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CRYPTOCURRENCY AND ITS FUTURE IN INDIA: THE ROAD AHEAD
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CRYPTOCURRENCY AND ITS FUTURE IN
INDIA: THE ROAD AHEAD
Bitcoin, etherum, doggecoin are a few common names related to
cryptocurrency. Cryptocurrencies are peer-to-peer virtual currencies that are
decentralised and bartered. With Tesla's acceptance of this digital currency,
it went from being a financial black market to gaining public awareness. The
number of bitcoin investors in India has steadily climbed. The 2018 RBI
circular, which instructed NBFCs and banks not to deal in currency, posed a
threat to investors, prompting the Supreme Court to intervene. From the 2019
bill which bans the cryptocurrency to the 2021 bill banning private
cryptocurrency, the situation has shifted slightly, permitting the currency in the
Indian market. This articles examines the threat posed by digital currency, and
the need to regulate virtual currencies in India.
Introduction:
The fintech business has seen
significant expansion as a result of technical advancements. From minor purchases
to stock market investments, online transactions are the way of the future.
With the invention of Bitcoin by Santhoshi Namakato in the year 2008, the
virtual currency, also known as cryptocurrency, which is decentralised and peer
to peer, came into life. Cryptocurrencies are a sort of virtual currency that
validates and secures transactions using cryptographic methods. A distributed
ledger, such as a blockchain, is used to digitally record the transactions[3]. In India, cryptocurrency has gained
traction, with investments of up to Rs.10.07 crores, which is significantly
higher than in the United States[4].
Historical Background:
In the year 1998, the notion of
online currencies was developed using encrypted ledgers. Attempts to transform
Bit gold and B-money into full-fledged currencies were unsuccessful[5]. An anonymous person named Santoshi
Nakamoto introduced Bitcoin for email lists in 2008. Initially, Bitcoins were
mined to be created, but they had no market value. By 2010, the value of
Bitcoin had only begun to rise when the generated coins were used to purchase
goods. The fintech industry gradually saw the rise of various new coins, one of
which Ethereum (second most popular bitcoin)[6] was sold through an initial coin
offering (ICO) (Initial coin offerings)[7]. These virtual money have come a
long way from being outlawed in certain nations to being accepted in others.
Owning cryptocurrency in India:
Exchanges like as Zebpay and coindesk
allow users to purchase digital money. Investors can buy these coins by filling
out a KYC form and linking it to their Aadhar and Pan cards. NEFT, RTGS, debit
cards, and credit cards can all be used to purchase cryptocoins[8]. These currencies are kept in
cryptowallets and can be utilised in future transactions such as transfers and
sales. Hot and cold wallets are two types of cryptocurrency wallets. Hot
wallets require active internet connection contrary to the cold wallet. Hot
wallets includes Destop wallets, web wallets and mobile wallets[9].
Timeline of cryptocurrency in India:
With 10.07 crore crypto owners, India leads
the world leader board, followed by the United States (2.74 crore), Russia
(1.74 crore), and Nigeria (1.74 crore) (1.30 crore). In terms of user numbers,
India's largest stockbroker, Zerodha, has been surpassed by some of the
country's most popular crypto exchanges. At the moment, Zerodha has more than
seven million users, compared to 11 million for CoinSwitch Kuber and 8.3
million for WazirX[10].
After 2012, the
cryptocurrency began to gain traction in India. Zebpay, Coinsecure, Unocoin,
Koinex, Pocket Bits, and Bitxoxo are examples of cryptocurrency exchanges. In
2013, India's reserve bank issued a warning to the public about dealing with
virtual currencies. With the demonetization of high-value currencies and the
promotion of digital payment methods, a true spike in digital money occurred.
By 2017, the number of people investing in cryptocurrency had risen, prompting
the Reserve Bank of India to issue an addendum to its 2013 press release,
stating: "The Reserve Bank of India advises that it has not granted any
licence / authorisation to any entity / company to operate such schemes or deal
with Bitcoin or any virtual currency. As a result, anyone interacting with Virtual Currencies,
whether as a user, holder, investor, trader, or otherwise, does so at their own
risk[11].
In 2017, Siddharth Dalmia and
Dwaipayan Bhowmick became the first to bring crypto currency cases before the
Supreme Court. Mr. Siddharth Dalmia and Mr. Vijay Pal Dalmia filed the first
Writ Petition in the Supreme Court, seeking a ban on the sale and purchase of
cryptocurrency on the grounds that it is used in anti-national, illegal, and
nefarious activities such as terrorism funding, illegal arms and drug trade,
bribery, money laundering, tax evasion, ransom payment, and so on. Mr.
Dwaipayan Bhowmick filed a second Writ Petition in the public interest,
requesting a directive to regulate the flow of cryptocurrency, ensure that
cryptocurrency is accountable to the exchequer, and establish a panel to
determine the framework of regulations on bitcoin and other cryptocurrencies in
India[12].
The RBI and the Ministry of Finance
published press statements in December 2017 warning the public about the
dangers and risks associated with cryptocurrencies, with the Ministry of
Finance claiming that cryptocurrencies are similar to ponzi schemes and that
they are not currencies or coins. It's worth noting that, up until the end of
March 2018, the RBI and the Finance Ministry both published press releases warning
people about the dangers of cryptocurrencies, but neither of them took any
legal action or issued any enforceable instructions against them[13].
The 2018 RBI circular stating a
complete ban on the banks dealing with the virtual currencies forced the stakeholders
to approach the Supreme Court. The Reserve Bank circular stated that the RBI
“has frequently warned users, holders, and traders of virtual currencies,
including Bitcoins, in public notices dated December 24, 2013, February 1,
2017, and December 5, 2017, about the different hazards associated with dealing
with such virtual currencies. Due to the accompanying dangers, it has been
decided that organisations regulated by the Reserve Bank would not trade in VCs
or provide services to assist anyone in dealing with or settling VCs, effective
immediately. Maintaining accounts, registering, trading, settling, clearing,
lending against virtual tokens, taking them as collateral, opening accounts
with exchanges that deal with them, and transferring / receiving money in
accounts connected to the purchase/ sale of VCs are all examples of such
services. Regulated entities that already supply such services must end the
arrangement within three months of this circular's publication”[14].
A writ suit was filed in the Supreme
Court after the RBI issued a circular in 2018 prohibiting the financial
industry from dealing with virtual currencies. On the basis of proportionality,
the Supreme Court granted the Internet and Mobile Association of India's
petition against the Reserve Bank of India. The petitioner argued that the RBI
lacks the authority to prohibit crypto-currency trading. The second argument
was that cryptocurrencies was a store of value or medium of exchange rather
than a currency note or coin[15].
The Apex court held that, the Reserve Bank of India has broad powers and plays
an essential role in the development of the Indian economy, in the current case
it is unable to demonstrate any harm to its regulated firms. As a result, the
Reserve Bank of India's directives urging banks to stop engaging with or
providing services to organisations trading in virtual currencies are illegal
and so unenforceable.
Inter-Ministerial Committee
Shri Subhash Chandra Garg, Secretary,
Department of Economic Affairs, Ministry of Finance, chaired a high-level
Inter-ministerial Committee in November 2017 that included Shri Ajay Prakash
Sawhney (Secretary, Ministry of Electronics and Information Technology), Shri
Ajay Tyagi (Chairman, Securities and Exchange Board of India), and Shri B.P.
Kanungo (Chairman, Securities and Exchange Board of India) (Deputy Governor,
Reserve Bank of India). The Committee's mission was to look at a variety of
concerns surrounding virtual currencies and make recommendations for specific
measures that may be implemented.
The Crypto-token
Regulation Bill of 2018 ("First Draft Bill") was the first draft bill
suggested by the Interministerial committee[16].
It was suggested that these goods be classified as securities or investment
schemes, and that virtual currency exchanges and brokers, where sales and
purchases are permitted, be regulated. Due to deficiencies in the existing
legal framework, it is suggested that anyone dealing with crypto token-related
activities refrain from fraudulently claiming that these items are not
securities or investment schemes, or from offering investment schemes.
In July 2019, the Committee issued a
report suggesting that private cryptocurrencies be banned in India. The Banning of Cryptocurrency and Regulation of
Official Digital Currency Bill, 2019 ("Second Draft Bill"), however,
came after that. It advocated that the use of VCs as legal money be prohibited.
Mining, buying, holding, selling, dealing in, issue, disposition, or usage of
cryptocurrencies would also be outlawed in the country. The use of
cryptocurrencies (i) as a medium of exchange, store of value, or unit of
account; (ii) as a payment system; (iii) for offering cryptocurrency-related
services to customers/investors such as registration, trading, selling, or
clearing; (iv) for trading with Indian or foreign currencies; (v) for the
purpose of issuing cryptocurrency-related financial products; (vi) as a source
of credit; (vii) for the purpose of generating funds; and (viii) for the
purpose of investment was recommended to be forbidden[17].
The measures that provided for fines and offences demonstrated the strictness
of the Second Draft Bill. It also advocated the introduction of a digital
rupee, which would be issued by the RBI and used as legal money.
The Cryptocurrency and Regulation of
Official
Digital Currency Bill, 2021:
The government has introduced a bill
in Parliament's Winter Session to outlaw all private cryptocurrencies and make
it easier to introduce a central bank digital currency (CBDC). "The Cryptocurrency
and Regulation of Official Digital Currency Bill, 2021" is the title of
the bill[18]. The
ban on private crypto currency can and will cause panic, causing many people to
sell all of their crypto holdings. However, a huge portion of the investors
will not sell their assets and will instead be forced to work in unregulated
surroundings, contributing to the establishment of a shadow economy. It will
move to darker places, where threats like money laundering and terrorist
financing may emerge as regulators lose sight of the operation. This would be
exacerbated by the Indian government's inability to identify and track down
these markets. A global network of computers mining bitcoin and maintaining
blockchain ledgers cannot be seized or accessed by the authorities. To impose
such a broad prohibition, authorities will need to set up an intrusive
surveillance system that tracks all digital and internet activities in the
country. It is preferable to develop the legal and policy infrastructure to
govern certain traits rather than adopting legislation to prohibit them[19].
Conclusion:
India has the most crypto investing
population in the world, hence the need for regulation of the market is
crucial. Instead of a ban on the crypto market a system of regulation is indeed
the need to promote the investment. It's worth noting that the MEITY's Draft
National Strategy on Blockchain, 2021, highlights the benefits of bitcoin.
According to the report, blockchain technology delivers transparency, security,
and efficiency in company processes, as well as a unique layer of trust across
the Internet, which was initially explored for cryptocurrency application
Bitcoin. Cryptocurrency was also identified as one of the Blockchain's possible
applications. As a result, the Indian government must take a cohesive approach
on this subject. These Virtual Currencies can be promoted in the Indian market
with a well-regulated market similar to that of Japan, as well as a solid legal
structure.
[1] Principal (i/c), Government Law College,
Salem
[2] Law Officer, Pondicherry
University and Research Scholar, The Tamil Nadu Dr.Ambedkar Law University
[3] Jenny Gesley, New Report on “Regulation
of Cryptocurrency Around the World” Published, The Library of Congress,
https://blogs.loc.gov/law/2021/12/
[4] EXPLAINED: Where India Stands On
Cryptocurrencies, What New Bill Will Mean For Bitcoin And Company, Nov 24 2021,
11.36 IST, https://www.news18.com/news/explainers/explained-where-india-stands-on-cryptocurrencies-what-new-bill-will-mean-for-bitcoin-and-company-4480625.html
[5] Bernard marr,
A Short History Of Bitcoin And Crypto Currency Everyone Should Read, https://www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read,
Dec 6, 2017,12:28am
EST
[6] Elizabeth Lopatto, How Bitcoin grew up and became big money, https://www.theverge.com/2019/1/3/18166096/bitcoin-blockchain-code-currency-money-genesis-block-silk-road-mt-gox,
Jan 3 2019, 11.00 am EST
[7]Brian Martucci, What is
Cryptocurrency – How it works, History & Bitcoin Aletrnatives
https://www.moneycrashers.com/cryptocurrency-history-bitcoin-alternatives/
[8] Bitcoin Investment in India: What
is Bitcoin, How to Buy and How Transaction Works
[9] How
to Buy Bitcoins in India?, https://groww.in/blog/buy-bitcoins-india/,
02 Nov 2021
[10]India has the highest number of
crypto owners in the world at 10.07 crore: report,
https://www.livemint.com/market/cryptocurrency/india-has-highest-number-of-crypto-owners-in-the-world-at-10-07-crore-report-11634110396397.html
[11] Press Release: 2016-17/2054, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=39435,
Feb 1 2017
[12] Neeraj Dubey, Virtual
Currency: State of pandemonium continues, https://www.lakshmisri.com/insights/articles/virtual-currency-state-of-pandemonium-continues/,
26 NOVEMBER 2018
[13] Vipul Kharbanda, Cryptocurrency regulation in India –
A brief history, https://cis-india.org/internet-governance/blog/cryptocurrency-regulation-in-india-2013-a-brief-history,
05 March, 2020
[14] Notification, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243,
April 6 2018
[15] Internet And Mobile Association of India v. Reserve
Bank Of India, SC 0045/2019, https://indiankanoon.org/doc/12397485/
[16] Raj Katwala, Understanding the
crypto Law Landscape, https://thefinancialpandora.com/understanding-the-crypto-law-landscape/
May 18, 2021
[17] Committee Report Summary, https://prsindia.org/policy/report-summaries/virtual-currencies-india
[18] Bill
on cryptocurrency, regulation of official digital currency under finalisation:
FinMin, https://www.thehindubusinessline.com/money-and-banking/cryptocurrency/bill-on-cryptocurrency-regulation-of-official-digital-currency,
Dec 14, 2021
[19] Kazi Ashique Azfar, Impact of banning cryptocurrency on
investors, https://blog.ipleaders.in/impact-banning-cryptocurrency-investors/,
May 13, 2021
Article Information
CRYPTOCURRENCY AND ITS FUTURE IN INDIA: THE ROAD AHEAD
Authors: DR. S. DURGA LAKSHMI, M. R. KEERTHANA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/06/17
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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