With the unique developments and advancements in the technology sector in India, especially during the challenges posed by the rapid spread of COVID-19, the fintech sector has shown promising results. There has been a growth, fuelled largely by curiosity and popularity, amongst the citizens of India in cryptocurrencies such as Bitcoin, Ripple, Dogecoin, etc., based on which a large number of people have started investing a noticeable part of their time and money in these virtual currencies.
In India, the apex financial authority i.e., the Reserve Bank of India (“RBI”), recognizes cryptocurrency, more specifically defined as a form of digital/ virtual currency created through a series of written computer codes based on cryptography /encryption and is thus free of any central issuing authority per se. Cryptocurrency is assisted through blockchain technology, which establishes a person-to-person issuance system that utilizes private and public keys allowing authentication and encryption for secure and safe transactions.
Being an untouched, unregulated market with a potential of over a trillion dollars, India also witnessed a huge surge of cryptocurrency exchanges.
Witnessing the increasing popularity of the use of cryptocurrency within a short span of a year and the potential revenue loss to the Government of India; the regulators and authorities started to take notice and as a consequence, in 2013 the RBI issued a press release, warning the public against dealing in virtual/digital currencies
In November 2017 the Government of India established a high-level Inter-Ministerial Committee to report on various issues related to the use of virtual currency and subsequently, in July 2019, this Committee presented its report suggesting a blanket ban on private cryptocurrencies in India.
The threat of revenue loss was so eminent to RBI, that it is interesting to note that even prior to the submission of the report from the Inter-Ministerial Committee, in April 2018 the RBI had issued a circular restricting all commercial and co-operative banks, small finance banks, payment banks and NBFC from not only dealing in virtual/digital currencies themselves but also instructing them to stop providing services to all entities which deal with virtual/digital currencies.
This stalled the rise of the crypto industry in India, as exchanges required banking services for sending and receiving the money. The banking service is essential for the conversion into cryptocurrency and in turn for paying salaries, vendors, office space etc. However, the situation prevailing around cryptocurrencies and their usage completely changed on 4th March 2020, when the Hon’ble Supreme Court of India, in a well-conceived judgment, quashed the earlier ban imposed by the RBI.
The Hon’ble Supreme Court of India chiefly examined the matter from the perspective of Article 19(1)(g) of the Indian Constitution, which talks about the freedom to practice any profession or to carry on any occupation, trade, or business, and the doctrine of proportionality.
The Apex Court noted that there is unanimity of opinion among all regulators and governments of other countries that though virtual currencies have not acquired the status of legal tender, they do display digital representations of value and are capable of functioning as a medium of exchange, unit of account and/or store of value.
While the court recognized the RBI’s power to take pre-emptive action, it held that the proportionality of such a measure was not there in the case, since there wasn’t any damage/loss suffered directly or indirectly, by RBI’s regulated entities as a result of VC trading. Therefore, among other reasons, on the grounds of proportionality, the impugned Circular dated 06-04-2018 was set aside.
The Government of India is now considering the introduction of a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (“New Bill”) which is similar in spirit to its earlier versions. However, the New Bill seeks to ban private cryptocurrencies in India with some exceptions, to encourage the underlying technology and trading of cryptocurrency but facilitated within a framework for the creation of an official digital currency which will be issued by the RBI.
The New Bill has approached the difficulty of the lack of cryptocurrency laws and suggests banning all private cryptocurrencies in their entirety. The dichotomy in the New Bill’s suggestion arises since the RBI is still in the grey about which kinds of cryptocurrency will fall under the purview of private cryptocurrency.
If the New Bill imposes a complete ban on private cryptocurrencies, it shall lead cryptocurrency investors to invest and deal in cryptocurrency in a completely unregulated market. Further, the aim of introducing a law related to cryptocurrency is to ease the process of trading and holding, in a safer technological environment.
However, even with the introduction of state-owned cryptocurrency which shall be monitored by the RBI, the risk in investment and holding of cryptocurrency shall remain the same.
Towards the end of March 2021, according to the latest amendments to Schedule III of the Companies Act, 2013, the Government of India instructed that from the beginning of the new financial year, companies have to disclose their investments in cryptocurrencies.
In simple words, companies now have to disclose profit or loss on transactions involving cryptocurrency, the amount of holding, and details about the deposits or advances from any person trading or investing in cryptocurrency. This move has been greatly appreciated by the people dealing in the crypto sector, as this will open the door for all Indian companies to have Crypto on their balance sheets.
Based on the inference that can be drawn from the aforementioned facts and current scenarios around the world dealing with matters of cryptocurrencies, it is noticeable that there is a complete lack of clarity concerning cryptocurrency regulation in India.
Well-structured, clear regulations dealing with crypto trading exchanges, blockchain technology, investors, and the people employed in such sectors should be made the priority given that the world of cryptocurrency is here to stay and demands more attention.
It is fascinating to note that the Draft National Strategy on Blockchain, 2021, published by the Ministry of Electronics and Information Technology highlighted the benefits of cryptocurrency. Therefore, banning a virtual currency that has created an impact in many countries, will not be the ideal thing to do for the development of our nation.
The government needs to take an effective step towards the positive regulation and enforcement of cryptocurrency as a way forward to earn the confidence of investors and the general public in developing the nation. It was announced by Union Finance Minister Nirmala Sitharam on 16th March 2021 that there shall not be a complete ban on cryptocurrency – “we will allow a certain amount of window for people to experiment on blockchain, bitcoins, and cryptocurrency.”.
Though It would be wiser to pause, sit back, and wait for the Government to formulate clear regulations concerning cryptocurrencies before running in the grey.
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