By Akshita Angrish, a 3rd year B.A.LLB. student of Ideal Institute of Management, GGSIPU, New Delhi.
INTRODUCTION
Crypto-currency is a digital demonstration of value, which is created by utilizing cryptography. It is incorporeal and works as a medium of exchange. The worldwide payment system has been transformed by the introduction of crypto-currency to a scale that, just a few years ago, was considered absurd. Before the Supreme Court of India lifted the ban imposed by the RBI, the trading and development of crypto-currencies in India were not easily conceivable. The decentralized feature of crypto-currencies made the government and regulatory authorities more concerned about the same. There might be some downsides to legalizing virtual currencies in the country, but at the same time, with appropriate regulations, it’s legalization can bring a notable development in the technological sector of the country. This article talks about the possible advantages and disadvantages of virtual currencies for the country and why is it that the RBI and the government are so reluctant to accept it.
A GLEAMING VISION
A perpetually-growing figure of crypto-currency millionaires around the globe has been catching headlines for long. Mr. W. Smith, a software engineer at Silicon Valley, invested $3,000 in Bitcoin when he learnt about the shoot in its value in a span of a few days. He waited till 2013 when the value of bitcoins grew remarkably and sold it to become a millionaire[i]. Another case is of Erik Finman, who was just 12-years-old when he invested in bitcoins and the value increased significantly. He proceeded to start an online video tutoring company and sold his start-up for bitcoins that made him a fortunate teenage millionaire[ii].
Even in India, by mid-2017, around 2,500 investments were being made with Bitcoins daily, as the digital money was attracting people even more after a prohibition on the use of such currency by the RBI[iii]. Contemplating the data regarding the value of Bitcoin in the past one year, it can be seen that its value rose from INR 2.7 lakh in March 2019 to INR 8.46 lakh in July 2019. After the uplifting of the ban on crypto-currency by the Supreme Court of India, the value of bitcoin went up to INR 6.74 lakh in March 2020[iv].
WazirX, a Mumbai based crypto exchange& trading platform is one of the leading platforms, dealing with digital currency in India. It was launched in 2017 by Zanmai Labs Pvt. Ltd. At present, it has been acquired by Binance Holdings, one of the biggest crypto exchanges in the world.[v]UnoCoin, a Bengaluru based exchange established in 2013 and CoinDCX established in 2017, are some renowned crypto-currency exchanges in India. All these exchanges are taking benefit of the dismissal of the ban by RBI and are expanding their networks since then.
WHY IS CRYPTO NOT VERY FASCINATING FOR THE GOVERNMENT?
The mere fact that crypto-currency is beyond the control of any government gets it a lot of eyeballs. The most lucrative form of currency that is far from the control of liquidity, inflation, and subsidy attracts a lot of investors from around the globe. But it is because of the same reasons that crypto-currency is not very eye-catching for our government and other regulatory authorities. Consider the following reasons:
A decentralized currency beyond the control of the financial authorities,
The apprehension of possible hacking,
Potential loses for the retail investors,
Misuse of technology that may lead to the funding of harmful organizations (for instance, terrorism, trafficking, etc.),
Unpredictable nature and lack of core value,
A potential threat to the economy.
These are some of the reasons for which the government and the regulatory authorities are hesitant to legally introduce crypto-currency in India[vi]. The RBI in conjunction with the government permits monetary policies to control the global worth of Rupee and regulate employment, expenditure, etc., and inter alia controls investments. It is possible to do all of the above with fiat currency but not with a digital one and hence, a ban in 2018 was imposed on its trading by the RBI, which was eventually dismissed by the Supreme Court of India on March 04, 2020[vii] in the case of The Internet and Mobile Association of India (IAMAI) v. RBI stating that the decision of RBI was unconstitutional.[viii]
In India, there is not a clear definition of crypto-currency in law books as no specific legislation has been passed by the government. As per the definitions of the respective terms, crypto-currency cannot be classified as Derivatives[ix][x], Negotiable Instrument[xi], Security[xii], Currency[xiii], and even Prepaid Payment Instrument[xiv].Even after the verdict of the Apex court of the country, the government is not very welcoming of the digital currencies.
NEED OF THE HOUR
All the prior stated rationale put forward by the government and the regulatory authorities should not hold back the benefits that the digital currency can bring to the nation. It is comprehensible that the sole reason for the ban was to protect the consumers and the economy of the country at large but, it also can become an obstacle in making India a technologically advanced country and in keeping up with other advanced nations.
What are the benefits of crypto-currency that overpower its drawbacks[xv]?
Start-ups can raise an enormous amount of funds through crypto-currency and banning the same would negatively impact the early-stage of start-ups.
The real estate can attain benefits from crypto-currency, as bitcoins; one of the leading crypto-currency; is powered by blockchain, which is a decentralized ledger that allows users to transact directly. With blockchains, the transaction can never be reversed, which minimizes the chances of fraud.
No additional charge in the dealing is another eye-catching benefit.
No stealing in the dealings of the currency, as the person who wants to trade in crypto-currency is in total control of the transaction and no third party is involved.
They transcend international borders and hence the transaction becomes easy.
There is a strict necessity for an appropriate introduction of crypto-currency into the investment market in India. A centralized digital currency can be formulated by the government which will work under the control of the RBI and be regulated by SEBI (Securities Exchange Board of India), resolving the issues related to its decentralized nature. A system that is backed by the RBI will in turn allow more people to build trust in trading and dealing with digital currency in the country[xvi].
For the apprehension of money laundering, the crypto assets can be regulated under the Prevention of Money Laundering Act, 2002 by categorizing the business as “designated businesses and profession[xvii]” which will bring it under “client due-diligence requirements[xviii]”.
The banks should be introduced to crypto-currencies like Bitcoins or Litecoins, which will help in easy access to the public at large. Instead of imposing a total ban, proper regulations and implementation can turn out to be more effective to protect the investors and prevent the digital sector from being blinded with a destructive blanket.
CONCLUSION
As a regulatory authority, the RBI needs to look after the monetary developments in the country in order to protect its people and the economy. But by doing that, it also needs to take care of the fact that it does not relinquish any opportunity that can prove as a turning point for any sector. In the distant future, technology will be an integral part of everything that we do and one will not be able to stay dissociated from the same. It is important to introduce and enlighten people about a platform that is backed by trusted authorities so that people can have the appropriate guidance from som
REFERENCES
[i]Jordan Bishop, Meet The Man Traveling The World On $25 Million Of Bitcoin Profits, Forbes (July 7, 2017), https://www.forbes.com/sites/bishopjordan/2017/07/07/bitcoin-millionaire/#509ce5de6261 [ii] Success stories of cryptocurrency traders,https://coinratecap.com/blogDetail/success-stories-of-cryptocurrency-traders [iii]Despite RBI warning, 2,500 Indians investing in Bitcoins daily. Here is all you should know about its usage & dangers, TheEconomic Times ( May 17, 2017), https://economictimes.indiatimes.com/industry/banking/finance/2500-indians-investing-in-bitcoins-daily-here-is-all-you-should-know-about-bitcoins-its-usage-dangers/articleshow/58719151.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst [iv]The future of crypto-currencies in our country,The New Indian Express(March 7, 2020), https://www.newindianexpress.com/opinions/editorials/2020/mar/07/the-future-of-cryptocurrencies-in-our-country-2113481.html [v] Namrata Bose, Top 5 crypto-currency exchange in India, (July 15, 2020 ),https://yourstory.com/mystory/top-five-cryptocurrency-exchanges-india [vi]RBI cautions users of Virtual Currencies against Risks, Press release (December 24, 2013), https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247 [vii]Kevin Helms ‘Indian Supreme Court rules in favour of crypto-currency- RBI ban lifted’ bitcoin.com (March 04,, 2020),https://news.bitcoin.com/indian-supreme-court-cryptocurrency-rbi-ban-lifted/ [viii] SC strikes down RBI’s crypto ban; calls it unconstitutional, Economic Times (March 04, 2020), https://bfsi.economictimes.indiatimes.com/news/policy/sc-strikes-of-rbis-crypto-ban-calls-it-unconstitutional/74470345 [ix] Securities (Contracts) Regulation Act, 1956, section 2(ac) [x] Reserve Bank of India Act, 1936, Section 17(6A) [xi] Negotiable Instruments Act, 1881 [xii]Securities (Contracts) Regulation Act, 1956, Section 2(h) [xiii] Foreign Exchange Management Act, 1999, Section 2(h) [xiv] Payment and Settlement System Act, 2007, Section 18 [xv]5 reasons why you should go for crypto-currency,The Economic Times (October 25, 2017), https://economictimes.indiatimes.com/industry/banking/finance/5-reasons-why-you-should-go-for-cryptocurrency/articleshow/61184608.cms?from=mdr) [xvi]Vatsal Gaur, why the government should regulate and not ban crypto-currency, Mondaq(July 07, 2020),https://www.mondaq.com/india/fin-tech/962512/why-the-government-should-regulate-and-not-ban-cryptocurrency) [xvii] Prevention of Money Laundering Act, 2002, Section 2(a) [xviii] Prevention of Money Laundering (Maintenance of Records) Rules, 2002, Rule 9
You may read https://www.bankrate.com/investing/best-etfs/#crypto-and-etfs for more information regarding the topic.
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