Decrypting Cryptocurrency
Introduction
The term cryptocurrency also know as virtual currency or just crypto, started making its presence in the market during the late 90s, where a chinese software engineer, named Wei Dai published an anonymous, distributed electronic cash system called "B-Money" in the year 1998. Even during that time, the B-Money, extensively provided almost every feature, which the current dated digital currencies offer, but unfortunately it was never officially launched.
Giving a furtherance to this, in the year 2009, the first decentralized crypto currency officially introduced in the market, which is widely know as Bitcoin, developed by a presumably pseudonymous developer named Satoshi Nakamoto. Since then around 4,000 + cryptocurrencies have been developed and traded around the globe some of which are Ethereum (ETH), Litecoin (LTC), Stellar (XLM), Ripple, Dogecoin etc.
What is crypto ?
The crypto or virtual currencies was introduced with the main objective to work as a digital medium of exchange between the parties, with the transactions being recorded in a digital ledger, which is a decentralized databased, having no interference or control of any central or regulatory authorities, Government or banks.
The price or value of cryptocurrencies are derived purely from its demand and supply, making the fluctuations highly unpredictable. In simple words, the fluctuations can change someone fate over a night or within few hours giving the ups and down like riding a roller coaster.
The basic motive of introducing and using the crypto is to eliminate the third party banks and regulators. in order to minimize the transaction cost and the effects of taxations crossing the borders. With the advantages of lower costs and nil taxes, also comes the drawbacks of using this currencies in terrorism activities and problems of tax evasion and money laundering.
Cryptocurrency : The Indian Scenario
Since the launch, the Indian regulatory system has not been so friendly with the crypto mechanism being used throughout the world. In contrary to this, the Indian investors are eagerly desirous to dive deep into the crypto world.
With the expansion of cryptocurrency users around the world and the introductions of different kinds of crypto currencies between 2012-2018, numerous crypto traders and investors started emerging in India. This surge has started making the government anxious in context to the ill-effects the currency would leave on the economic system, due to the lack of regulatory guidelines, tax issues, difficulty in tacking the transactions, irreversible nature of payments, usage in terrorism, cyber security issues, money laundering activities etc.
Ban in India
Considering the negative effects of crypto and the lack of awareness among the Indian public, the Reserve Bank of India (RBI), through its notification (RBI/2017-18/154 DBR.No.BP.BC.104 /08.13.102/2017-18) dated 6 April 2018, banned the usage of crypto currencies in the Indian regime in exercise of powers conferred by section 35A read with section 36(1)(a) of Banking Regulation Act, 1949, section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949, section 45JA and 45L of the Reserve Bank of India Act, 1934 and Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007, stating-
"In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in Virtual Currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs."
This banged the crypto industry and investors hard, the ban in a pure sense restricted all the banks and financial institutions under the regulation of RBI to transfer the funds into crypto trading wallet freezing the flow of transaction in Indian crypto system.
This ban raised many voices, both in favor as well as against, some said this decision is being taken in a befuddled manner since one side the country is promoting the digital era and on the other side it is demoting the digital currency, while others praised the decision saying the RBI made the decision considering the safety of investors.
Lift on the Ban
The ban shook the crypto market in India and many questions were being raised against it which led various crypto exchanges being the members of Internet and Mobile Association of India (IMAI) to challenge the notification issued by the RBI before the Supreme Court of India.
After various hearings, in March
2020, the Supreme Court finally lifted the ban imposed on the trading of
cryptocurrencies in India and framed that the blanket ban imposed on the
virtual currencies in India was violative of Article 19(1)(g) of the Constitution
of India and was a
restriction of the right to practice any profession, or to carry on any
occupation, trade or business as stated in the said article. Furthermore, the
court provided that RBI has not taken the efforts to sufficiently look into
the measures that
are less invasive in nature as compared to the blanket ban imposed against a
whole industry. Therefore, there was absolutely no application of mind on part
of RBI before the circular was issued.
The
ruling of the Supreme Court was said to be a historic one, which will be
changing the entire scenario of crypto trading in India and would give a much
needed boost to the India crypto investors. The positive impact of this ruling
can be viewed during the pandemic situation of Covid, when the transactions
rose in multiples, with developments of new platforms.
Present Day
Situation
In
the current scenario, the government is working on a bill to regulate the
crypto trade in India, it will be introduced as "The Cryptocurrency and
Regulation of Official Digital Currency Bill, 2021" which aims to create a
facilitative framework for creation of the official digital currency to be
issued by the Reserve Bank of India. The Bill also seeks to prohibit all
private cryptocurrencies in India, however, it allows for certain exceptions to
promote the underlying technology of cryptocurrency and its uses.
Earlier
the government had plans banning the crypto currencies in India, and was
planning to introduce a bill in this year's budget, but the decisions were
dropped.
It
is understood, that Cryptocurrencies cannot be completely banned, but a rigid
regularized framework to operate the same is required to be placed, in order to
minimize the risks of frauds, scams and money laundering.
The
journey of Cryptocurrency in India has been no lesser than a roller coaster
ride, for the investors as well as the government. The upcoming bill has hopes
of many investors attached with it, and same would further shape the future of
Digital currency in India.
Disclaimer: The contents of this blog has been prepared keeping in view the
latest provisions applicable in the country and due care has been taken to
ensure the accuracy, completeness and reliability of the data used in creating
this blog. Hence no personal responsibility is assumed therefore.
About the Author
The
Author of this blog, CS Krunal Charadva is a Company
Secretary having an expertise in setting up of new companies and businesses in
the country alongwith a wholesome experience in handling matters relating to
the Companies Act, RBI (FEMA), drafting agreements, contracts and other
corporate compliances applicable in India.
Still
having questions in you mind ?? Feel free to share your queries and thoughts at
- krunal.charadva@yahoo.com or just
whatsapp/ Text/ Call at +91 9711420229
Lets
create a healthy business environment together !!
Comments
Post a Comment