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Crypto-Currency In India

Cryptocurrency also referred to as crypto is a digital currency that has no physical existence and unlike any other currency cannot be used in any kind of transactions physically, moreover the holder of the currency cannot keep the currency in their wallets and use for buying and selling by simply pulling it out of their wallets. Cryptocurrency rather has a virtual or digital existence and exists in the digital wallets of the holder, without having any physical existence.

Cryptocurrency has no intrinsic value and hence is irredeemable, it is merely a digital asset. There is no regulating authority for crypto currency unlike other currencies, there is no centralised body to regulate the money supply and no centralised method to record transactions and cryptography is used so that the transactions are secured and confidential.

No third party is involved in the transaction, the way when we make or receive a payment, there is an involvement of a third party such as banks, in the transactions made via cryptocurrency there is a peer to peer transfer of money and no third party is involved. The technology enabling the existence of cryptocurrency is blockchain. Using the blockchain technology, there is no central authority issuing the currency and a decentralised ledger is created recording all the peer to peer transactions. The blockchain technology was firstly created for the formation of bitcoin, the best known cryptocurrency.

History Of Crypto Currency

Crypto currency was emerged as an idea in the year 1983 by an american cryptographer David Chaum, the idea behind it was the creation of a currency that is untraceable and has no legal and regulatory backing, which the crypto currency in exact terms is, at that time no one could have guessed that someday this basic idea would become something so big and beyond the reach of several investors. In 1995, a form of digital currency was then created by David Chaum known as Digicash, in 1998, Bit gold was created which rewarded the users after they successfully completed a puzzle. These two ideas when mixed together, give up bitcoin as a result.

In the year 2008, Satoshi Nakamoto gave us bitcoin. Bitcoin was made possible with the help of blockchain technology. In the beginning, bitcoin had no value, with time it started growing from cents to dollars and in the present times, the value of bitcoin reaching thousands of dollars. Bitcoin's total value exceeded 1 billion dollars in the year 2013. The overall value of bitcoin has also touched 10 billion dollars.

As we talk about the history and existence of crypto, we can also observe that the nature of crypto makes the transactions easier as there is a direct transfer of funds without any third party involvement, while it also has certain disadvantages, one of the biggest disadvantages is the fact that crypto is very popular among the criminals.

Due to its untraceable nature, the use of crypto became very prominent among the criminals for unethical and criminal activities, such as terror funding, human trafficking, assassinations, drug smuggling, etc. there is a possibility of hacking and the wealth of a person could be taken away, another disadvantage is its irredeemable property and no backing of any other commodity.

Despite the above mentioned disadvantages, bitcoin stands at more than Rs 13,00,000.

Crypto Across The Globe

Around 1 billion people around the world own some parts of cryptocurrency. The number of crypto owners is expected to grow rapidly and the rate at which the global cryptocurrency market is expected to grow during 2019-2025 is 56.4%. With the rapid growth that is expected in the usage of cryptocurrency in the coming years, it becomes important for the countries across the world to regulate the legality and usage of crypto and ascertain the adoption ways of crypto in their respective countries.

With passing years, the adoption of crypto has significantly grown in various countries of the world. Due to the significant growth in the usage of crypto as part of business and personal transactions, many countries across the world have formed regulations to govern the digital currencies. For instance, China initially banned bitcoin mining in May, 2021 and banned the crypto currency in 2021, and in 2022 the central bank began a digital currency test program.

Canada does not treat cryptocurrency differently from other commodities and was the first country to approve bitcoin exchange traded funds, however Canada does not consider crypto as legal tender. In the UK, there are no specific crypto laws, crypto is however not considered as legal tenders, crypto derivative trading is banned in the UK. The UK has recognised crypto as regulated financial instruments in 2022.

Australia, just like China, is planning on launching a central bank digital currency, in Australia, crypto is considered as legal property and is subject to capital gain tax. Singapore, just like the UK, considers crypto as property and not classified as legal tender. Majority of the European Union has legalised cryptocurrency, legality of crypto however depends on the member states, so does the taxation on the crypto the range of which varies between 0-50%.

With these regulations we can interpret that majority of the countries have acknowledged crypto currency in some way or the other and have legalised the existing cryptocurrencies while there are some that have made an attempt or are planning on introducing their own digital currencies wherein the regulating authority would be their central banks.

Legality Of Crypto Currency In India

More than 2 crore Indians have invested their hard earned money in crypto currency expecting for it to grow with time and reap a good amount. However, India has always remained uncertain about the legality of crypto currency and whether to ban the crypto and uplift the ban entirely, furthermore, imposing a heavy tax on the transactions made using digital money or to introduce a new digital currency regulated entirely by the RBI, the position of crypto currency in India has always remained uncertain and confused the stakeholders. With this being said, we would now take a look at the history of crypto in India and the latest development in the crypto currency by the Indian parliament and the take of the central bank on the same.

The history of crypto currency in India could be traced from the initial days of bitcoin in 2008 when Satoshi Nakamoto introduced his invention using the blockchain technology. The first sale of the bitcoin in India took place in the year 2010, 10,000 bitcoins were exchanged for just two pizzas, the price of one bitcoin in the initial years of its launch was within the range of $0-1 which has gone up to $68,789 and in terms of rupees, it has gone up to more than 47 lakhs at its all time high. The prices were however not that high in the initial days and in the year 2010, it would have been around the cost of two pizzas.

In the year 2013, observing the growing usage of digital currencies in India, with people using new currencies that were introduced such as Koinex, Unocoin, coinsecure, zebpay, Reserve bank of India issued a circular notifying the security risks involved in the transactions made with the help of digital currencies. Contrary to the issued circular, the number of transactions grew significantly over the years despite the risks involved in the transactions.

Thereafter, the demonetisation took place in 2016, the after effects of the demonetisation involved usage of virtual currency at a growing rate. The demonetisation led to a boost in the rates and usage of digital currency, however it was short lived, as a circular was issued by the RBI and the finance ministry wherein they notified that digital currency are not legal tender in the late 2017.

In the year 2018, the transactions in digital money dropped down by 99% after a circular issued by the RBI restraining the banks, NBFCs and other payment system methods from accepting any payments in crypto currency. Thus, a total ban was imposed by the RBI upon the crypto currency. This ban was opposed and a campaign in response to the ban was initiated by the founder of WazirX, the campaign by the name "India wants Crypto" was initiated. The campaign was then joined by numerous renowned entrepreneurs. The campaign went for for about 3 years and in 2021, the campaign was still strongly going on.

However, the ban was stricken down by the Supreme court of India in the case of Internet and Mobile Association of India v. Reserve bank of India, in the aforementioned case, a writ petition was filed against the circular issued by the Reserve Bank of India on 6th april,2018. This circular notified a complete ban on the crypto currency, directing the banks, NBFCs, and any other payment systems to not trade in the digital currency for any transaction as already mentioned hereinabove. This circular resulted in a negative impact on the economy of the country.

Thus a need for the digital currency was felt for the growth of the economy of the nation. As mentioned above, the idea behind the ban was to avoid the negative effects of the virtual currency relating to the hacking and other risks involved, however, the central bank highlighted three major issues that they identified with the digital currency:
  • Loss To The Economy
  • Money Laundering
  • Can Promote Terrorist Activities Too.

This circular was thus challenged by the Internet and Mobile association of India. They raised the contentions that RBI lacked the jurisdiction to disallow the trade of virtual currency, and RBI does not have power over the crypto currency, also raising the contention that crypto currency is also a medium of exchange even though they are significantly different from currency notes and coins.

Ultimately the ban was lifted by the Supreme court of India, observing that RBI failed to show any damage that was suffered by the entities due to the transactions made with digital currency.

The 2022 budget hinted at the introduction of a digital currency regulated by the RBI, thus eliminating the potential risks involved by having a regulatory body.

Way Forward
India is all set to be global economy in the coming years, and thus to facilitate the global trade more smoothly, a need for cash alternative can be felt, owing to this, the central bank has recommended that the definition of 'money' should be amended and the term 'banknote' should include the money in electronic forms as well.

Thus, after lifting off the ban imposed upon by the RBI on trade of virtual currency. The RBI is all set to introduce 'Digi rupee' by early 2023, which is a form of digital currency in India with more regulations than that of crypto, the hint of which was given by the finance minister while presenting the budget of 2022.

With the introduction of India's own digital currency, there would be some issues with the link of it with the actual currency and its value, and how the government would be able to make it accessible for people living in remote areas wherein the connectivity with the education and awareness is comparatively low. However, these issues can only be dealt with once the digital currency comes into existence.

We have taken a look at the crypto currency in detail and the issue of its legality in India, which has been an issue since the introduction of crypto in India, however, taking a look at the way forward, we have also seen that India is about to introduce the digi rupee by the early 2023. As India is about to be one of the greatest economies in the coming years, it becomes very important for India to accept digital money as an acceptable form of currency as it is one of the easiest ways to promote trade across borders without any issue of currency, thus for India to grow as a global economy with easier trade practises across the globe, digital currency could be a way out. Digital payment methods were still functional during demonetization and global pandemic, proving their efficiency in surviving during tough times and being money for the future.

Cash alternatives and crypto currency are money for the future, eliminating certain drawbacks that they possess which can be done with the development in the regulations made by the government. The digital currency could be one of the major tools that facilitate the growth of India as a global economy and as we have already seen in the above article that the RBI and finance ministry of india have already initiated the process of making digital currency with less drawbacks and more regulated, a possibility in India.

Written By: Harshita Setia

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