LEGALITY OF CRYPTOCURRENCY IN INDIA
WHAT IS CRYPTOCURRENCY?
A cryptocurrency is a virtual or digital currency that is secured for cryptography to secure financial transactions as it makes it nearly impossible to double-spend or counterfeit. Cryptocurrencies work on blockchain technology. Blockchain is a decentralized technology that is spread across a network of computers that manage and record transactions.
A distinguishing characteristic of cryptocurrencies is that central authority generally does not issue them thus, making them theoretically immune to government manipulation or interference.
Online secure payments are allowed by cryptocurrencies which are denominated as virtual “tokens,” which are represented by the ledger entries internal to the system.
LEGALITY OF CRYPTOCURRENCY IN INDIA?
There is no law prohibiting Indians from buying/selling cryptocurrencies in India. There was a banking ban between July 2018 – March 2020 due to which cryptocurrency exchanges were not able to hold bank accounts.
However, the Supreme Court of India quashed the banking ban in 2020. Cryptocurrencies are not illegal; anybody can buy, sell and trade cryptocurrencies. It’s unregulated; we do not have a regulatory framework to govern its functioning for now. However, the Indian government is exploring crypto regulation.
Meanwhile, crypto exchanges like Coin Switch, Kuber have been key in supporting the government and helping investors join the bandwagon by self-regulating and obliging a thorough KYC check for all their investors.
Crypto in India is currently booming, the market has been thriving, and retail investors are adding to the fire with their enthusiasm. India has been estimated to have over 10M + crypto investors, and this number is snowballing every day.
While a significant number of Indians are wholeheartedly affirming cryptocurrencies, one piece of misinformation is holding back many more millions. People confuse the unregulated aspect of cryptocurrencies with being illegal.
CRYPTOCURRENCY REGULATION IN INDIA
On April 5, 2018, few advisory guidelines were issued by the Reserve Bank of India (RBI) concerning the activities of cryptocurrency in India under a circular named ‘Statement on Developmental and Regulatory Policies.
In paragraph 13 of the circular, the entities governed by RBI were asked not to deal with, or give services to any person or business organizations which deal with or transact in digital currencies. Further, the circular also stated that the entities should end such ties if any. The circular was issued in the public interest as per RBI.
This circular was challenged in the court of law by the ‘Internet and Mobile Association of India‘ who was the chief petitioner. After almost two years a historical judgment was delivered striking down the central bank’s April 2018 circular which bans regulated financial institutions from providing services to crypto businesses on March 4, 2020, by the Supreme Court of India.
The court held that the circular issued by RBI is unconstitutional, as reported by news.Bitcoin.com. The Indian crypto community won the case against the RBI. The ban was finally lifted by the Supreme court on cryptocurrencies, and thus, trading in cryptocurrencies is now legal.
Though the plea for striking down the applicability of the circular was upheld by the Supreme Court of India, the order pronounced by the bench consisting of Justice V. Rama Subramanian, Rohinton Fali Nariman and Aniruddha Bose may need careful evaluation for a better understanding of the judgment.
WAS CRYPTOCURRENCY EVER BANNED?
When cryptocurrencies started to blow up in India in 2017, tech-savvy retail investors were relishing them. But some folks were taking undue advantage of it and were fuelling illicit activities.
Since at the time, cryptocurrencies were in a very nascent stage, and the regulators were yet to decipher their adoption. To curb the rise in illicit activities, the government took measures that they thought were best at the time.
INDIAN GOVERNMENT: FINANCE MINISTRY
“ The Government does not consider Cryptocurrencies “as Legal Tender or Coin” and will take all measures to eliminate the use of these Crypto Assets in Financing “Illegitimate Activities” or a Part of the Payment System the Government will explore the use of Blockchain technology proactively for assuring in Digital Economy.”
The above statement from the finance minister was followed by a circular from RBI. It suggested all entities governed by them stop offering any kind of service to entities associated with virtual currencies.
The government was never against the technology; they intended to prevent the wrong usage of cryptocurrencies and blockchain.
In the statement released by the Finance Ministry, it nowhere said that buying, selling or holding cryptocurrencies were prohibited. They said that they are taking measures to eradicate the use of crypto in financing illegal activities: a great step towards a healthy crypto ecosystem.
Additionally, they said they don’t consider it as a part of the payment system. Meaning one can’t use crypto to buy and sell things; however, they never said it couldn’t be held as an asset. Many people missed reading these details, resulting in a very chaotic state where people started to doubt cryptocurrencies
Fast forward to 2020, the advancements that the crypto regulated countries like the U.S, Singapore, etc. we’re experiencing moved Indian authorities to rethink their decision.
This resulted in the Supreme Court of India retracting the RBI’s circular issued in 2018, leading to banks like HDFC Bank, Yes Bank, ICICI Bank, and the State Bank of India resuming their transactions with cryptocurrency exchanges.
WILL IT BE BANNED?
India will propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets, a senior government official told Reuters in a potential blow to millions of investors piling into the red-hot asset class.
The bill, one of the world’s strictest policies against cryptocurrencies, would criminalise possession, issuance, mining, trading and transferring crypto-assets, said the official, who has direct knowledge of the plan.
The measure is in line with a January government agenda that called for banning private virtual currencies such as bitcoin while building a framework for an official digital currency. But recent government comments had raised investors’ hopes that the authorities might go easier on the booming market.
Instead, the bill would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied, said the official, who asked not to be named as the contents of the bill are not public.
Many countries who had earlier banned cryptocurrencies have now legalized the same, like India who has recently reversed its previous order and now the digital currency is legal in India. While some countries are still striving to construct an economic framework for digital currency, some countries have already built systems that require the digital currency service providers to be licensed by the appropriate local regulatory bodies.
In the coming years, the countries that have banned cryptocurrency will likely lift their ban in the need of the hour.