Often reduced to the term ‘Bitcoin’, cryptocurrencies have attracted a lot of attention from the Indian public. There are intense discussions about what a cryptocurrency really is, its advantages and disadvantages, and most importantly, what is its legality in the Indian subcontinent. Before we move ahead to India’s take on the subject, let us first understand a bit more about cryptocurrency.
What are cryptocurrencies?
Cryptocurrency refers to a virtual or digital form of currency that uses cryptography to ensure secure online transactions. Their primary characteristic is that they have a decentralised structure based on blockchain technology. In addition, these currencies are not issued or controlled by any central authority. It is, for this reason, governments cannot exercise control over cryptocurrencies, making them immune to any kind of manipulation.
Bitcoin was the first blockchain-based cryptocurrency in the world. It is still the most popular and commonly used cryptocurrency. Other types include Dogecoin, Litecoin, Namecoin, and so on.
Although cryptocurrencies have numerous advantages, such as ease of transferring funds from one party to another securely, they also have several disadvantages. Since they are more or less autonomous in nature, it is easy to use cryptocurrencies for a wide range of illegal activities like tax evasion or money laundering.
Are cryptocurrencies legal in India?
Cryptocurrencies are extremely popular in India, as many as Indians invest in the price of cryptocurrencies like Bitcoin. However, many people also refrain from doing so because of confusion regarding the legality of these investments.
The truth is that cryptocurrency is not an illegal tender in the country. In other words, is legal to invest in the price of cryptocurrencies as CFDs. The Reserve Bank of India (RBI) did abolish the use of virtual currency during 2018. As the entire technology was still in its nascent stage, the authorities had reservations on its functioning. The illicit use of virtual currency was already rising at that time. To curb it, the Indian government announced that it did not recognise this currency as legal tender.
While some countries, like China and Russia, outlawed it, cryptocurrency boomed in the United States and Singapore, where there are proper regulations. This development encouraged the Indian government to reconsider. In 2020, the Supreme Court of India allowed banks like ICICI Bank, State Bank of India, and HDFC Bank to continue their transactions with cryptocurrency exchanges.
However, to date, there is no regulatory framework governing cryptocurrencies. The Indian government is currently working on establishing the necessary framework for cryptocurrency regulation.
What is India’s stand on cryptocurrency?
India’s stand on cryptocurrency remains unclear to date. Some sources opine that the Indian government is not against the technology but cautious about its proper use. The authorities do recognise the massive opportunities and potential this technology has and are willing to exploit the same.
The Indian government also took a positive step in this regard. The Ministry of Corporate Affairs (MCA) announced that companies must disclose their crypto trading and investments every financial year. Experts perceive it to be the first step in the direction of regulating cryptocurrencies in the country. Possible reasoning behind this is that accounting of for crypto transactions will help in controlling illicit activities through digital currency. The regulation will also help in making corporate governance more transparent. The government has also cleared the misconception that cryptocurrency might get completely banned in the country.
How has the absence of a regulatory framework affected investors and organisations?
Despite the government’s recent measures, there is a lot of confusion among the users owing to the absence of a regulation framework. Even though the apex court has removed RBI’s 2018 order, many Indian banks are not allowing investors to carry out crypto transactions. This is reportedly for of two reasons. First, the RBI has not given a clear statement regarding the issue. Second, it is said that all financial institutions recently received informal guidance from the government asking them to steer clear of crypto transactions. Whatever the case be, banks are increasingly withdrawing their services in this field. To summarise, the absence of clear regulation has made it extremely difficult for cryptocurrency services to run smoothly.
India is not the only country that took a sceptical approach in accepting crypto technology. Almost all the countries that have now made it a legal tender went through similar phases. To avoid failing to adapt to the technological advancements, India may develop a regulatory framework soon as both cryptocurrency and blockchain are believed to be the dominating forces in the future. In the meantime, the government must present a clear statement regarding its stand on the whole issue to avoid misinformation among individuals and organisations alike.
