The government’s attitude toward digital assets has shifted dramatically over the last several years, from an outright prohibition in 2016 to an impending Bill for regulation. The impending Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 differs from the previous one, which was titled ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.’

· What is Cryptocurrency?

Virtual Currencies (“VC”), often known as cryptocurrencies, are essentially a collection of binary data that is securely kept via encryption. VCs are not backed by the government and are not fiat currency. The principle of decentralised control underpins VCs, which have no one body overseeing their issuance. VCs do not exist physically, as the name implies.

VCs also have the advantage of removing third-party merchants such as Visa and Master Card, reducing transaction costs by eliminating commission payments.

The VCs are kept in a digital wallet that requires a private key to access. It’s similar to an impenetrable vault that can only be accessed with the keys supplied. If you lose the key, you risk losing the vault’s contents as well.

The most well-known benefit of VCs is that they can be “mined” by a computer through a process of solving arithmetical puzzles or algorithms, which are used to validate transaction blocks before they are added to the blockchain. As previously said, VCs are protected by blockchain, which is a constantly expanding list of transactions. A computer may be used to validate these transactions in exchange for a cryptocurrency.

Moving forward Cryptocurrency was banned in India

The Reserve Bank of India (RBI) released a circular on April 6, 2018, stating that people will not be permitted to trade in cryptocurrencies due to major concerns about consumer protection, market integrity, and money laundering, among other things.

Although the top court appeared to favour virtual currencies by permitting their transactions. The Supreme Court overturned the circular in the case of Internet and Mobile Association of India v. Reserve Bank of India.

The Supreme Court ruled that cryptocurrency can be used to pay for goods and services and that it should be controlled by the Reserve Bank of India. The Supreme Court also ruled that because the RBI is a financial agency tasked with safeguarding the public’s money, it has the authority to prohibit the usage of cryptocurrency. However, it was also stated that rather than outright banning these virtual currencies, the RBI should have searched for other measures that would have been advantageous to virtual currency users by enacting proper restrictions. As a result, cryptocurrencies are legal in India, but there is no regulatory framework in place.

Regulation of cryptocurrency in India

India is a developing economy that has mostly followed the lead of wealthy countries throughout the world. India has made it legal to utilise crypto money and has permitted various service providers to trade in it.

The RBI also intends to propose the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will outlaw all private cryptocurrencies and provide a legal framework for the introduction of an “official digital currency.” In addition, the government intends to launch a central bank-backed digital money that will be less volatile than existing virtual currencies.

Furthermore, according to the most recent change to Schedule III of the Firms Act of 2013, beginning with the new financial year, all companies will be required to report their cryptocurrency assets, as well as any profit or loss resulting from the transaction. As a result, it is evident that India is attempting to regulate the cryptocurrency space and make it less unpredictable and hazardous for citizens, although it is still in its infancy.

What is the need for regulation?

Privacy is the short solution. VCs are built on extremely secure blockchain technology. A wallet is associated with a private key rather than a specific individual. It is difficult for governments to track the source of a transaction.

Another issue is that because VCs are not guaranteed by the government or any commodity, they may lose their value if the VCs’ promoter ceases to trade. Squid Game Crypto Scam is the most recent example.

Cryptocurrency regulation in India: What can be allowed

• Trading in cryptocurrency will continue. Those who meet specific requirements will be able to purchase and sell bitcoins on exchange platforms.

• India’s stance on cryptocurrency appears to be “protective.” Any provision in the crypto law to protect investors’ funds is likely to be included. Anyone who has invested in cryptocurrency should not be concerned.

• Cryptocurrencies may be subject to government taxation. The new draught might make it more straightforward how the government intends to tax cryptocurrency. The government is thought to be looking into methods to profit from cryptocurrency.

Cryptocurrency regulation in India: What may not be allowed

• The creation of cryptocurrencies will become more complicated. Anyone with a functioning internet connection may now create a cryptocurrency. Only individuals who meet particular conditions may be allowed to generate crypto, according to the legislation.
• Cryptocurrency will not be recognised as legal cash. Many individuals rallied behind the concept of bitcoin replacing or coexisting with the rupee as legal money earlier this year. That is really unlikely right now. To put it another way, you won’t be able to buy a burger or pizza using Bitcoin.

We’ll have to wait till the Cryptocurrency Bill 2021 is out before we can be sure.

Cryptocurrencies were created with the intention of creating a decentralised currency system that is not controlled by banks, financial organisations, or governments. However, if nations throughout the world decide to regulate this currency system, it may jeopardise the entire reason for its creation.

In India, cryptocurrencies are still unregulated, and the government has claimed that they are not legal tender and cautioned citizens against using them.

• After cryptocurrencies exploded in popularity in India, the government appointed a committee to investigate the usage of virtual money in the country and assess possible income losses.
• According to the committee findings, all private cryptocurrency ownership in India should be prohibited. The government is now contemplating proposing the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.”
• Under the measure, investors would have six months to dispose of their interests without being fined.
• India would be the first large economy to prohibit cryptocurrency possession, while other nations have merely banned mining and trade.
• The Reserve Bank of India also intends to launch its own cryptocurrency.

References:

• https://indianexpress.com/article/technology/crypto/cryptocurrency-in-india-a-look-at-the-regulatory-journey-of-cryptocurrencies-7648767/
• https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/india
• https://www.news18.com/news/business/cryptocurrency/is-bitcoin-legal-in-india-sc-asks-centre-to-take-clear-stand-on-cryptocurrencies-4808711.html

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