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When we say crypto, what do we mean by it? The first thought that comes to our mind is, it’s something related to the internet or digital. Crypto, the word itself suggests something which is concealed or a secret. A cryptocurrency is a digital or virtual currency that uses cryptography to secure, produce and manage its transactions. In contrast to ancient currencies, that were issued by central banks, cryptocurrency has no central financial authority, in operation independently of a financial organization. At present, money transactions from one person to a different person undergo through monetary establishments like banks. The invention of cryptocurrency allowed user-to-user transactions without the requirement of intercessor establishments. Through cryptocurrency, users can directly send money to alternative users. Bitcoin is the 1st cryptocurrency that came to public notice in 2009. Amazingly, no one is aware of who made-up Bitcoin. We tend to solely recognize them by their screen name – Satoshi Nakamoto. If given a thought, Satoshi can be one person, a bunch of programmers, or if you think a few weirder theories, a time-traveling alien or secret government team. Satoshi revealed a 9-page document in 2008, detailing how the Bitcoin system worked. Months later, in 2009, the software system itself was released. Following this, several alternative cryptocurrencies, like Ethereum, Ripple, Litecoin exist within the market.
Cryptocurrencies are often exchanged for alternative currencies, products, and services. This bitcoin is made using blockchain technology. There are a restricted number of coins, and each bitcoin contains a distinctive code. Each dealing of the coin is kept as a block and all the transactions for the actual coins are connected in form of a chain, therefore the name Blockchain Technology. All these details are obtainable in an exceedingly public ledger, that anyone can check for each coin, and thus can be grasped the transactions of its exchange. Unlike bank transactions, Crypto transactions are utterly anonymous. Someone will solely apprehend the addresses of crypto on which the payment has been sent and received. However, to whom these addresses belong, can’t be known. This obscurity feature offers security against fraud. Banks do charge us a section of the money we tend to send or receive. With cryptocurrency, middlemen like banks are going to be eliminated, thence there’ll be no loss to us in monetary transactions. Also, the fee for crypto transactions is comparatively low as compared to alternative digital transactions like credit cards and alternative modes.
With the distinctive developments and advancements within the technology sector in India, particularly throughout the challenges exhibited by the speedy unfold of COVID-19, the fintech sector has shown promising results. There has been a growth of interest, fueled for the most part by curiosity and recognition, amongst the citizens of India in cryptocurrency like Bitcoin, Ripple, Dogecoin, etc., supporting the fact that an oversized range of individuals has started to invest an apparent part of their time and money in these virtual currencies. In India, the apex monetary authority i.e., the Reserve Bank of India (“RBI”), recognized cryptocurrency, specifically outlined as a sort of digital/ virtual currency created through a series of written computer codes utilizing cryptography /encryption and is therefore freed from any central supplying authority intrinsically. Cryptocurrency is power-assisted through blockchain technology, that establishes a person-to-person issuing system that utilizes non-public and public keys permitting authentication and cryptography for secure and safe transactions.
Being an untouched, unregulated market with a possibility of over a trillion bucks, India conjointly witnessed an enormous surge of cryptocurrency exchanges. Witnessing the increasing quality of the utilization of cryptocurrency within a brief span of a year and therefore the potential revenue loss to the government of India, the regulators and authorities noticed and as a consequence, in 2013 the RBI issued an announcement, warning the general public against dealing in virtual/digital currencies. In November 2017, the government of India established a high-level Inter-Ministerial Committee to report on numerous problems associated with the utilization of virtual currency, and later, in July 2019, this Committee conferred its report suggesting a blanket ban on personal cryptocurrencies in India. The threat of revenue loss was therefore eminent to RBI, that it’s attention-grabbing to notice that even before the submission of the report from the Inter-Ministerial Committee, in April 2018 the RBI had issued a circular limiting all industrial and co-operative banks, little finance banks, payment banks, and NBFC from not solely dealing in virtual/digital currencies themselves however conjointly instructing them to prevent providing services to all or any entities that cope with virtual/digital currencies. This stalled the rise of the crypto trade in India, as exchanges needed banking services for causation and receiving money.
The banking service is important for the conversion into cryptocurrency and successively for paying salaries, vendors, workplace area, etc. However, things prevailing around cryptocurrencies and their usage utterly modified on 4th March 2020, once the Hon’ble Supreme Court of India, in an exceedingly well-conceived judgment quashed the sooner ban imposed by the RBI. The Hon’ble Supreme Court of India mainly examined the matter from the angle of Article 19(1)(g) of the Indian Constitution, which talks regarding the liberty to follow any profession or to hold on to any occupation, trade, or business, and the school of thought of proportionality. The Apex Court noted that all regulators and governments of different countries are unanimous about their opinion that although virtual currencies haven’t acquired the status of the medium of exchange, they show digital representations which are valuable and capable of functioning as a medium of exchange, unit of account and/or store valuable. While the court recognized the RBI’s power to require pre-emptive action, it commands that the proportionality of such a measure wasn’t there within the case, since there wasn’t any damage/loss suffered directly or indirectly, by RBI’s regulated entities because of VC commercialism. Therefore, among different reasons, on the grounds of proportionality, the impugned Circular dated 06-04-2018 was put aside.
The Government of India was considering the introduction of a replacement bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (“New Bill”) that was analogous in spirit to its earlier versions. However, the New Bill seeks to ban personal cryptocurrencies in India with some exceptions, to encourage the underlying technology and commercialism of cryptocurrency however expedited among a framework for the creation of an official digital currency that can be issued by the RBI. The New Bill has approached the issue of the dearth of cryptocurrency laws and suggests forbidding all the personal cryptocurrencies in their completeness. The categorization within the New Bill’s suggestion arises since the RBI continues to be within the grey concerning that variety of cryptocurrencies will fall into the horizon of personal cryptocurrency. If the New Bill imposes an entire ban on personal cryptocurrencies, it shall lead the cryptocurrency investors to speculate and deal in cryptocurrency in an exceedingly unregulated market.
Further, the aim of introducing a law associated with cryptocurrency is to ease the method of mercantilism and holding, in an exceedingly safer technological setting. However, even with the introduction of state-owned cryptocurrency that shall be monitored by the RBI, the danger in investment and holding of cryptocurrency shall stay constant. Towards the end of March 2021, consistent with the most recent amendments to the Schedule III of the Companies Act, 2013, the government of India educated that from the start of the new financial year, corporations must be compelled to disclose their investments in cryptocurrencies. In easy words, corporations currently ought to disclose profit or loss on transactions involving cryptocurrency, the quantity of holding, and details concerning the deposits or advances from any individual trade or investment in cryptocurrency. This move has been greatly appreciated by the individuals dealing in the crypto sector, as this may open the door for all Indian corporations to possess Crypto on their balance sheets.
Till recent there was no comprehensive legislation coping with the scope and uses of cryptocurrency in India, however, there are bound notices and orders issued by the involved authorities in 2018, the Reserve Bank of India (RBI) prohibited banks and any regulated financial establishments from “dealing with or subsiding virtual currencies”. On 14 January 2018, RBI confirmed that it had not issued any licenses or authorizations to any entity or company to control a scheme or deal however had issued warnings regarding dealing in virtual currencies and introduced a demand for corporations to unwind or exit their positions. It additionally confirmed that new prohibitory rules were planned. The sweeping regulation prohibited the trade of cryptocurrencies on domestic exchanges and gave existing exchanges till 6 July 2018, to wind down.
The RBI in its circular in 2018 prohibited the exertion and flow of cryptocurrency in India. The circular introduced by the RBI, generally restricted or obligated a ban for the public on the application of cryptocurrency by all banks across the territories of India. The utilization and flow of crypto across the state gave a blow to the share markets in addition to the investors. Thenceforth the Supreme Court of India taking suo-moto cognizance during this matter, upraised the ban from the implementation of Cryptocurrencies in India with a landmark judgment in ‘Web and Mobile Association of India vs. Reserve Bank of India,’ the Apex court stated that the affirmative RBI has been given the ability to authorize and regulate the financial economy of the country. However, the ban on the flow and use of cryptocurrency in India as per the notice issued within the public by the RBI wasn’t proportional and a rational call. The Apex court by the victimization of the doctrine of quotient reached on to the present judgment in conclusion and therefore upraised the ban from the employment of crypto-based currencies in India. Later within the Parliament, during the recent session, it was indicated that a brand-new comprehensive bill specifically, the Cryptocurrency and Regulation of official Digital Currency Bill, 2021, have some chances that this bill will probably be mentioned over a tea within the Parliament session.
As we’ve understood that cryptocurrencies are supported by Blockchain technology and if the Blockchain itself could be a grey area of privacy, your privacy is at the stake. Then the currency exchange won’t be said as secured, that’s why the notice issued by RBI, prohibited cryptocurrencies in India to avoid losses of the state from the potential concern of money laundering, tax evasion, and the act of terrorism funding for that matter. India has recognized cryptocurrencies as a legitimate asset, based on the reasoning, that may be drawn from the said facts and current eventualities around the world. Addressing the matters of cryptocurrency in India, it is noticeable that there’s a lack of clarity regarding cryptocurrency regulation in the country. Well-structured, clear rules addressing crypto mercantilism exchanges, blockchain technology, investors, and the individuals, used in such sector ought to be created on priority if the globe of cryptocurrency is here to remain and demands additional attention.
It was fascinating to notice that the Draft National Strategy on Blockchain, 2021, revealed by the Ministry of Electronics and Information Technology, highlighted the advantages of cryptocurrency. Therefore, forbidding a virtual currency that has created a sway in several countries, won’t be the best move to do for the development of our nation. The government must take an efficient step towards the positive regulation and social control of cryptocurrency as the way forward to earn the confidence of investors and the public in developing the country. It had been declared by the Union Minister of Finance, Smt. Nirmala Sitharaman on 16th March 2021 that there shall not be an entire ban on cryptocurrency – “we will allow a certain amount of window for people to experiment on the blockchain, bitcoins, and cryptocurrency.”
Due to the dramatic rise in its popularity among the plenty, it’s gaining wide acceptance as a payment methodology. Whereas traveling the planet, there’ll be no hurdle of exchanging our currencies with native currencies. Cryptocurrency will be a decent alternative for countries that have weak economies. A weak economy leads to the fall of currency worth, and they need to pay extra money to different countries for trade, services, etc. However, if they use cryptocurrency as an alternate currency, they’ll avoid this case to some extent. In public ledgers, containing data relating to transactions, personal data is hidden. Thus, any information of the persons who did the dealing, cannot enter into the public domain. Due to this, cryptocurrencies are being exploited for felonious activities like drug dealings, etc. There is no regulative body, that is a bonus of cryptocurrencies because it permits decentralized transactions, however, it’s additionally a drawback. If you lost your virtual coins, no one might retrieve them for you. There’s no accountable authority. Crypto transactions are irreversible. Funds sent to the wrong address cannot be derived back, leading to the loss of all the transferred money. If the memory device within which cryptocurrencies are held on gets broken or lost, then the lost Bitcoins can’t be recovered by any means.
The Government of India declared the Union budget for 2022–23 earlier, with the Minister of Finance, Smt. Nirmala Sitharaman’s conveyance much-needed clarity for innumerable crypto investors in India. The government has imposed a 30 percent tax rate on all financial gain generated through crypto mercantilism whereas additionally planning to introduce the Digital Rupee in 2022–23. The Digital Rupee, which is meant to be India’s first central bank Digital Currency (CBDC) project, is going to be a digital monetary unit – one that may be utterly regulated and monitored by the central government. However, if you’re unsure what CBDCs mean, CoinSwitch, Kuber brings the much-needed clarity thereon. Such currencies sometimes have the complete faith and backing of the supplying authority. Hence, the Reserve Bank of India can stay as the sponsor of the Digital Rupee, even as it is.
The Finance Ministry, in these laws, has planned a 30 percent tax on the exchange of all virtual assets, as well as for cryptocurrencies and non-fungible tokens. It is additionally highlighted those losses on these crypto-assets can’t be offset to a later date. This implies that any loss encountered throughout the trading of those assets won’t depart with different financial gain sources which it’ll be carried on to consequent years. Gifts in the form of virtual currencies also are susceptible to be taxed, with the recipient bearing the liability for any such deductions. Further elaborating on the taxation model for such virtual currencies, the Minister of Finance stated that every crypto transfer higher than a precise financial threshold is going to be responsible for a tenth TDS deduction, which can facilitate the authorities keep track of the movement of such currencies within the economy. Many have seen these moves as a confirmation of the government’s acceptance of digital currencies. Others additionally say that this move reinforces the government’s stance to forbid personal crypto as tender whereas providing voters with an edict various to constant.
Ashish Singhal, the Chief executive officer of CoinSwitch, Kuber, one of the largest crypto platforms in India, has welcomed the government’s call to introduce such a CBDC within the Indian economy to accelerate conversion. Many other relevant stakeholders have also favored the government’s approach towards cryptocurrencies. “The budget finally answers important questions on how crypto assets will be taxed. It talks about launching CBDC that will accelerate digitization. Improving digital payments will introduce more digital-savvy Indians to explore new forms of investing & wealth creation,” “We hope to work with the government to help bring crypto-asset taxation at par with other asset classes and participate in the central government’s vision to promote economic growth.” tweeted Ashish Singhal.
Ahead of the Budget, several outstanding stakeholders demanded a lot of clarity on cryptocurrencies, as well as relating to their corresponding taxation and GST rules. With these developments, it’s clear that the government doesn’t intend to “ban” cryptocurrencies shortly. Such recognition of virtual assets within the national Budget and therefore the imposition of clear tax rules have created optimism among investors concerning their investments. For most crypto investors out there, the introduction of a 30 percent tax rate is welcomed, even though it’s beyond alternative asset classes like stocks or bonds. when recorded uncertainty, concerning the fate of virtual currencies, the mere undeniable fact that cryptocurrencies are here to remain could be a relief to several. The Budget affirms India’s conviction to forge a progressive and technology-driven future. Though this is often not equivalent to giving cryptocurrencies the status of a tender, the acceptance of cryptocurrencies is an enormous move. The leading crypto platforms like CoinSwitch, Kuber are quite hospitable of this accommodative stance. The government has certainly reciprocated with an extended approach in its stance towards crypto within the last year. Several hope that this positive outlook toward cryptocurrencies can still mean good things for cryptocurrencies and their numerous applications: Web3, dApps, Defi, and others.
With governments of various countries having different attitudes towards considering cryptocurrency as a tender, folks unaware of its mechanism consider it to be a risky investment. The worth of cryptocurrency is extremely volatile as a result its value depends on its demand. For instance, if one thousand members wish to shop for bitcoins, their worth will increase. And at an equivalent time, if one thousand members sell their bitcoins to invest in another cryptocurrency for instance Ethereum, the worth of bitcoin might decrease. Cryptocurrencies are still within the initial stages and the technology is continually evolving. So, if cryptocurrencies are evolved in such a way that the loopholes are resolved, they will contend with the formal monetary establishments. The current variety of distinctive active users of cryptocurrency wallets is calculable to be between 2.9 million and 5.8 million.
Vanuatu, a Pacific Island Nation, placed within the South Pacific Ocean became the primary nation to just accept Bitcoin in Exchange as payment for its citizenship program. Keeping in mind, the decentralized storage and security, it’s attainable to mention with no hesitation that blockchain technology is futurist and revolutionary with the superior skill to enhance and develop new systems in numerous fields. It is extremely unlikely that the demand for cryptocurrency can beat the demand for normal currency, because of the high risk concerned. However, the point should be noted that each coin features a distinctive code and thus all the transactions of each coin are going to be recorded. It is often a beautiful conception to eliminate opaqueness within the economy. Also, with the blockchain, it’s exciting to visualize what its next huge accomplishment might be!
Author: Prachi Garg, Reva University
Editor: Kanishka Vaish, Senior Editor, LexLife India