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CIS Issue Brief on regulating Crypto-asset advertising in India

Posted by Aman Nair and Vipul Kharbanda at May 25, 2022 12:00 AM |

Over the past decade, crypto-assets have established themselves within the digital global zeitgeist. Crypto-asset (alternatively referred to as cryptocurrency) trading and investments continue to skyrocket, with centralised crypto exchanges seeing upwards of USD 14 trillion (or around INR 1086 trillion) in trading volume. 

One of the key elements behind this exponential growth and embedding of crypto-assets into the global cultural consciousness has been the marketing and advertising efforts of crypto-asset providers and crypto-asset-related service providers.In India alone, crypto-exchange advertisements have permeated into all forms of media and seem to be increasing as the market continues to mature. At the same time, however, financial regulators such as the RBI have consistently pointed out concerns associated with crypto-assets, even going so far as to warn consumers and investors of the dangers that may arise from investing in crypto-assets through a multitude of circulars. 

In light of this, we analyse the regulations governing crypto-assets in India by examining the potential and actual limitations posed by them. We then compare them with the regulations governing the advertising of another financial instrument, mutual funds. Finally, we perform a comparative analysis of crypto-asset advertising regulations in four jurisdictions - The EU, Singapore, Spain and the United Kingdom- and identify clear and actionable recommendations that policymakers can implement to ensure the safety and fairness of crypto-asset advertising in India.

The full issue brief can be accessed Here

Comments to the Draft National Health Data Management Policy 2.0

Posted by Anamika Kundu, Shweta Mohandas and Pallavi Bedi at May 24, 2022 04:06 PM |

Anamika Kundu, Shweta Mohandas and Pallavi Bedi along with 9 other organizations / individuals drafted comments to the Draft National Health Data Management Policy 2.0.

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Internet Researchers' Conference 2022 (IRC22): #Home, May 25-27

Posted by Puthiya Purayil Sneha at May 24, 2022 12:00 AM |

We are excited to announce that the fifth edition of the Internet Researchers' Conference will be held online on May 25-27, 2022.This annual conference series was initiated by the researchers@work (r@w) programme at CIS in 2016 to gather researchers and practitioners engaging with the internet in/from India to congregate, share insights and tensions, and chart the ways forward. This year, the conference brings together a set of reflections and conversations on how we imagine and experience the home —as a space of refuge and comfort, but also as one of violence, care, labour and movement-building.

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WIPO SCCR 42: Statement by CIS on the Limitations and Exceptions Agenda Item

Posted by Anubha Sinha at May 12, 2022 08:41 AM |

Anubha Sinha delivered a statement on behalf of CIS, on day 3 of the 42nd WIPO SCCR session on the Limitations and Exceptions Agenda Item.

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WIPO SCCR 42: Statement by CIS on the Protection of Broadcasting Organisations Agenda Item

Posted by Anubha Sinha at May 10, 2022 02:38 PM |

Anubha Sinha delivered a statement on behalf of CIS, on day 2 of the 42nd WIPO SCCR session on the Protection of Broadcasting Organisations Agenda Item.

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Studying Platform Work in Mumbai & New Delhi

Studying Platform Work in Mumbai & New Delhi

Posted by Anushree Gupta, Rajendra Jadhav, Sarah Zia, Simiran Lalvani and Noopur Raval at May 05, 2022 05:13 PM |

A report by Centre for Internet & Society (CIS) and Azim Premji University (APU) maps platform work in India and notes from four studies of workers driving taxis and delivering food for platform companies.

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CCTVs in Public Spaces and the Data Protection Bill, 2021

Posted by Anamika Kundu and Digvijay S Chaudhary at Apr 28, 2022 02:29 AM |

This article has been authored by Ms. Anamika Kundu, Research Assistant at the Centre for Internet and Society, and Digvijay S. Chaudhary, Researcher at the Centre for Internet and Society. This blog is a part of RSRR’s Blog Series on the Right to Privacy and the Legality of Surveillance, in collaboration with the Centre for Internet & Society.

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Internet Researchers' Conference 2022 (IRC22) - Selected Sessions

Posted by Puthiya Purayil Sneha at Apr 25, 2022 12:00 AM |

Here is the list of selected sessions and individual presentations for the Internet Researchers' Conference (IRC22) - #Home. IRC22 will be held online from May 25-27, 2022. The conference announcement, along with details on registration will be published in the first week of May.

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Feminist Design Practices

Feminist Design Practices

Posted by Aayush Rathi, Akash Sheshadri and Ambika Tandon at Apr 16, 2022 03:34 AM |

Aayush Rathi and Akash Sheshadri and Ambika Tandon co-authored a research paper on 'Feminist Design Practices' which was published in a special issue of Apria, a peer-reviewed journal hosted at ArtEZ University. The special issue "Feminist by Design" highlights the work of the Feminist Internet Research Network and its contributions to building an equitable internet through design interventions.

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Rethinking Acquisition of Digital Devices by Law Enforcement Agencies

Posted by Harikartik Ramesh at Apr 16, 2022 12:00 AM |

This article has been selected as a part of The Right to Privacy and the Legality of Surveillance series organized in collaboration with the RGNUL Student Research Review (RSRR) Journal.

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Decoding India’s Central Bank Digital Currency (CBDC)

Posted by Vipul Kharbanda at Apr 06, 2022 12:00 AM |

In her budget speech presented in the Parliament on 1 February 2022, the Finance Minister of India – Nirmala Sitharaman – announced that India will launch its own Central Bank Digital Currency (CBDC) from the financial year 2022–23. The lack of information regarding the Indian CBDC project has resulted in limited discussions in the public sphere. This article is an attempt to briefly discuss the basics of CBDCs such as the definition, necessity, risks, models, and associated technologies so as to shed more light on India’s CBDC project.

1. What is a CBDC?

Before delving into the various aspects of a CBDC, we must first define it. A CBDC in its simplest form has been described by the RBI as “the same as currency issued by a central bank but [which] takes a different form than paper (or polymer). It is sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements. CBDCs should be exchangeable at par with cash.”

2. Policy Goals

Launching any CBDC involves the setting up of infrastructure, which comes with notable costs. It is therefore imperative that the CBDC provides significant advantages that can justify the investment it entails. Some of the major arguments in favour of CBDCs and their relevance in the Indian context are as follows.

Financial Inclusion: In countries with underdeveloped banking and payment systems, proponents believe that CBDCs can boost financial inclusion through the provision of basic accounts and an electronic payment system operated by the central bank. However, financial inclusion may not be a powerful motive in India, where at least one member in 99% of rural and urban households have a bank account, according to some surveys. Even the US Federal Reserve recognises that further research is needed to assess the potential of CBDCs to expand financial inclusion, especially among underserved and lower-income households.

Access to Payments: – It is claimed that CBDCs provide scope for improving the existing payments landscape by offering fast and efficient payment services to users. Further, supporters claim that a well-designed, robust, open CBDC platform could enable a wide variety of firms to compete to offer payment services. It could also enable them to innovate and generate new capabilities to meet the evolving needs of an increasingly digitalised economy. However, it is not yet clear exactly how CBDCs would achieve this objective and whether there would be any noticeable improvements in the payment systems space in India, which already boasts of a fairly advanced and well-developed payment systems market.

Increased System Resilience: Countries with a highly developed digital payments landscape are aware of their reliance on electronic payment systems. The operational resilience of these systems is of critical importance to the entire payments landscape. The CBDC would not only act as a backup to existing payment systems in case of an emergency but also reduce the credit risk and liquidity risk, i.e., the risk that payment system providers will turn insolvent and run out of liquidity. Such risks can also be mitigated through robust regulatory supervision of the entities in the payment systems space.

Increasing Competition: A CBDC has the potential to increase competition in the country’s payments sector in two main ways, (i) directly – by providing an alternative payment system that competes with existing private players, and (ii) by providing an open platform for private players, thereby reducing entry barriers for newer players offering more innovative services at lower costs.

Addressing Illicit Transactions: Cash offers a level of anonymity that is not always available with existing payment systems. If a CBDC offers the same level of anonymity as cash then it would pose a greater CFT/AML (Combating Financial Terrorism/ Anti-Money Laundering) risk. However, if appropriate CFT/AML requirements are built into the design of the CBDC, it could address some of the concerns regarding its usage in illegal transactions. Such CFT/AML requirements are already being followed by existing banks and payment systems providers.

Reduced Costs: If a CBDC is adopted to the extent that it begins to act as a substitute for cash, it could allow the central bank to print lesser currency, thereby saving costs on printing, transporting, storing, and distributing currency. Such a cost reduction is not exclusive to only CBDTs but can also be achieved through the widespread adoption of existing payment systems.

Reduction in Private Virtual Currencies (VCs): Central banks are of the view that a widely used CBDC will provide users with an alternative toexisting private cryptocurrencies and thereby limit various risks including credit risks, volatility risks, risk of fraud, etc. However if a CBDC does not offer the same level of anonymity or potential for high return on investment that is available with existing VCs, it may not be considered an attractive alternative.

Serving Future Needs: Several central banks see the potential for “programmable money” that can be used to conduct transactions automatically on the fulfilment of certain conditions, rules, or events. Such a feature may be used for automatic routing of tax payments to authorities at the point of sale, shares programmed to pay dividends directly to shareholders, etc. Specific programmable CBDCs can also be issued for certain types of payments such as toward subway fees, shared bike fees, or bus fares. This characteristic of CBDCs has huge potential in India in terms of delivery of various subsidies.

3. Potential Risks

As with most things, CBDCs have certain drawbacks and risks that need to be considered and mitigated in the designing phase itself. A successful and widely adopted CBDC could change the structure and functions of various stakeholders and institutions in the economy.

Both private and public sector banks rely on bank deposits to fund their loan activities. Since bank deposits offer a safe and risk-freeway to park one’s savings, a large number of people utilise this facility, thereby providing banks with a large pool of funds that is utilised for lending activities. A CBDC could offer the public a safer alternative to bank deposits since it eradicates even the minute risk of the bank becoming insolvent making it more secure than regular bank deposits. A widely accepted CBDC could adversely affect bank deposits, thereby reducing the availability of funds for lending by banks and adversely affecting credit facilities in the economy. Further, since a CBDC is a safer form of money, in times of stress, people may opt to convert funds stored in banks into safer CBDCs, which might cause a bank run. However, these issues can be mitigated by making the CBDC deposits non-interest-bearing, thus reducing their attractiveness as an alternative to bank deposits. Further, in times of monetary stress, the central bank could impose restrictions on the amount of bank money that can be converted into the CBDC, just as it has done in the case of cash withdrawals from specific banks when it finds that such banks are undergoing extreme financial stress.

If a significantly large portion of a country’s population adopts a private digital currency, it could seriously hamper the ability of the central bank to carry out several crucial functions, such as implementing the monetary policy, controlling inflation, etc.

It may be safe to say that the question of how CBDCs may affect the economy in general and more specifically, the central bank’s ability to implement monetary policy, seigniorage, financial stability, etc. requires further research and widespread consultation to mitigate any potential risk factors.

4. The Role of the Central Bank in a CBDC

The next issue that requires attention when dealing with CBDCs is the role and level of involvement of the central bank. This would depend not only on the number of additional functions that the central bank is comfortable adopting but also on the maturity of the fintech ecosystem in the country. Broadly speaking, there are three basic models concerning the role of the central bank in CBDCs:

(i)  Unilateral CBDCs: Where the central bank performs all the functions right from issuing the CBDC to carrying out and verifying transactions and also dealing with the users by maintaining their accounts.

(ii)  Hybrid or Intermediate Model: In this model, the CBDCs are issued by the central bank, but private firms carry out some of the other functions such as providing wallets to end users, verifying transactions, updating ledgers, etc. These private entities will be regulated by the central bank to ensure that there is sufficient supervision.

(iii)  Synthetic CBDCs: In this model, the CBDC itself is not issued by the central bank but by private players. However, these CBDCs are backed by central bank liabilities, thus providing the sovereign stability that is the hallmark of a CBDC.

The mentioned models could also be modified to suit the needs of the economy; e.g., the second model could be modified by not only allowing private players to perform the user-facing functions, but also offering the same functions either by the central bank or even some other public sector enterprise. Such a scenario has the potential to offer services at a reduced price (perhaps with reduced functionalities) thereby fulfilling the financial inclusion and cost reduction policy goals mentioned above.

5. Role of Blockchain Technology

While it is true that the entire concept of a CBDC evolved from cryptocurrencies and that popular cryptocurrencies like Bitcoin and Ether are based on blockchain technology, recent research seems to suggest that blockchain may not necessarily be the default technology for a CBDC. Additionally, different jurisdictions have their own views on the merits and demerits of this technology, for example, the Bahamas and the Eastern Caribbean Central Bank have DLT-based systems; however, China has decided that DLT-based systems do not have adequate capacity to process transactions and store data to meet its system requirements.

Similarly, a project by the Massachusetts Institute of Technology (MIT) Currency Initiative and the Federal Reserve Bank of Boston titled “Project Hamilton” to explore the CBDC design space and its technical challenges and opportunities has surmised that a distributed ledger operating under the jurisdiction of different actors is not necessarily crucial. It was found that even if controlled by a single actor, the DLT architecture has downsides such as performance bottlenecks and significantly reduced transaction throughput scalability compared to other options.

6. Conclusion

Although a CBDC potentially offers some advantages, launching one is an expensive and complicated proposition, requiring in-depth research and detailed analyses of a large number of issues, only some of which have been highlighted here. Therefore, before launching a CBDC, central banks issue white papers and consult with the public in addition to major stakeholders, conduct pilot projects, etc. to ensure that the issue is analysed from all possible angles. Although the Reserve Bank of India is examining various issues such as whether the CBDC would be retail or wholesale, the validation mechanism, the underlying technology to be used, distribution architecture, degree of anonymity, etc., it has not yet released any consultation papers or confirmed the completion of any pilot programmes for the CBDC project.

It is, therefore, unclear whether there has been any detailed cost–benefit analysis by the government or the RBI regarding its feasibility and benefits over existing payment systems and whether such benefits justify the costs of investing in a CBDC. For example, several of the potential advantages discussed here, such as financial inclusion and improved payment systems may not be relevant in the Indian context, while others such as reduced costs and a reduction in illegal transactions may be achieved by improving the existing systems. It must be noted that the current system of distribution of central bank money has worked well over the years, and any systemic changes should be made only if the potential upside justifies such fundamental changes.

The Government of India has already announced the launch of the Indian CBDC in early 2023, but the lack of public consultation on such an important project is a matter of concern. The last time the RBI took a major decision in the crypto space without consulting stakeholders was when it banned financial institutions from having any dealings with crypto entities. On that occasion, the circular imposing the ban was struck down by the Supreme Court as violating the fundamental right to trade and profession. It is, therefore, imperative that the government and the Reserve Bank conduct wide-ranging consultations with experts and the public to conduct a detailed and thorough cost–benefit analysis to determine the feasibility of such a project before deciding on the launch of an Indian CBDC.

Comments to the draft Motor Vehicle Aggregators Scheme, 2021

Posted by Chiara Furtado, Aayush Rathi and Abhishek Sekharan at Apr 01, 2022 03:25 PM |

This submission presents a response by researchers at the Centre for Internet and Society, India (CIS) to the draft Motor Vehicle Aggregators Scheme, 2021 published by the Transport Department, Government of National Capital Territory of Delhi, (hereafter “draft Scheme”).

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Personal Data Protection Bill must examine data collection practices that emerged during pandemic

Posted by Shweta Mohandas and Anamika Kundu at Mar 30, 2022 03:15 PM |

The PDP bill is speculated to be introduced during the winter session of the parliament soon. The PDP Bill in its current form provides wide-ranging exemptions which allow government agencies to process citizen’s data in order to fulfil its responsibilities. The bill could ensure that employers have some responsibility towards the data they collect from the employees.

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An Overview of Telecommunications Policy and Regulation Framework in India

Posted by Abhishek Raj at Mar 25, 2022 02:06 AM |
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Abhishek Raj, a researcher at the Centre for Internet Society (CIS), has authored a document that provides an overview of the policy and regulatory environment surrounding telecommunications in India.

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Response to TRAI consultation on Auction of Spectrum in frequency bands identified for IMT/5G

Posted by Abhishek Raj, Steve Song and Udbhav Tiwari at Mar 25, 2022 02:05 AM |

The Centre for Internet and Society (CIS) and Mozilla jointly submitted comments to Telecom Regulatory Authority of India’s consultation paper on auction of spectrum in frequency bands identified for IMT/5G, released on 30 November 2021.

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Cybernorms: Do they matter IRL (In Real Life): Event Report

Cybernorms: Do they matter IRL (In Real Life): Event Report

Posted by Veronica Ferrari (Association for Progressive Communications), Sheetal Kumar (Global Partners Digital), Enrico Calandro (Research ICT Africa) and Arindrajit Basu (the Centre for Internet and Society) at Mar 24, 2022 04:24 PM |

The year 2021 saw several cyber attacks on critical infrastructure such as oil pipelines, businesses such as airlines and meat-packing companies, and, crucially, healthcare providers such as vaccine suppliers. Several of these attacks were attributed to nation-states while others were carried out by non-state actors.

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Response to MeitY's India Digital Ecosystem Architecture 2.0 Comment Period

Posted by Divyank Katira, Shweta Mohandas, Shruti Trikanand at Mar 22, 2022 12:00 AM |

CIS has submitted a response to MeitY's India Digital Ecosystem Architecture 2.0 Comment Period

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IRC 22 - Proposed Session - #COVID19VaccineDiscourse

Posted by Admin at Mar 18, 2022 10:16 AM |

Details of a session proposed for the Internet Researchers' Conference 2022 - #Home.

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Internet Researchers' Conference 2022 (IRC22) - Proposed Sessions

Here is the list of sessions proposed for the Internet Researchers' Conference 2022 - #Home.

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Nothing to Kid About – Children's Data Under the New Data Protection Bill

Posted by Shweta Mohandas and Anamika Kundu at Mar 10, 2022 01:19 PM |

The pandemic has forced policymakers to adapt their approach to people's changing practices, from looking at contactless ways of payment to the shifting of educational institutions online.

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