Cryptocurrencies In India: An Unsettling Affair
- Aditya Kumar
- Jun 7, 2021
- 6 min read
The current legal status of Cryptocurrencies in India is clouded with uncertainty. No one knows what the future holds for cryptocurrencies in India; mere speculation is all that we have right now. While the RBI has recently weighed in on the crypto-convolution, suggesting that cryptocurrencies may soon find a home in the Indian market, investors remain sceptical in light of what seems to be total silence on behalf of the Indian Government.
Additionally, most people are not able to comprehend the concept of cryptocurrencies owing to entrenched faith in fiat money. It’s obvious; why would people trust a form of currency that cannot be held physically and is not recognized positively by any government institution? Cryptocurrencies challenge the ubiquity of fiat money, which have been an integral part of day-to-day financial transactions for over a millennium since it was first introduced in the 10th century in China. It is definitely going to take a while for people to accept cryptocurrencies, a concept that seems too audacious.
Despite such ambiguity, cryptocurrencies have made a considerable impact in India. Around 7 million Indians have invested over one billion dollars in cryptocurrencies in the past few years. Many young and new investors seem to believe that cryptocurrencies pose an enticing and lucrative addition to their portfolios. People are willing to invest in Cryptocurrency because it gives an impression of being a long-term storage of value, just like gold, real estate and stocks.
What are Cryptocurrencies?
In simple terms, cryptocurrency, or virtual currency, is money in digital form. Unlike fiat money, cryptocurrencies are decentralized; it is not maintained by any central authority like RBI. Cryptocurrency users maintain cryptocurrencies through the internet. Cryptocurrencies are based on blockchain technology, which is a kind of digital ledger which records a transaction in the form of blocks linked together on a chain of preceding transactions. In actuality, blockchain is a chequebook that is distributed amongst countless computers throughout the world. Blockchain is like an expenditure notebook, where you may write down all your expenses. A page in that notebook is equivalent to a ‘block’ while the entire notebook could be considered ‘blockchain’. Cryptocurrencies were introduced to counter the debasement of currencies by central institutions responsible for maintaining and managing the value of currencies.
Bitcoin was the first blockchain-based cryptocurrency that still holds the title of most popular and most valuable cryptocurrency in the world. Bitcoin was launched back in 2009 and was the only cryptocurrency in existence until other coins like Litecoin, Ethereum, Namecoin emerged. Today there are thousands of cryptocurrencies (coins) that have distinctive functions, and the aggregate value of all of them is around 1.5 trillion dollars.
Background of Cryptocurrencies in India
Indian authorities haven’t been very kind to cryptocurrencies in the past. The RBI had issued various press releases on 24th December 2013, 1st February 2017, and 5th December 2017, alerting the users, investors, holders, traders, and any other entity that dealt in virtual currencies (cryptocurrencies) regarding potential legal, financial, operational, consumer protection and safety-related risks. Furthermore, they published yet another press release on 5th April 2018, expressing their concerns pertaining to the consumer protection violations that emerged from cryptocurrency trading.
Concerns were also raised regarding the potential association of virtual currencies with illegal activities; money laundering, terror funding, and cybercrime. Subsequently, a circular was issued by the RBI on 6th April 2018, which prohibited its regulated entities from dealing with or facilitating any transactions associated with virtual currencies.
Against this impugned circular, various companies and organizations approached the Supreme Court of India under the umbrella, ‘Internet and mobile association of India’. The association represented several cryptocurrency exchanges. The association contended that there are now laws restricting trading in cryptocurrencies, and, in light of the same, it was a ‘legitimate’ business activity in accordance with the Constitution of India. The RBI had no authority to deny them access to banking facilities. They contended that the circular was violative of Article 19 (1) (g), the fundamental right to practise any profession or to carry out any trade or occupation.
Finally, in 2020, the Supreme Court, in the case of ‘Internet and mobile association of India v. Reserve bank of India’,passed the judgment in favour of the Internet and Mobile Association of India. While conceding that the RBI has the authority to regulate virtual currencies, the Court concluded that the restriction imposed by the RBI circular is unreasonable. In the absence of any legislative prohibition, the Court held that trading in cryptocurrencies should be recognized as a legitimate trade protected by Article 19(1)(g) of the Constitution's freedom to carry on any occupation, trade, or business. Apart from the aforementioned case, two PILs were filed in the Supreme Court of India in 2017. The first demanded a complete ban on the buying and selling of cryptocurrencies, while the other petitioned for cryptocurrency regulation.
In the legislative sphere, the Government constituted a commission headed by Subhash Chandra Garg (Economic Affairs Secretary) in 2017 to evaluate the situation of cryptocurrencies and to inquire about all associated issues. The commission disseminated its final report to the public in 2019. The report recommended a complete ban on cryptocurrencies in India. On the basis of these recommendations, the Government, on January 29, 2021, announced that it would enact a bill to create a digital currency that will be regulated by the Government. Subsequently, a ban was to be imposed on all private cryptocurrencies. After the circular passed by the RBI in 2018, it was the second incident that pushed the entire cryptocurrency industry into an existential crisis. Once again, all crypto exchanges, investors, and business analysts anxious owing to crypto’s uncertain future. Banks were asked to reconsider their ties with the crypto exchanges yet again, due to which crypto investors had to face a lot of hardships pertaining to cryptocurrency transactions.
Recent Developments: A Beacon of Hope
Recently, things took a turn for the better when the RBI disseminated a clarification regarding crypto transactions. The RBI asked banks to perform their due diligence alongside their customers. Prior to this, HDFC Bank and State Bank of India (SBI) had warned their clients against trading in virtual currencies like Bitcoin, Ethereum, and many other altcoins out there.
As a result of this, leading crypto exchanges like Coinswitch Kuber, CoinDCX and WazirX have partnered with the Internet and Mobile Association of India (IAMAI). Together, they have agreed to constitute an advisory board and enact a formal code of conduct for the entire industry. The board will function under the purview of the Blockchain and Crypto Assets Council (BACC), which is a part of IAMAI and will act as a self-regulatory authority for the crypto industry. This initiative taken by the major players is quite a responsible gesture which signifies that even the private entities do care about the interest of investors.
The RBI’s recent announcements have made one thing clear; it is implausible for the Indian Government to adhere to its initial plan of imposing a complete ban on cryptocurrencies. We can expect more instructions from RBI in the near future. For the first time, the future of cryptocurrencies seems hopeful in India.
Opportunities for India
India now has a huge opportunity to make its mark on the globe because of cryptocurrency. It can be very well attributed to the recent accomplishment of Indian innovators in the crypto field. Polygon, a cryptocurrency founded by three Indians based on Ethereum’s blockchain, is now among the top 20 cryptocurrencies of the world. Recently, it touched a market capitalization of 13 billion dollars. Additionally, in March, Coinbase, one of the largest crypto exchanges, allowed its users to invest in Polygon. Unfortunately, legislative uncertainty in India, including speculations of a possible nationwide ban on cryptocurrencies, has hampered the growth of the blockchain business and made investors apprehensive regarding the future of cryptocurrency.
Further, considering how India’s most significant accomplishments are in the field of Information Technology, India cannot afford to ignore a 1.62 trillion-dollar industry well on its way to changing the world if it truly hopes to reach its goal of becoming a five trillion-dollar economy. For instance, even amidst the COVID pandemic that had a crippling effect on the economy, the crypto industry successfully generated thousands of jobs. Eventually, the crypto market will proliferate in India and entice talent from across the nation. The Government’s implementation of a regulatory bill will certainly act as a positive catalyst for the crypto revolution in India.
Conclusion
A regulatory bill is the need of the hour. It will aid in safeguarding the interests of all the people engaged in cryptocurrencies and will prevent potential misuse and illicit activity surrounding the crypto industry. A regulatory bill will also help harvest trust among those that currently harbour suspicion or are on the fence about crypto. Scepticism among potential investors is already damaging the future prospect of cryptocurrencies. A regulatory bill that provides protection and a proper framework will surely aid India in realizing its economic goals. India has a past of being a late adopter of major global changes, be it the internet, smartphones, 4G, and 5G technology. India should learn from its past mistakes and not lag behind in making crucial decisions that will decide the fate of cryptocurrencies in India.
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