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
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.
Regulation of Cryptocurrency in India
- Directorate Of Enforcement.
- Department Of Economic Affair.
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
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:
- 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
- Control VC exchanges and brokers where sale and purchase may be
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.
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,
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
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
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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