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
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
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.
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
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
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
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
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
Is Crypto-currency legal or illegal in India?
- Trillioner Coin (TLC)
- Bybit India
- Polygon (MATIC)
- Sharedum (SHM)
- OnRamp Money
- Xinfin (XDC)
- Chingari (GARI)
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
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
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
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