File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

The Rise of Cryptocurrency: Exploring the Landscape in India

Cryptocurrency is digital money that doesn't require a bank or financial institution to verify transactions and can be used for purchases or as an investment. Transactions are then verified and recorded on a blockchain, an unchangeable ledger that tracks and records assets and trades.

Cryptocurrency, or crypto, is a digital payment platform that eliminates the need to carry physical money. It exists only in digital form, and although people mainly use it for online transactions, you can make some physical purchases. Unlike traditional money printed only by the government, several companies sell cryptocurrency.

Cryptocurrencies are fungible, meaning the value remains the same when bought, sold, or traded. Cryptocurrency isn't the same as non-fungible tokens (NFTs) with variable values. For example, one dollar in crypto will always be one dollar, whereas the value of one NFT dollar depends on the digital asset it's attached to.

A Brief History Of Cryptocurrency:
In the caveman era, people used the barter system, in which goods and services are exchanged among two or more people. For instance, someone might exchange seven apples for seven oranges. The barter system fell out of popular use because it had some glaring flaws:

People's requirements have to coincide: if you have something to trade, someone else has to want it, and you have to want what the other person is offering.

There's no common measure of value: you have to decide how many of your items you are willing to trade for other items, and not all items can be divided. For example, you cannot divide a live animal into smaller units.

The goods cannot be transported easily, unlike our modern currency, which fits in a wallet or is stored on a mobile phone.

After people realized the barter system didn't work very well, the currency went through a few iterations: In 110 B.C., an official currency was minted; in A.D. 1250, gold-plated florins were introduced and used across Europe; and from 1600 to 1900, the paper currency gained widespread popularity and ended up being used around the world. This is how modern currency as we know it came into existence.

Modern currency includes paper currency, coins, credit cards, and digital wallets: for example, Apple Pay, Amazon Pay, Paytm, PayPal, and so on. All of it is controlled by banks and governments, meaning that there is a centralized regulatory authority that limits how paper currency and credit cards work.

Despite uncertainty around the future of cryptocurrencies in India, investments in the unregulated digital asset, especially Bitcoin, has shown a breathtaking upward trend since 2020. Data from various domestic cryptocurrency exchanges suggest that more than 1.5-2 crore Indians have invested in the asset class, hitting the $10 Billion mark. The growing number of cryptocurrency adopters suggests a shift in the investment paradigm in the country that is known to invest more frequently in gold and other safer assets. Ahead of the much anticipated Cryptocurrency and Regulation of Official Digital Currency Bill, let us have a look at the journey of the virtual asset so far.

2008: Inception of Cryptocurrencies
The journey of cryptocurrency started with the publication of a paper titled "Bitcoin: A Peer to Peer Electronic Cash System" in 2008 by a pseudonymous developer by the name of Satoshi Nakamoto.

2010: First Sale Using Crypto
Two years later, the first sale of an item using Bitcoin took place with someone swapping 10,000 Bitcoin for two pizzas. This attached a cash value to cryptocurrencies for the first time. Soon enough, other cryptocurrencies such as Litecoin, Namecoin and Swiftcoin began to emerge and the digital asset started gaining traction.

2013: RBI Issues First Circular Regarding Cryptocurrencies
As crypto investments picked up in India too and exchanges including Zebpay, Pocket Bits, Coinsecure, Koinex, and Unocoin began springing up, the Reserve Bank of India (RBI) issued a circular warning users of the potential security-related risks pertaining to the use of virtual currencies in 2013.

2016-2018: Demonetisation and RBI's Banking Ban on Crypto
The increases in preference for digital payments brought about by the demonetisation experiment also gave an unintended boost to crypto investments, driving tech-savvy customers to the virtual asset. The Indian banks continued to allow transactions on cryptocurrency exchanges pushing the RBI to release another circular in 2017 conveying its apprehensions with virtual coins.

Finally, a warning clarifying that virtual currencies are not a legal tender was issued by the RBI and the finance ministry by the end of 2017.
In March 2018, a draft scheme for banning virtual currencies was submitted by the Central Board of Digital Tax (CBDT) to the finance ministry and just about a month later the RBI came out with a circular restraining banks, NBFCs and payment system providers from dealing with virtual currencies and providing services to virtual currency exchanges. This dealt a heavy blow to crypto exchanges and trading volumes fell by 99%.

November 2018: #IndiaWantsCrypto
On 1st November 2018, ten years after Nakamoto's paper, Nischal Shetty, Founder of WazirX, started the #IndiaWantsCrypto campaign for the positive regulation of crypto in India. The earliest impact was seen when the campaign received a positive response from Rajeev Chandrashekhar, a sitting Rajya Sabha MP.

The campaign was later joined by celebrities such as Sathvik Vishwanath of Unocoin, Polygon Co-founder Jaynti Kanani, renowned entrepreneur and investor Anthony Pompliano, and DJ Nikhil Chinapa. Nischal's relentless tweets and support for the campaign has garnered widespread acknowledgement with the hashtag trending on twitter during the budget session in February where the crypto bill was announced. In July 2021, #IndiaWantsCrypto completed 1000 days and the campaign is still going strong with Nischal's tweets and lakhs of other crypto enthusiasts joining it in its course.

March 2020: Supreme Court Strikes Down the Crypto Banking Ban
The ban was a massive setback and resulted in crypto exchanges filing a writ petition in the Supreme Court and the ban was ultimately stricken down, declaring the RBI circular unconstitutional.

Cryptocurrency exchanges, thus, sprung back to life and the SC ruling came at the best possible time, coinciding with the crypto boom.

2021: Announcement of Crypto Bill
However, the battle for cryptocurrencies in India was not over yet. On January 29, 2021, the Indian government announced that it will introduce a bill to create a sovereign digital currency and subsequently put a blanket ban on private cryptocurrencies. In November 2021, the Standing Committee on Finance, met the Blockchain and Crypto Assets Council (BACC) and other cryptocurrency representatives and concluded that cryptocurrencies should not be banned but regulated. In early December 2021, Prime Minister Narendra Modi also chaired a meeting on cryptocurrencies with senior officials.

Impact of Union Budget 2022-23 on Cryptocurrencies in India:

The government of India has clearly mentioned in union budget 2022-23 that-the transfer of any virtual currency/cryptocurrency asset will be subject to 30% tax deduction.

No loss in the transaction will be permitted to be carried forward.

Gifts in the form of virtual assets/cryptocurrencies will be taxed in the hands of the receiver.

A Central Bank Digital Currency (CBDC) by utilising the concept of Blockchain will be issued by RBI by the year 2023.

A tax of 1% will be deducted at source for the payments made on the transfer of digital assets.

The Grey Areas Regarding Crypto-Currency:

Volatile Nature: Cryptocurrency is speculative. Investing in high amounts leads to Market Volatility, meaning prices fluctuate and people may suffer big losses as a result.

Reliability and Security: Cryptocurrency for its characteristic of being a digital mode of transaction, it has become a very common platform for hackers, terror finance, and drug transactions.

This has brought tiredness among the people to a larger extent as it brings lesser security and lack of reliability.

For example, Wannacry virus was used by criminals to make ransom payments in Bitcoin.

Lack of Regulatory Framework: The Indian government is following a wait and watch policy towards cryptocurrencies. Absence of regulatory authority has led to increased chances of fraud threat to investor protection and movement of money in the economy.

Flooding Advertisement: There has been an explosion of advertising in the crypto market to lure people into speculating, because it is seen as a quick way to make money. However, there is concern that these efforts are to mislead youth through "overpromising" and "non-transparent advertising".

Stock-Market Issues: The Securities and Exchange Board of India (SEBI) has pointed out that it does not have control over cryptocurrency "clearing and settlement" and cannot provide counterparty guarantees as it does for stocks.

In addition, cryptocurrency has not been defined as either a currency, commodity, or security.

Scalability Concern: The scalability of crypto remains a major concern, since it is based on blockchain technology. In blockchain technology, the data storage mechanism is append-only, that means it cannot be modified, and since the demand is growing, storage capacity remains limited.

Money Laundering: There is a huge possibility that people might start investing in money laundering and it is very easy as one can send money from country to country without any accountability.

Possibility of Economic Disbalance: Rising crypto currency market can disbalance the circular flow of money in the Indian Economy. The creation of cryptocurrency is very different from how actual cash is created in the economy.

For instance, In India, only the RBI has the authority to create cash only after maintaining the Minimum Reserve System. This creates a balance of demand and supply.

However, Cryptocurrency doesn't rely on the financial institutional regulations but are encrypted and protected which makes it difficult to increase the supply of money over a predefined algorithm rate.

No Ombudsman: Currently there is no forum, where a user can possibly reach out for any help or grievance redressal mechanism related to crypto assets, as a result of which consumers are exposed to transactional and informative risks.

Here is the 10 most reliable crypto projects in India currently, according to their ranking:
  • Trillioner Coin (TLC)
  • Bybit India
  • Polygon (MATIC)
  • CoinDCX
  • CoinSwitch
  • Sharedum (SHM)
  • Huddle01
  • OnRamp Money
  • Xinfin (XDC)
  • Chingari (GARI)

Is Crypto-currency legal or illegal in India?
Whether crypto is legal or legitimate in India has come up repeatedly. Neither the government nor the central bank, the Reserve Bank of India (RBI), has recognized cryptocurrencies.

The Reserve Bank of India (RBI) issued a circular dated 6th April 2018, notifying that citizens will not be allowed to deal in cryptocurrencies as they pose several serious concerns regarding consumer protection, money laundering, market integrity, and many others. But in 2020, in the case of Internet and Mobile Association of India v. Reserve Bank of India, the Supreme Court struck down the aforementioned circular. The Supreme Court seemed to have favoured virtual currencies by allowing its dealings.

The supreme court observed that cryptocurrency should be regulated by the RBI. The Supreme Court held that since RBI is a financial institution whose aim is to protect public money, it was within RBI's right to ban cryptocurrency. But at the same time SC also said that in place of banning these virtual currencies altogether, the RBI could have looked for alternatives that may have been advantageous to the virtual currency users by implementing opposite rules.

After the Internet and Mobile Association of India Judgment (Supra), the government was planning to introduce "The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" (The "Bill") to the Lok Sabha. According to the Lok Sabha bulletin dated November 23, 2021, the Bill seeks 'to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.

The Bill also seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses. But owing to several complexities, the bill has not been introduced in any house of Parliament.

But India is trying to regulate the cryptocurrency market to make it less volatile and risky for the citizens. MCA amended Schedule III of the Companies Act 2013 which states that from Financial Year 2021-22 all the companies will be required to disclose their investments in cryptocurrencies, and also state any profit or loss involved in the transaction. The holder of virtual currencies will also be required to state the number of holdings, details of deposits, and advances from any person for trading.

While cryptocurrencies are not legal tender in India, the Government of India has noted time and again that they are also not illegal. Hence, cryptocurrency is currently a grey area in India.

Future Opportunities for Cryptocurrency:
Cryptocurrencies are slowly but surely gaining ground in India. Millennials from tier-2 and tier-3 cities are jumping onto the crypto bandwagon. Although men have ruled this space, women's participation in crypto trading has grown by over 1000% in recent years. 66% of all users are still below 35 years of age, which shows the higher adoption rate of crypto among the youth of the country.

Gen Z and millennials are big investors in this space and will continue to be due to the scepticism towards banks and financial institutions, the thrill of volatility, and the availability of digital technology and digital sources of information. P2P platforms have contributed to the substantial adoption of cryptocurrency by the tech-savvy generation. Growing mainstream acceptance of cryptocurrency will also fuel future penetration into more niche segments of the population.

Although there is still uncertainty about regulations, the government has shown signs of recognizing the potential of cryptocurrencies. Crypto definitely seems to be the future.

But is it safe to trust this technology to power billions of dollars worth of transactions?

Cryptocurrency has grown in size and popularity among investors to facilitate the financial activities such as buying, selling and trading in India and around the world. According to the United Nations Conference on Trade and Development Report 2021, 7.3% of Indians owned cryptocurrency in 2021.

As much appreciable as it is that India is rapidly moving towards digitisation in almost every aspect of life, an underlying concern that needs immediate attention is that at present, India does not have any regulatory framework to govern the crypto assets market. The absence of a regulatory framework not only creates uncertainty for businesses looking to enter this space, but also exposes investors to avoidable frauds. An unregulated ecosystem can also facilitate money laundering, fraud and terror financing.

The Cryptocurrency Bill 2021, is a legislative initiative that was introduced in the Lok Sabha by the government to regulate the thriving market of cryptocurrency in India. The industry has seen a rush in investment in the last few years, especially during the covid period not just domestically but also internationally. Crypto trading platforms like WazirX, CoinDCX, Zebpay, etc. in India are witnessing a big leap in volumes.

An unregulated crypto market is unfavourable and risky even when the government wants to protect young entrepreneurs and investors. By introducing the Cryptocurrency Bill in 2021, the government officially took a step toward regulating cryptocurrency. The bill seeks to create a favourable structure for the creation of the official digital currency that will be issued by the Reserve Bank Of India (RBI). It also prohibits all other private cryptocurrencies but, with certain exceptions to boost the underlying technology of cryptocurrency.

The biggest concern related to crypto is that it can be an extremely volatile investment. The market can be exceptionally high and can immediately be terrifyingly low. Crypto has scalability issues and investment risks among new investors. Cryptocurrencies haven't yet proven to be a stable long-term investment. The unpredictable market future makes investors concerned about their investments. There is also a fair degree of risk involved with trading in cryptocurrencies given the fact that they don't come with a sovereign guarantee, instead are decentralised and can be operated privately, thereby heightening the risk factor related to the investment.

Updated: 29 September 2023 21:30 IST


Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly