The future of money is digital currency.
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
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.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.
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
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
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. 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. 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
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
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.
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
Crypto Banks in India
- 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.
- 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.
- 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 
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
- 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 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.
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%
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
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
Banning of cryptocurrency and Regulation of official digital Currency Bill,
- In the past few years, India saw a surge in the number of cryptocurrency
investors and trading volumes.
- Cryptocurrency exchanges such as CoinDCX and Coinswitch, Kuber have also
raised early-stage funding for their operations.
- The bill may spark an end to the nascent cryptocurrency industry in the
- This bill criminalizes the trading in cryptocurrency and its holders.
- It prohibits all private cryptocurrency
- It provides for official digital currency to be issued by the Reserve
Bank of India
- Although it prohibits private cryptocurrency, it allows certain
exceptions to promote the underlying technology of cryptocurrency and its uses.
- A similar Bill to check the cryptocurrency was drafted called Banning
of cryptocurrency and Regulation of other 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
Drawbacks of Cryptocurrency?(Why Govt want to ban Crypto)
- The bill bans the use of cryptocurrency as legal tender or currency
- It also prohibits mining, buying, holding, selling, dealing, issuance,
investment, payment system, trading, disposal, or use of cryptocurrency.
- Mining is an activity aimed at creating a cryptocurrency and/or
validating cryptocurrency transition between buyer and a seller
- 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,
- This Bill could not be passed because people objected to the bill.
What bad does the ban bring?
- 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.
- 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.
- Risk in Security:
Digital currency is not operated by the govt and govt
guarantee is not behind it.
- 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.
- 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.
- 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.
- 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.
- 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?
- 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
- 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.
- 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
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.
- Writ Petition (Civil) No.528 of 2018
- RBI working on digital currency, wants to tap on blockchain technology:
- How to disclose cryptocurrency gains while filing income tax return