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India's Take On Cryptocurrency

The future of money is digital currency.--Bill Gates

With the ongoing advancement of the internet in all aspects of human life, the exchange of money in cyberspace was very well explored. With everything being available online, cryptocurrency was a new phenomenon that enabled people to buy, sell, invest and trade in a currency that had no physical form. Cryptocurrency represents valuable and intangible objects which are used electronically in different applications that work on blockchain technology and acts as a medium for exchange.

It stands out because it was decentralized and had no 3rd party involvement unlike other payment systems, and this is the reason why any transaction made using cryptocurrency does not fail. When it comes to India, it is estimated that Indians have invested more than 1billion US Dollars in the cryptocurrency market alone, even though the fact that the picture regarding legality or cryptocurrency still seems blurry and unclear, creates a lot of confusion in the mind of investors as govt lacks to take a strong stand of where cryptocurrency stands today and most essentials, what is its future it beholds. This article focuses on India's stand regarding cryptocurrency along with what legal developments have been made so far in this regard.

Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. The Crypto and Cryptocurrency stands for cryptography which is a method of using encryption and decryption to secure the data in the presence of third party with ulterior motives. It's a peer-to-peer system that can enable anyone anywhere to send and receive payments.

Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.

Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of the encryption is to provide security and safe[1].Cryptocurrency is considered to be a pretty safe bet, because it uses the blockchain technology. It is a set of blocks that record transaction like who made the transaction to whom like a digital ledger that is disrupted and replicated in the entire network.

This makes it impossible to be hacked. It is transparent and creates a decentralized distribution, providing full time access to its users. The 2019 Bill defined Cryptocurrency as any information, code, number, or token generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store or a unit of account. The budget of this year once again brought Cryptocurrency's legal aspect in news all over again.

In the budget session from Jan 2021- April 2021, the agenda remained the finance bill, appropriation bill, but what was most interesting was The Cryptocurrency and Regulation of Official Digital Currency Bill,2021. The description of the bill was Creates a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India and prohibits all private cryptocurrencies in India. The description interprets those private currencies like Bitcoin, Ethereum, Dogecoin will be banned in India, and RBI will bring its digital currency.

Many crypto hobbits were inclined towards to emergence of bitcoin in India. It was the first time back in 2013 when a pizza shop called Kolonial in Mumbai, started accepting bitcoin as physical currency. In the year 2012 when cryptocurrency gained momentum in India and the price of cryptocurrency that was 5$ went to 1000$ in the year 2017. This gave a market to Bpay, Coinsecure, Unocoin, Koinex, and Pocket Bits, to enter, India letting people trade in cryptocurrency.

As the market expanded and investors became more and more interested. RBI saw this stir in the investor's market, sprang into action, and declared that they do not back such currencies and they are merely speculative and will not be considered as an asset. Time and again RBI seemed a bit against cryptocurrency but both the govt and RBI failed the put a clear picture even today.

Back in the year 2018, RBI issued a circular as per which they said that all the financial institutions in India including small finance banks to major financial banks including RBI and its entities cannot deal with any kind of transaction relating to being it maintenances of accounts, transfer of money, providing loans, trading, etc. relating to cryptocurrency. The notification also stated that previously also, from the year 2013-2017, RBI has warned the users, dealers of cryptocurrency regarding the risks involved in it.

They further quoted sec 35A, 361A,45L,45, and Sec 65 of Banking Regulation Act which gives them the authority to caution people concerning public interest, and Sec 18 of Payments and Settlement System Act 2017. Later this circular was challenged in the case Internet and Mobile Association of India and Others v RBI[2]. In this case, the petitioner argued that RBI holds no jurisdiction to impose a ban on cryptocurrency and that RBI is not well versed with what cryptocurrency is and has wrongly interpreted it.

They further claimed that many investors have invested in it and this sudden ban affects them and cleared that cryptocurrency as the name suggests is not a currency but a medium of exchange or a store of value. RBI contended that they do have jurisdiction as it is a mode of digital payment and it gives authority to RBI to regulate it. [3]The SC gave its judgment in the year 2020, stating that even though RBI has enough powers to regulate cryptocurrency, but RBI prima facie fails to show at least some resemblance of any damage suffered by its regulated entities and ordered to take back its decision to effectively bar cryptocurrency in India

RBI's position now
On May 31, 2021, RBI issued a notification that clarified that the 2018 circular they issued is no more valid as it has been set aside by the Supreme Court in 2020
Even though the circular was set aside in 2020 itself, but still major banks like The State Bank of India, HDFC Bank, refused to deal with cryptocurrency and cautioned the customers that they will block their cards, considering the 2018 notification.

As RBI, gave clearance on this matter, many investors of cryptocurrency were relieved. It was observed that back in 2018, RBI had a restrictive approach towards cryptocurrency. RBI was reluctant for cryptocurrency and even after 2018, it gave statements, warning people against cryptocurrency.

In the current situation, there is a shift in RBI's approach. If we look closely today RBI has indicated that it is very much part of the game, as The Cryptocurrency and Regulation of Official Digital Currency Bill,2021, gives a glimpse that RBI itself will launch its digital currency. It means that a certain amount of currency will be in digit form, that RBI will issue. Hence, a part of currency may be in a physical form and the other part may be a digital currency and will have no physical form.

RBI Governor Shaktikant Das has said the RBI has reservations regarding cryptocurrencies and it is working on its digital currency. This, he said, will be different from cryptocurrencies. He said the RBI does not want to be left behind in the technological revolution, and the benefits of blockchain technology need to be capitalized on.[4]

Currently, both RBI and govt have no clear stand over cryptocurrency. RBI even though had to permit cryptocurrency after the Supreme Courts' intervention, but time and again, has stated that they do have major issues with cryptocurrency, which have been communicated to the govt, and the govt may soon come with a clear picture. At the same time, they gave a clear nod to central bank digital currency (CBDC), claiming them it be safe and legal, and that very soon they will come up with their digital currency in India.

The rise of Cryptocurrency in India
  1. Failed Government Policy:
    Due to the outbreak of the covid 19 pandemic, people suffered a big amount of monetary loss and somehow the govt policies failed to provide a big relief to the investor. Hence people aim to invest at places where they can expect higher returns and returns of bitcoin etc. are high as compared to the interest provided by Indian financial Banks.
  2. Disillusionment with the banking system:
    Lower Interest rate, loan waivers, public sector banks bailing out with public's money creates a question on the working of public sector banks. Crypto banks on the other hand do provide a loan with less interest rate.
  3. Tax Exception in certain cases:
    On taxability of bitcoins earned during the 'mining' process, Wadhwa said, Bitcoins generated during the 'mining' process are classifiable as self-generated capital assets. Since the cost of acquisition of such Bitcoins is not available, the taxpayer can take the benefit of the judgment of the Supreme Court in the case of B.C. Srinivasa Shetty [1981] 5 Taxman 1 (SC). In this case, it was held that if the cost of acquisition of an asset cannot be ascertained, the machinery provision for computation of capital gains will fail, therefore, no capital gains can be levied on the transfer of such assets. Therefore, Bitcoins generated in the 'mining' process may be exempt from the tax[5]
  4. Crypto is a digital gold:
    Crypto is now considered digital gold. If one invests in Crypto, the rise is pretty high. Bitcoin has meteoric rise. On 1 Oct 2013, Bitcoin has a rate of 123$ and in Jan 2021 the rate is 34000$ USD. India holds a high value for gold. Currently gold in India is 25000-50000. If a person invests in gold, the money is doubled while bitcoin gave 340 times more return ad hence is considered as digital gold.

Crypto Banks in India
Crypto banks like Easyfi Network, Vault, Kasa have started operating in India. The CEO of Vault, states that until now, they have given a loan of approx. $25 billion as loan. Cashaa has tied up with United, a Jaipur-based multistate cooperative society, to form a brick-and-mortar crypto bank called Unicas. [6]

Its branches are in Gujrat, Rajasthan, and Delhi. Their crypto banks work in such a way that let us say if a person has cryptocurrency like Bitcoin, Ripple and the person want some loan, crypto can be given as security, then considering the market value of crypto at that time a person will get 50-60 percent loan of the price of crypto.

This is because there are high chances of fluctuation on cryptocurrency. There is no specific time as to when that loan has to be returned, though obviously, one has to pay interest. Another point that makes cryptocurrency stand out is that banks usually demand interest of 12-24%, while one has to pay interest of 12%-15% only on cryptocurrency, along with a 2%-5% processing fee.

The process of granting a loan in cryptocurrency is instant and what is the creditworthiness, CRISIL scores of the borrower don't matter. Hence it is an easier form of granting loans. One can even keep their crypto in the banks and they get 4%intrest in it. Companies relating to cryptocurrency are trying to utilize their potential, attracting more customers to invest in cryptocurrency. Recently, Easy-fi network for example is also planning to launch payday loans in India, this quarter. This product will be for working professionals and salaried employees stated by, Anshul Dhir, cofounder of Easy-Fi Network

Cryptocurrency Bill 2021
The Bill has not yet reached the public domain but there is a high possibility of the bill banning cryptocurrency and introducing digital currency of RBI, which will raise a lot of questions from the investors

Objections of the Bill
  1. In the past few years, India saw a surge in the number of cryptocurrency investors and trading volumes.
  2. Cryptocurrency exchanges such as CoinDCX and Coinswitch, Kuber have also raised early-stage funding for their operations.
  3. The bill may spark an end to the nascent cryptocurrency industry in the country.
  4. This bill criminalizes the trading in cryptocurrency and its holders.
  5. It prohibits all private cryptocurrency
  6. It provides for official digital currency to be issued by the Reserve Bank of India
  7. Although it prohibits private cryptocurrency, it allows certain exceptions to promote the underlying technology of cryptocurrency and its uses.
  8. A similar Bill to check the cryptocurrency was drafted called Banning of cryptocurrency and Regulation of other digital Currency Bill, 2019

Banning of cryptocurrency and Regulation of official digital Currency Bill, 2019
This bill defined cryptocurrency as any information, code, number, or token generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store or a unit of account. The central government may, in consultation with the central board of the RBI, approve the digital rupee to be legal tender.

Offenses in the Bill
  1. The bill bans the use of cryptocurrency as legal tender or currency
  2. It also prohibits mining, buying, holding, selling, dealing, issuance, investment, payment system, trading, disposal, or use of cryptocurrency.
  3. Mining is an activity aimed at creating a cryptocurrency and/or validating cryptocurrency transition between buyer and a seller
  4. It further provides a punishment of not less than 1 year to 10 years for dealing in cryptocurrency and punishment of up to 7 years for advertising, soliciting cryptocurrency.
  5. This Bill could not be passed because people objected to the bill.[7]

Drawbacks of Cryptocurrency?(Why Govt want to ban Crypto)
  1. Sovereign Guarantee:
    Cryptocurrency is speculative. People invest in high amounts to attain big returns. This leads to Market Volatility. It means prices fluctuate a lot and many people can suffer big losses, thus has a huge risk.
  2. Illegal use:
    Cryptocurrency acts as an opportunity for those who plan to evade taxes or do money laundering. Easy mode of transfer in Cyber- terrorism, the most famous case was of WannaCry and Petya viruses in which $300 was paid in Bitcoin to decrypt files. Wanna cry is a perfect example crypto ransom that was used by criminals to extort money online. The hackers locked the individual's computer and in return demand ransomware in the form of cryptocurrency. The Petya attack did the same attack and demanded bitcoin as ransom. In the year 2019, Almost 0.5% of transactions of bitcoin is done on the dark web which is clearly has been done for illegal activities.
  3. Risk in Security:
    Digital currency is not operated by the govt and govt guarantee is not behind it.
  4. Cyber Attacks:
    Anything that is available in cyberspace is always under constant threat of being hacked. Once the hackers find a way to penetrate the security system of cryptocurrency, they can create n number of cryptocurrencies, can sell them, and even steal cryptocurrency from other users. There is always a Malware Threat Because it is a digital currency, it can be hacked, one can lose their password, virus, etc.
  5. Money laundering:
    People will start investing in money laundering and very easy as one can send money from country to country without any accountability. As per a report criminals laundered US$2.8 billion through crypto exchanges in 2019, compared to US$1 billion in 2018. Research on the internet indicated that approx. 56% of cryptocurrency users have weak K.Y.C.
  6. Economic disbalance:
    The creation of cryptocurrency is very different from how actual cash is created in the economy. E.g.- In India, only RBI has the authority to create cash. It can do so only after maintaining the Minimum Reserve System and an asset whose value is up to 200 crore. This creates a balance of demand and supply. Such a thing is not possible in cryptocurrency and in case excess of cryptocurrency is issued, it will lead to a high rate of inflation in the market bringing economic disability. Regulatory bypass is another issue as RBI claims that since it is decentralized, it is difficult to regulate digital currency.
  7. Fall in the value of physical money:
    Various companies like High Kart, Purse, Sapna accept cryptocurrency as real money against a wide range of products like electronics, books, etc. This indicates that in the future various other companies may step forward and will start accepting crypto. This will in turn will lead to a fall in the value of the physical currency. But in a different situation, people may crave more physical money so that it can be later turned into cryptocurrency. This will lead to a huge disparity in demand and supply as well as the value of the physical currency.
What bad does the ban bring?
  1. The ban on cryptocurrency seems to be unjust and arbitrary. The government in the same bill is trying to ban cryptocurrency and on the same hand proposes a digital currency formulated by RBI. The question is are the threats not the same?
  2. Banning Cryptocurrency will lead to the exile of talent and money from India to those counties where cryptocurrency is permitted. This happened when in 2018's notification from RBI came when explorer services like Blockchain left India to counties that permitted cryptocurrency
  3. India will lack behind in its technological advancement in the field of digital trading and currency. In 2019, Koinex left India due to uncertainty in India that made it difficult to work in India.
  4. The ban will lead to people attempting to buy cryptocurrency illegally, any ban will prevent people from buying cryptocurrency seems unachievable

The Indian Government should step up in this era of cryptocurrency as it can bring a huge leap in technological innovation in India. It is estimated that the tax imposed on cryptocurrency will add up to a whopping amount of direct tax to the Income Tax Department which can give a major push to the economy's overall development.

Rather than putting a blanket ban, the Indian Govt should take steps to regulate cryptocurrency, making it safer, transparent, and more trustworthy. The more aware the citizens will be towards the functioning of cryptocurrency, the more investment it is expected, especially in a developing economy like India with the second largest population. Not only that, it can prove to be a golden step towards the digital India movement launched by PM as cryptocurrency seems to be an excellent field where India can channelize its mind, money as well as technology. The future that cryptocurrency holds is encouraging with regards to e-business, e investments, and e payments.

It is important that the laws have to be made relating to cryptocurrency keeping in mind the various financial, legal, aspects of the country aiming towards a more secure and consumer-friendly system to deal with crypto. Taking the example of countries like the USA, Canada EU Countries, India should tighten up its shole lace and should look towards a bigger picture of what future cryptocurrency beholds for India.

End Notes:
  3. Writ Petition (Civil) No.528 of 2018
  4. RBI working on digital currency, wants to tap on blockchain technology: Das (
  5. How to disclose cryptocurrency gains while filing income tax return (

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