By Akshita Angrish , a 3rd year B.A.LLB. student of Ideal Institute of Management, GGSIPU, New Delhi.
INTRODUCTION
With the ever-growing technological revolution, the world is becoming more technologically oriented in every field. One of the many segments, which have gained popularity, is virtual currency i.e., “crypto-currency”. In recent times, crypto-currency has gained immense admiration and is being used by many large-scaled companies in different parts of the world. We have evolved from the ancient barter system, where goods were exchanged for goods and there was no medium of payment for the same except goods; to the contemporary monetary systems; and now to virtual currency as mode of payment. The world-wide payment system has been transformed by the introduction of crypto-currency to a scale that was inconceivable a few years ago. Nations across the world have started to accept crypto-currencies as a mode of payment; however, India is still not very confident about it. This article talks about how the Indian government and the central authorities have reacted to the growing acceptance of crypto-currency
DEFINING CRYPTO-CURRENCY
Crypto-currencies are digital demonstrations of value, created by means of cryptography. This form of currency does not exist physically, but works as a medium of exchange virtually. In order to protect trading, register entries, and manage the formation of further more digital coin records; all the individual coin possession records are kept in a computerized database by means of strong cryptography. The computerization of database also helps in verifying the transfer of coin ownership[i]. It has a decentralized framework which enables it to prevail outside the command of the government and the central authorities.
During the 90s, many attempts were made for creating a digital currency with systems like Flooz[ii], Beenz[iii], and Digicas, which turned out to be huge failures, because of many reasons such as scam, hoax, pecuniary difficulties, and sometimes dissension between the company’s employees and their employers. A trusted third party approach was utilized by all of the systems. It meant that the companies backing them substantiated and facilitated the dealings. Due to the let-downs, the establishment of a digital approach was seen as a lost cause for a long stretch. Later then, in early 2009, Bitcoins were first introduced. It was the first decentralized crypto-currency that was created by presumably pseudonymous developer “Satoshi Nakamot”, after which Litecoins were introduced as another crypto-currency in 2011.
Subsequently, crypto-currency saw a constant growth in popularity and gained worldwide recognition. It became accepted as a mode of payment among the sectors of e-commerce, online gaming and gambling. People around the world started to perceive this as an opportunity to enhance easy trading via simpler means of transaction. Majority of nations do not make the usage of crypto-currency illegitimate, but they have different guidelines regarding its prominence as ‘money’.
POSITION IN INDIA
The present government has been over-emphasizing the need for digital transformation of India; however, it has not welcomed the idea of using virtual currencies in India with an open heart. The decisions and statements of the government and the financial authorities have elucidated that they see virtual currencies as a risk for the traders in the country[iv]. Therefore, it is safe to say that India never had a positive approach towards the trade, use and development of the same.
The following are the events arranged in chronological order demonstrating the position of Virtual Currency in India:
The very first time Indian authorities talked about this issue was on December 24, 2013, when the RBI issued a communiqué and cautioned the consumers, holders and traders of crypto-currency of the probable risks that were accompanied with the same. The authorities also stated that they did not want to regulate the turnover of Bitcoins[v].
In February 2017 and December 2017, a subsequent white paper released by the RBI provided a greater insight into how the Government of India and regulatory authorities intended to treat crypto-currencies in India. Again, RBI alerted the users of crypto-currencies and unambiguously stated that no license has been approved to operators trading for the same in India.[vi]
The reasons that the white paper emphasized were that the crypto-currencies were unpredictable in nature and that they were not backed by any authority. They also lacked core value and could be a potential threat to the Indian monetary policy.
Before 2018, India had witnessed an increase in the trading and development of crypto-currencies. Although, after RBI stated the problems associated with virtual currency, many individuals backed off from trading in virtual currencies but it could not give a full stop to the trading of the same. The Vintage era pizza shop ‘Kolonial’, in Mumbai was the first eatry service in India to endorse payments in Bitcoins in 2013.
However; in 2018, there were consecutive decisions and declarations made by the authorities that created unfavourable environment for people trading in crypto-currencies, such as -
On February 01, 2018, our Finance minister, Mr. Arun Jaitley, stated in his budget speech that the government will do everything to cease the exercise of trading in Bitcoins and other virtual currencies in India[vii].
A prohibition was placed on sale or purchase of crypto-currency or on provision of services for assistance in its sale or purchase by others; upon the institutions regulated by RBI through a notice dated April 06, 2018[viii].
To study matters affiliated with crypto-currencies, the government of India issued a high-level Inter-Ministerial Committee (hereinafter referred as IMC) on November 02, 2017. The main object was to scrutinize the policy and legal framework required for the regulation of the same.
A report was released on February 28, 2019 by the IMC stating that there was no underlying core value of these crypto-currencies as they lacked attributes of a real currency and advised against its use. It suggested that all the crypto-currencies, except those issued by the government of India, should be banned[ix].
Later in 2019, after the report of IMC, the government proposed a draft of “Banning of Crypto-currencies and Regulation of Official Currency Act, 2019” (Crypto Bill). There was imprisonment for a term of up to ten years for anyone engaged in the operations mentioned in the draft in relation to crypto-currencies[x].
It is understood by the above mentioned points that the Government and other regulatory authorities of India did not have an encouraging viewpoint on the issue. The Apex court, on the other hand, is on a different footing about the same.
Numerous cases were filed before the Supreme Court against the prohibition on crypto-currency by the RBI which challenged the power of RBI to impose banning orders on otherwise legitimate businesses even before the determination of legality was done by the Parliament. It was argued that the action of RBI is a ‘colourable exercise of power’ clothed as ‘consumer interest’.
Finally, on March 04, 2020, the Supreme Court uplifted the ban on trading and development of crypto-currencies stating the ban to be “unconstitutional”[xi]. The court stated that the ban was not proportional, which implies that the RBI had not kept balance in the way it acted while managing the issue.
Even after the judgement, the full-fledged use of crypto-currencies and its dealing may take some time as the RBI and the government are still silent about the topic and no formal notification has been issued yet.
CONCLUSION
With all the ups and downs that have been suffered by the traders of crypto-currency, we cannot draw a very clear image of its status in the future. Since the Supreme Court has given its verdict about the lifting of the prohibition imposed, the crypto-currency has got a boost. A new era for the crypto market can be seen ahead. The faith of individuals dealing in the crypto market in India has been brought back since the Apex court announced its decision. It is hoped that the government will also recognize its worth and will accept the virtual currency as a part of digital India.
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REFERENCES
[i]. Andy Greenberg ‘Crypto-currency’, Forbes April 20, 2011.Archueved from the original on 31 August 2014.(Available at:https://www.forbes.com/forbes/2011/0509/technology-psilocybin-bitcoins-gavin-andresen-crypto-currency.html#76b4ec3b353e)
[ii]. ’10 bug dot.com flops’, CNN Money. (Available at: https://money.cnn.com/galleries/2010/technology/1003/gallery.dot_com_busts/index.html)
[iii]. ‘the 50 Worst Internet Start-ups Fails of All Time’, Complex 18 Oct, 2012. (Available at: https://www.complex.com/pop-culture/2012/10/the-50-worst-internet-startup-fails-of-all-time/)
[iv]. ‘Countries Where Bitcoin Is Legal and Illegal’, InvestopediaMay 9, 2019. (Available at: https://www.investopedia.com/articles/forex/041515/countries-where-bitcoin-legal-illegal.asp
[v]. ‘RBI cautions users of Virtual Currencies’ Press release, Reserve Bank of India. (Available at: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=42462#:~:text=Attention%20of%20members%20of%20public%20is%20drawn%20to,related%20risks%20associated%20in%20dealing%20with%20such%20VCs.) [vi].Press Information BureauGovernment of IndiaMinistry of Finance,29-December-2017 09:57 IST [vii]. ‘Budget 2018: ArunJaitley does talk about bitcoins but the confusion remains’ Kritika Banerjee, India Today1st Feb, 2018. [viii]. ‘Prohibition on dealing in Virtual Currencies’ Notifications, RBI April 06, 2018. [ix]. ‘Report of the Committee to propose specific actions to be taken in relation to Virtual Currencies’, Department of Economic affairs, Ministry of finance New Delhi, India 28TH Feb 2018. [x]‘ With a law, India plans lasting ban on cryptos’, DeepshilaSikarwar, Economic Times 12th June 2020. (available at: https://economictimes.indiatimes.com/news/economy/policy/with-a-law-india-plans-lasting-ban-on-cryptos/articleshow/76330403.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst) [xi]‘Indian Supreme Court rules in favour of crypto-currency- RBI ban lifted’ Kevin Helms bitcoin.com 12 July, 2020. (Available at: https://news.bitcoin.com/indian-supreme-court-cryptocurrency-rbi-ban-lifted/ )
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