Cryptocurrencies are currencies that are digital, and not physical. They are decentralised, which means that the system operates without the need for any centralisation in the form of a bank or any organisation. This results in many benefits for consumers, such as faster and cheaper transactions, with more privacy, as no personal details need to be shared.
Cryptocurrencies have achieved some legitimacy as a mode of payment, but they are often used for trading purposes as well because of the volatility in their prices and the opportunity they provide to serve as vehicles of investment. It is believed by many that the value of cryptocurrencies will increase over time, and so buying and trading them, many hope to make a profit. Cryptocurrency transactions are intimately tied with another technology i.e. the blockchain. The blockchain is not centralised, and is distributed across computers in a network, and is a ledger that helps keep a record of transactions. The blockchain is accessible to anyone to participate in. Data of transactions on the blockchain is protected by cryptography. Another element of cryptocurrencies is their focus on transparency. Many of the protocols involved in cryptocurrencies are built on open source code and thus, is transparent to the public.
There is nothing physical about cryptocurrencies. Cryptocurrencies are stored in digital wallets and these wallets themselves may be online or offline. Cryptocurrencies are not backed by central banks like other currencies are. Instead, they are backed by the value that their users place in them. Cryptocurrencies have brought a lot of innovations to the market, for instance, fast and cost-effective international transactions. There are innumerable cryptocurrencies, in the thousands, however, the most popular is the original one- Bitcoin. Bitcoin was created in 2009 by an anonymous person called Satoshi Nakamoto.
History of Cryptocurrency regulations in India
Many cryptocurrency exchanges came up in India after 2012, and the RBI took notice of this development soon after. RBI, in 2013, issued a press release that warned the masses against the dangers of using and dealing with cryptocurrencies. Further, a similar press release by the RBI was again issued in February 2017, wherein the RBI stated again their reservations and warnings related to the use of cryptocurrency by the public.
Then, on 2nd, November 2017, an Inter-Ministerial Committee was formed by the government to look into the topic of cryptocurrencies and the issues surrounding them, and to suggest actions to be taken in relation to such issues. More press releases cautioning the public against the use of Cryptocurrencies were issued by the RBI and the Ministry of Finance in December 2017.
Then on April 6, 2018, the RBI issued a circular through which all banks, commercial and co-operative, payment banks, small finance banks and Non-banking financial companies, were ordered to no longer have any dealings with cryptocurrencies directly, and to also not have any dealings with any entity that deals with cryptocurrencies, which would naturally also include exchanges. This was a radical intervention in the Indian cryptocurrency space at that time. Due to this regulation, cryptocurrency exchanges in India were completely crippled as they lost all access to banking services, which were crucial in converting cryptocurrencies to cash and vice-versa.
Then, in 2019, the IMC set up by the government to study the topic of cryptocurrencies came up with its report wherein its main recommendation was to ban private cryptocurrencies in India. The committee also recommended a Draft Bill ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’, wherein private cryptocurrencies are banned and the government may issue a digital rupee.
The saga did not end here. The circular by the RBI prohibiting banks from dealing with cryptocurrencies was struck down by the Supreme Court in the case of Internet Mobile Association v. RBI (2020). The Supreme Court noted that the circular was in violation of Article 19(1)(g) of the Indian Constitution, and that for the circular to be covered in the exceptions in Article 19(6) it would have to show its adherence to the doctrine of proportionality, but that the court does not think that the circular is proportional. The court found the circular to be disproportionate and arbitrary.
The Future of Cryptocurrency in India
In 2021, the government notified its intention to bring out another bill. That is the Cryptocurrency and regulation of Official Digital Currency Bill, 2021k. The bill draws primarily from the 2019 draft of the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill. Reportedly, it will ban and prohibit private cryptocurrency activities in India, while laying the groundwork for the introduction of an official digital currency issued by the RBI. There are expectations that the bill will not just ban and prohibit, but also provide effective regulations for the cryptocurrency space in India. RBI’s scepticism regarding cryptocurrencies stems from its concerns about the potential cryptocurrencies have to be used for illegal and illicit activities.
Industry experts expect that the government will enact positive steps, which will be accommodative and progressive towards cryptocurrencies. Some experts also think that cryptocurrencies may not be accepted as legal tender, but they might be accepted as an asset class. Siddharth Menon, COO of cryptocurrency exchange WazirX, thinks that the government will not enact a blanket ban. There is as yet no certainty as to what the bill will bring, and what has to be noted is that India today has a vibrant cryptocurrency ecosystem booming in the unregulated space. According to a Bloomberg report in June, around 15 million Indians trade in cryptocurrencies. Coinswitch Kuber, a leading crypto exchange in India, has 15 million users and plans to have at least 50 million users in the next two years. It is valued at $1.9 billion and is the highest valued crypto company in India. The cryptocurrency market in India will reach up to $241 million by 2030 and can employ up to 8 lakh people by 2030. Worldwide, many jurisdictions are moving towards making Bitcoin as legal tenders, such as the US city of Miami and El Salvador. The future of cryptocurrency in India remains uncertain until the government brings about the regulations its been contemplating for some time.
The cryptocurrency market in India is booming and economically, holds a lot of promise for the future. The future of cryptocurrency laws in India is uncertain, but there is hope that the government is not rushing into a decision. The delay in the introduction of regulations is a possible sign that the government will not enact an outright ban, but instead move towards a progressive and accommodating regulatory regime. Such a regime would bring India in lockstep with the burgeoning global cryptocurrency arena. Recently, the US Federal Reserve Chair Jerome Powell commented in a congressional hearing that he did not desire to ban cryptocurrencies. He also indicated that regulation might be apposite for stable coins. Russian President recently also indicated that he thinks that cryptocurrency has a right to exist and that it can serve as a mode of payment. The bank of Russia itself, however, suggests that investors ought to be warned that there is great volatility in the crypto market and that domestically, digital currencies are not allowed as a payment method. Their deputy finance minister Alexei Moiseev, however, also clarifies that they will not completely ban and prohibit cryptocurrencies.
India’s rampant expansion in the cryptocurrency market is also aiding a region encompassing central and Southern Asia and Oceania, to be one of the leaders in the market growth in the cryptocurrency arena, after the Middle East and Much of Europe. Sandeep Nailwal, Co-Founder and COO of Polygon, and Kashif Raza, founder of Bitinning, both believe that the government will not completely prohibit cryptocurrencies, but bring in sensible regulations. It is reasonable to assume that India requires regulatory clarity to usher in more innovation in the crypto space. Any outright ban would have very drastic consequences for the burgeoning crypto market. It seems likely that the government will not opt for complete prohibition, but a pragmatic regulatory framework.
Author(s) Name: Sudhanshu Sorout (Campus Law Center, Delhi University)