This Article is written by Pratham Bhatt.
WHAT IS CRYPTOCURRENCY
A cryptocurrency is a form of digital currency or digital money that is based on a technology known as blockchain technology. The term ‘crypto’ has been derived from the word encryption. A blockchain is a system consisting of multiple transactions that are almost impossible to change, alter or hack. Every time a new transaction is made by the account holder, the entry is logged in the individual’s ledger. Any form of cryptocurrency is decentralized which means that it does not rely on any bank or government to uphold it. Cryptocurrencies do not exist in physical form and are not issued solely by a single source. The blockchain system acts as a database of all transactions. Any form of cryptocurrency can be traded online. People often view cryptocurrencies as a currency of the future. The first cryptocurrency that was issued was Bitcoin in the year 2009. Ethereum, Nano, Dogecoin, Shiba Inu are a few of the 5000 different cryptocurrencies in the world.
THE 2018 BAN ON CRYPTOCURRENCY
After 4 years of the launch of Bitcoin, the Reserve Bank of India issued a note of caution to the banks and the general people about the fluctuating nature and unpredictability of cryptocurrency. As time passed the unfavourable opinion of the RBI towards the currency did not change. The central bank decided that partial restrictions were not strict enough for the regulation of cryptocurrency and hence it was decided that it would be banned altogether. The main concern that worried the central bank was the lack of stability associated with cryptocurrency. The free flow of the digital currency would also hamper the fiscal policy of the RBI. It was decided that the currency should also be banned as there was a chance that it could undermine the authority of banking and other non-banking entities. The price of any cryptocurrency is highly volatile and sensitive in nature.
Foreign exchange was always dealt with in dollars but the introduction of multiple cryptocurrencies would mean the flow of foreign exchange digitally. RBI argued that cryptocurrency should neither be treated as a currency nor an asset. Sections of the government were not united and had a diverse view when it came to crypto. The decision to be made regarding legislation and regulation of crypto was postponed to the next parliament session. The most practical advise was given by experts of the legal profession who claimed that the government had to maintain a balanced approach towards crypto was necessary as they had to make sure that crypto growth has to be in control, foreign exchange reserves had to be protected and the interests of the investors had to be kept in mind.
According to FEMA or the foreign exchange management Act, import and export are defined as the cross-border movement of goods and services. Another debate was that cryptocurrency did not fall under the ambit of goods and services both. A strong suggestion was the possible treatment of Crypto as an asset that was to be regulated by the Securities and Exchange Board of India (SEBI). Financial and legal experts also argued that India should not be cut off from global trends such as cryptocurrency. After more than a year, the Supreme court overruled the decision made by RBI(2020).
Prime Minister Narendra Modi weighed in on the debate and said that emerging currencies such as cryptocurrency should be used to “empower democracies, not undermine them”. Finance Minister Nirmala Sitharaman said that cryptocurrencies will never be allowed to be used as a mode of payment.
CRYPTOCURRENCY BILL 2021.
The 2021 ‘Cryptocurrency and regulation of official digital currency Bill’ is a complete modification of the 2019 ‘Banning of cryptocurrency & regulation of official digital currency bill’. The crypto world has seen a lot of growth and has witnessed a bloom in the number of investors. Before any decision was made regarding the updated bill, the government decided to consult crypto associations hailing from all over the world. The introduction of the new bill was seen as a very optimistic sign by the stakeholders.
Expectations are high. The government has revealed that they will focus on cryptocurrencies purely as an asset and not as a usable currency. The 2019 bill was seen as an insufficient effort at understanding the complications of the crypto world. The 2021 bill was an utmost necessity as the crypto world had gained a lot of momentum and had also led to a rise in the number of new crypto-related businesses. The details of the 2021 bill are as follows –
- There is a plan to create a new regulatory body for cryptos or the regulation would be done by RBI themselves. The trade, buying and selling of all cryptocurrencies will only be done on exchange platforms that are approved by the government.
- The nature of transactions involving cryptocurrencies are limitless and borderless. To regulate and govern such transactions an authority such as the SEBI is necessary.
The bill focuses on the key aspect of investor protection. Possible frauds and loopholes will be calculated and corresponding punishments will be set. There is some uncertainty regarding the taxation policy of cryptocurrency. A high taxation rate may cause the industry to slow down and can dampen the spirits of the investors.
THE PRESENT SITUATION OF CRYPTO IN INDIA.
Cryptocurrencies have experienced a roller-coaster-like relationship in India. The government’s stance on crypto has undergone a massive change with an initial ban on digital currency imposed in the year 2018. In the present scenario, there is no restriction on the mining, buying, trading or selling of cryptocurrencies. More than 2 crore Indians have invested in crypto and their total investment has exceeded a value of $5 billion. There is a lot of speculation around the new bill but we would have to wait for the answers till the next budget.
Where can one buy cryptocurrency? Cryptocurrencies are evolving constantly with the current phase being regarded as the initial stage in the development of the currency. The crypto sector is unregulated and is witnessing a massive surge in newcomers who are investing. The world’s largest crypto exchange platform is Binance. Wazir X, Coin DCX and Zebpay are a few of the leading crypto exchange platforms in India.
References
- https://en.wikipedia.org/wiki/Cryptocurrency
- https://timesofindia.indiatimes.com/business/india-business/rbi-wants-full-ban-on-crypto-legal-experts-say-it-is-too-late/articleshow/88531142.cms
- https://www.moneycontrol.com/news/business/cryptocurrency/explained-all-that-we-know-about-the-upcoming-cryptocurrency-bill-2021-7757111.html