Are cryptocurrencies legal in India? All you need to know about the Legality of Cryptocurrency in India
30 September 2021
A cryptocurrency is a type of digital cash that is not controlled by a government, is decentralized ("peer to peer"), and is built on open-source software. Based on encryption technology, open-source software provides a platform for individuals to create their own private currency and make payments in it without having to deal with banks or central institutions.
In a technological era - The Fintech industry has found itself at the forefront of this development where technical breakthroughs are occurring at an exponential rate. From mobile banking to online stock trading platforms, cryptocurrency is unquestionably the most sought. Virtual Currencies such as Bitcoin, Ethereum, and others have grown in popularity in recent years - both internationally and in India.
According to sources in the media, India's three major cryptocurrency exchanges according to reports, there are anywhere from 60 lakhs to one crore cryptocurrency holders in India, with a total value of around Rs 10,000 crore. Furthermore, a Nasscom and KPMG report predicted that transactions in the Indian fintech industry (FinTech) increased 121 percent from 2018 to 2021 and that FinTech will enhance India's GDP by $730 million by 2025. Let’s see two kinds of analytical frameworks of cryptocurrency in India.
Analysis:1. It examines the legal situation in India and the timeline of legal developments in relation to Virtual Currencies.
INDIA'S LEGAL POSITION- Is it safe to buy cryptocurrency in India?
RBI has issued a series of prohibitory circulars, demonstrating India's hesitation ("RBI"). In addition, an Inter-Ministerial Committee was created, which presented two laws that were fundamentally opposed to one another. The Hon'ble Supreme Court issued a historic judgment in 2020 that studied and analyzed the matter, offering a pro-cryptocurrency stance.
It is critical to comprehend the timeline of events in order to discern how they interact with what the future holds.
- There was no authorized central agency to oversee such payments, and there was no recognized structure for dealing with consumer complaints, disputes, chargebacks, and so on.
- Hacking, password loss, compromise of access credentials, malware assaults, and other factors can lead to losses in digital wallets.
- The seriousness of the risk related to the extreme volatility of VC's value;
- There is scope for illicit and unlawful activity, as well as inadvertent non-compliance with anti-money laundering and counter-terrorist financing (AML/CFT) regulations.
- RBI underlined the risks and stated that no organization or corporation has been granted a license or authority to conduct schemes or deal with Bitcoin or other VCs.
The Inter-Ministerial Committee has proposed bills.
The Centre established an Inter-Ministerial Committee ("IMC") in 2017, which announced two legislation. The Supreme court has passed the Crypto-token Regulation Bill of 2018 as the IMC's first recommendation ("First Draft Bill"). The IMC's first approach did not tend toward an absolute prohibition, and it was not chosen on the basis that it was an extreme instrument. Due to gaps in the existing regulatory framework, it recommended
- Prohibiting persons dealing with crypto tokens from falsely claiming that these products are not securities or investment schemes or offering investment schemes, and
- Regulating VC exchanges and brokers to allow for the selling and purchase of VCs.
However, the progressive measures proposed in the First Draft Bill were never implemented. Instead, the Bill to Ban Cryptocurrencies and Regulate Official Digital Currency (Second Draft Bill) was introduced. It suggested that the use of VCs as legal currency be prohibited. Mining, purchasing, holding, selling, trading in, issue, disposing, or usage of cryptocurrencies would also be illegal in the nation. The provisions that provided for penalties and offenses demonstrated the strictness of the Second Draft Bill. It also suggested the introduction of a digital rupee, which would be issued by the RBI and used as legal currency.
Imposition of a prohibition, The RBI placed a significant restriction on dealing with virtual currencies in its circular dated April 6, 2018 - Prohibition on dealing in Virtual Currencies11 ("RBI Circular").
With immediate effect, the RBI Circular instructed that companies regulated by the RBI not trade in VCs or offer services to assist anybody in dealing with or settling VCs. Maintaining accounts, settling, clearing, registering, trading, lending against virtual tokens, taking them as collateral, creating accounts of exchanges dealing with them, and transferring/receiving money in accounts linked to the purchase/ sale of VCs were all examples of such services.
Analysis 2: Road ahead:
Bill 2021 on Cryptocurrency and Official Digital Currency Regulation
The Cryptocurrency and Regulation of Official Digital Currency Bill, - 2021, is expected to be introduced in the upcoming Lok Sabha session ("New Bill"). The New Bill aims to establish a more conducive environment for the development of the RBI's official digital currency. Furthermore, the New Bill intends to make all private cryptocurrencies allowed trading in India. This really does, meanwhile, allow for specific exceptions in order to promote the technology and applications that underpin cryptocurrency.
The New Bill's main issues - 2021
While the New Bill recognizes a long-standing grey area in VC regulations and encourages the adoption of digitalization, it seeks to outright the law of private cryptocurrencies. To put this in context, it's worth noting that the Indian populace has demonstrated a strong interest in virtual currencies, with India accounting for between 2 and 10% of the global virtual currency industry worth US$430 billion until recently. Still, it is increasing gradually, Given the large number of Virtual Currency (VC) investors in the country, this is sure to raise some concerns. The new bill should provide them a six-month grace period to sell their assets. The mechanism and mode of such liquidation, however, remain a mystery. The most likely outcome will be the full destruction of VC units. Indian laws are not against for trade of crypto in India instead, it allows anyone to buy crypto with high safety measures, these confidential trading develops the Indian Economical growth and also growth technology as well.
The RBI has repeatedly emphasized the potential for digital assets to be used for money laundering, terrorist funding, and other purposes. However, if the New Bill prohibits the use of private cryptocurrencies, it may create an underground market where legitimate investors are compelled to operate in unregulated conditions. Furthermore, the primary objective of enacting legislation is to create a technologically safer environment for working with VCs. However, because the state-owned cryptocurrency will be designed to serve the same tasks as other cryptocurrencies, it will be subject to the same dangers as other cryptocurrencies. As a result, even the establishment of a national digital currency could be passed the bill in India by the Supreme court.
It's also worth noting that if there is just one digital money, the RBI will have total control over it. There will also be concerns about whether or not international investors will be able to participate in the Indian digital currency, as well as how it will be governed. As a result, the impending possibility of international investors being permitted to participate in the Indian digital currency while Indian investors' ability to invest in foreign cryptocurrencies is mostly restricted, creates the potential for more difficulties. The introduction of a policy that addresses the benefits and downsides in a comprehensive manner is urgently required.
“RECOMMENDATIONS AND HOLISTIC REGULATIONS ARE REQUIRED”
It has been shown that there is a lack of clarity in India when it comes to cryptocurrency regulation. A well-structured and nuanced approach to cryptocurrency regulation is required, with appropriate respect for the interaction of law with its subjects — in this case, crypto exchanges, investors, and, most crucially, the individuals engaged in the field. A regulation with such a far-reaching influence requires additional thought. India is in need of holistic regulation in the crypto industry, It is critical to recognize that crypto has acquired worldwide traction. The government was never against the technology; its goal was to prevent the misuse of cryptocurrencies and blockchain technologies.
All Countries that have regulated cryptocurrencies have gone through the same stages. They first found it difficult to adapt cryptocurrencies, but in order to avoid falling behind on technical advancements, they welcomed them. Similarly, in India, there has a huge welcome for cryptocurrencies among Entrepreneurs. So India is not against crypto and bills and regulations regarding legalizing crypto trading are yet to pass the bill by the Supreme court soon.