that such a development "is going to happen sometime this year" in India.
India's finance minister also said that the country is trying to ensure that cryptocurrency transactions become compliant with anti-money laundering (AML) rules, and said "there should be a financial implication on them and therefore the tax, it wasn't as if we have legitimized them." This was meant to highlight that despite India recently imposing a new tax on cryptocurrencies — which resulted in local trading volume plummeting by almost 55% — those assets remain largely unregulated.
Sitharaman said the risk that she is worried about the most is "unhosted wallets from across the globe." Unhosted wallets allow individuals to hold their own cryptocurrencies in private wallets instead of keeping them on cryptocurrency exchanges or hosted wallets.
If done right, unhosted wallets are the most secure and recommended way to store cryptocurrency for the long term for most users — especially when using a hardware wallet. Using hosted wallets or cryptocurrency exchanges for long-term storage of cryptocurrencies increases the risks of assets loss due to an exchange hack or user credentials being stolen.
An old Bitcoin (CRYPTO: BTC) adage points out that "not your keys, not your Bitcoin." In simple terms, hosted wallets do not expose the wallet's private keys to the users, so the ultimate decision on whether any given transaction should be processed or not is of the administrators of the service, not the users. Such services can — and occasionally will — refuse to process user transactions and/or information about who is the recipient or the sender of any given transaction, negating most if not all advantages of crypto over traditional banking services.
Sitharaman pointed out "as long as the non-governmental activity of the crypto assets is through unhosted wallets, regulation is going to be very difficult" and claimed that "technology doesn't have a solution which will be acceptable to various sovereigns at the same time applicable within each of the territories." She highlighted the reasoning behind India's 30% tax on cryptocurrency profits, noting the reason is that there is no way to effectively control them.
