Cryptocurrency and its legality in India

Cryptocurrency is a digital or virtual currency used as a medium of exchange of money. It first came to light in 2009 when Satoshi Nakamoto created a digital cryptocurrency, Bitcoin. Cryptocurrency is quite similar to the real world currency only that it does not have any physical embodiment. It uses the concepts of cryptography and blockchain in its operation. Cryptography is a method of using encryption and decryption to secure communication in the presence of third parties with ill intent. It entirely embodies the concept of blockchain for its working. Blockchain is a series of blocks that contains information. This technique was first described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them, almost like a notary.

The popularity of crypto-assets has recently gone off the charts, with the people of every class and age taking keen interest in it. However,considering the thick bubble of controversy surrounding the subject, it is questionable that people are still considering it as a viable investment option. The statistics of its demand are analysed below:

On 11 August 2020, Bitcoin.com released an internal report of Blockchain.com on the trending countries in the crypto space based on the number of wallet creations. Currently, the total unique wallets creation on the platform stands at around 70 million. The study took place in the months of June and July 2020 and the percentage increase in wallet transactions was studied. The results were astounding, as Peru, India and Indonesia had the highest increase in these transactions over the course of these past two months. Other countries which made their place in the top 10 positions included Côte d’Ivoire, Nigeria, Japan, the Philippines, Venezuela, Bangladesh, and Bulgaria, in the same order. However, the top three countries wherein the highest decrease in transactions were noted included, South Korea, Denmark and Morocco in the same order.

The report also mentioned that“Nigeria has been the most trending country in recent months. It has increased by 60% its usage of Blockchain.com web wallet since April 2020.”[1]Surprisingly the countries which seem to have witnessed a huge surge in these transactions are the ones where the lawmakers are still testing ways of regulating the crypto industry and clear their stance on the same. The data, therefore speaks volumes of the fact how such countries have already started taking interest in cryptocurrency and indulging in such transactions. India was ranked second on the list, but the country still does not have a solid regulation on the same. Nevertheless, there has been a huge upsurge in cryptocurrency penetration in the startup market of India, leading to a large younger audience gripped by the same.

Legality of cryptocurrency in India

Presently, there is no law in India that bans cryptocurrency and thus, cryptocurrency is legal, atleast for the present. However, the regulatory environment in the court is not in favour of crypto currencies. In April 2018, the Reserve Bank of India issued a circular to all the banks and financial institutions of the country, directing them not to provide services or to deal with anyone who was in turn dealing with virtual currency or crypto-assets. This circular was challenged in the Supreme Court in the case of Internet and Mobile Association of India v. Reserve Bank of India [WP(C) No. 528 of 2018] (‘RBI Circular Case’), which eventually set it asideon the ground of proportionality.

In the year 2019, an inter-ministerial committee set up by the Government of India had proposed a bill to ban all cryptocurrencies in India, except the ones backed by the State. However, the Government neither introduced the bill in the Parliament nor made it a law. This was duly noted by the Supreme Court in the RBI Circular Case, that no action was taken by the Government on this issue despite several committees coming up with various proposals including two draft bills, both of which advocated exactly opposite propositions.

Shortly after the verdict of the Supreme Court, the Government in 2021 came out with a bill called ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’(‘Cryptocurrency Bill’). The Cryptocurrency Bill proposes to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India and to prohibit all private cryptocurrencies in India, with certain exception to promote the underlying technology of cryptocurrency and its uses. The Cryptocurrency Bill is presently held up for deliberations with the stakeholders.

[1]Kevin Helms, Peru, India, Indonesia, Nigeria Among Countries With Highest Crypto Usage Increase, Bitcoin.com (Apr. 29, 2021, 6:31 PM), https://news.bitcoin.com/peru-india-indonesia-nigeria-countries-highest-crypto-usage-increase/

This clearly indicates that the Government is determined to come up with a law on cryptocurrencies. What the Cryptocurrency Bill proposes to do is currently unknown as the bill is not available in the public domain.

However, after witnessing the popularity around the topic in the news and the description provided by the Government for the Bill, it appears that the Government is inclined towards regulating the crypto-currency as against completely banning it.

Very recently, Smt. Nirmala Sitharaman, the Finance Minister of India, in a news discussion with CNBC TV18, specifically mentioned that the Government is in talks with the RBI for negotiating the process of going forward with the cryptocurrency related legal regime. Further, the Government, keeping in mind the various indicators, is seeking to take a verycalibrated position in view of the advancement of technology all around the world and how, various countries are responding to the subject. Along the same lines, the Government does not propose to take any extreme view in order to keep up with the global advancement and other jurisdictions and thus, the RBI would be given the authority and support to come up with a plan of regulating these cryptocurrencies.

The world is keeping an eye on India for its take on the crypto fintech world in order to predict the future of trades and payments. However, the world itself is clearly divided when it comes to cryptocurrencies. On one side, we have supporters like Bill Gates, Al Gore, Richard Branson and Elon Musk who find the cryptocurrencies better than the regular currencies and on the other side, we have people completely against it like Warren buffet, Paul Krugman and Richard Schiller. As per Warren Buffet, Cryptocurrency has no value and is a gambling device, whereas, Paul Krugman and Richard Schiller term bitcoin and the other cryptocurrencies as a ‘Ponzi Scheme’ and means for criminal activities.

It can easily be assessed that in the future, there is going to be a conflict between regulation of cryptocurrency and anonymity since several cryptocurrencies have been linked with funding terrorist activities. Governments are looking to regulate cryptocurrency by doing away with anonymity, whereas, the foundation of cryptocurrencies lies with its special feature of anonymity. It is further believed that by the year 2030, cryptocurrencies would occupy 25% of national currencies which means that a significant chunk of the world would start believing in cryptocurrency as a mode of transaction. It is going to be increasingly accepted by merchants and customers and would continue to have a volatile nature similar to the last few years. Now, it will be interesting to see how India reacts to the battle between conceptual relevance and legal norms, prevalent in the fintech world.