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Cryptocurrency In India

Cryptocurrency is one of the underlying concepts of block chain technology where end to end transactions remain encrypted and one is not able to know the user when the transaction happens, as we have seen in the 2008 crisis which created a deficit in trust for government authorities, banks, and private institutions.

The crisis was contained at global level via sell out of insolvent banks and at this time cryptocurrency took the form of virtual currency encompassing block chain technology, though sell out of the banks and other institutions was seen as a breach of trust but this concept was given more preference after 2009, thus cryptocurrencies took a toll and it gave a new rise to the era of virtual currency.

The use of cryptocurrency has been frequent in other countries, if we have been going through India there have been a noticeable changes in the users who have started investing in the cryptocurrency and there are various platforms which have been launched to deal with cryptocurrency and to give people around simple guide about how to start investing in crypto, though it may seem like crypto is same as Share market or money market but they are both different concept.

The development in technology in India especially with the emergence during Covid-19 has seen a constant rise in the path of crypto. The apex authority in India who regulates financial transactions like this is the Reserve Bank of India. RBI has taken cryptocurrency as a form of virtual currency, which can be generated through codes.

The market of crypto and volume of the same is untapped and there are high chances that it can be exploited in a way which can be harmful to the persons who are investing in this currency, as regards to the massive popularity and ever increasing usage in crypto in India, the government of India had suffered huge revenue loss. In various countries different authorities have interpreted this technology according to their own means and have made different approaches to regulate the same.

In India and in some other countries too, there is lack of regulation and this has been often considered as a weakness as customers are not assured of the money which they are investing. Any absence in regulation can perpetually lead to use of cryptocurrency being used as a device to do criminal activities. As we have seen in the case of Amit and Ajay Bhardwaj who were booked under section 406, 420, 34,409,120B, 109 of IPC, they were held under Ponzi scheme.

With technology and its advancement and mammoth increase in the internet users the usage of cryptocurrency is bound to increase. According to a study conducted by the Indonesian firm Pundi X, about 1 in every 10 bitcoin transactions worldwide took place on the Indian subcontinent, reported Quartz. As we are going to see various circulars and orders from different institutions in near future with regards to the regulation of cryptocurrency, the following institutions hold paramount relevance in regulation of cryptocurrency.
  1. RBI.
  2. Directorate Of Enforcement.
  3. Department Of Economic Affair.
  4. SEBI.

Regulation of Cryptocurrency in India
There was a notification by RBI which was titled prohibition on dealing with virtual currency which was read with section 35A of banking regulation act and section 45JA and 45L of Reserve bank of India act 1934 which imposes ban on all the institutions ie financial and it asks to refrain from providing services related to cryptocurrency transactions and also to exit any relationship which is deeply involved in transactions dealing with cryptocurrency, according to RBI's Opinion they believe that cryptocurrency are encrypted currency so they are stateless currencies.

As a result of this circular the crypto market crippled over as banking service involves exchange of money, so many crypto users were forced to take out cash resulting in loss to both the industries which included banking and crypto industries.

There was a petition filed in the Supreme Court by IMAI who are representing digital and online services in India, seeking to overturn the circular which was passed by RBI. The apex court applied the Doctrine of Proportionality and passed the decision in favour of cryptocurrency.

The supreme court was not able to decide on the validity of the bill called Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 this bill has not been passed, the apex court said that the bill on one hand crypto users being faced with criminal penalties and there are other activities related to mining etc. which are prohibited by this bill and this bill also envisages and cleared the way for government to launch its own digital currency which is called as digital rupee.

The court also took the note of the bill titled crypto-token regulation bill, 2018 which proposed to:
  1. prevent persons dealing with crypto tokens from falsely claiming that they are not securities or investment schemes, or offering investment schemes, due to loopholes in the current regulatory system, and
  2. Control VC exchanges and brokers where sale and purchase may be permitted.
The Inter-Ministerial Committee was fine with the concept of enabling the selling and purchase of a digital crypto asset at recognised exchanges, according to the key aspects of the Crypto-token Regulation Bill, 2018, contained in paragraph 13 of the 'Note-precursor to text.'

Though initial relief was made to crypto traders in late 2018, but it was not until 2019 there were notices issued by different tax authorities to various persons who were found dealing with the cryptocurrency and they sent notices to them ordering them to report incomes generated by the way of cryptocurrency.

As COVID-19 hit the world in January and various countries announced lockdowns owning to closure of various essential services, thus this made a need for usage of digital currencies to be in use, so after 2020 in India there has been a rampant increase in the usage of crypto currencies such as bitcoin, ethereum, dogecoin etc.

The current government is considering bringing a new bill which is titled Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which is believed to be on the similar lines to the bills which were introduced earlier.

This new bill talks about banning private crypto currencies, however there lies a ambiguity regarding which all private currencies would be included under them, there has been a recent amendment in the schedule III of companies act, 2013 in which the government of India has directed companies to disclose transactions related to cryptocurrency and also investments done in the same in books.

Conclusion
It must be taken note that there were benefits listed down by MEITY under the document called Draft National Strategy on block chain, 2021. Therefore banning crypto currency in its entirety is not the best possible decision for any nation as this will lead to wealth creation and lead to development of a nation.

There is a need for a proper regulation framework which doesn't give unbridled power in the hands of any institution who regulates this virtual currency; also banks and other financial institutions must be allowed to do transactions related to crypto-currency.

Though banks may get a chance to get hands-on experience on transactions involving cryptocurrency, the government should not resort to blanket ban on these currencies as there are many new start-ups which are launched in India after the supreme court's decision. The uncertainties with regards to the view taken by RBI has effectively affected the possibility of businesses which were going to be established in India. 

Written By: Shashwata Sahu, Advocate, LLM, KIIT School of Law

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