[This guest post dated 19th February, 2021 is authored by Prachi Sahay, Third Year Law Student – National Law University Odisha. Any query regarding this article can be addressed to her at firstname.lastname@example.org]
As the name suggests, cryptocurrency is a virtual currency. It is used as a mode of payment for online goods and services. It derives its name from the term ‘cryptography’, which is the method used to protect it. Cryptography uses codes to secure information. Cryptocurrencies are mostly based on blockchain technology. Every country has their own currency. Similarly, different companies have different cryptocurrencies. Some of the currencies in circulation are Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, and so on.
Why Do People Use Cryptocurrencies?
Cryptocurrencies are much easier to manage as compared to actual money. The fact they are online and encrypted makes them much more secure. This is especially helpful for tech giants who need to buy and sell a large number of digital assets on a daily basis. Another advantage of cryptocurrencies is that they are not regulated by the government. Being a fairly new technology, the circulation of cryptocurrencies is largely unregulated. However, some transactions have been problematic, for which many countries are coming up with laws to deal with it, something we will be looking into in the subsequent sections of this article.
One of the biggest advantages of using cryptocurrencies is that the transactions are end-to-end, which means that there is no role of ‘middlemen’. This ensures greater clarity, less confusion and greater accountability. It also saves time on the transactions. This also helps the transactions to be largely confidential. Each transaction via cryptocurrency is a unique exchange between two parties, the terms of which are negotiable. Virtual currencies have also make international trade easier and saves transaction costs.
The Indian Timeline
India does not have a concrete law to regulate cryptocurrencies as of yet. However, such a law is in the making. Cryptocurrency was introduced in India sometime in 2012, when a few Bitcoin transactions began taking place. It gained a little more popularity the following year, especially when a pizza shop in Mumbai started accepting payments in Bitcoin. Gradually, more kinds of cryptocurrency started being used for various purposes. This is when they started gaining a lot of popularity worldwide, which led to most countries trying to regulate it. In 2013, Reserve bank of India (RBI) issued a press release cautioning the public against dealing in cryptocurrencies.
This issue garnered more attention in November 2016, when demonetisation occurred, i.e. a majority of the currency in circulation was abruptly discontinued. Since normal currency had been discontinued, digital currency started being used widely. With the increase in cryptocurrency transactions, there was a sharp increase in frauds related to it. this led to the RBI issuing its second press release in 2017 reiterating it’s concerns about the extensive use of cryptocurrencies. November 2017 saw two Public Interest Litigations (PILs) before the Supreme Court asking for regulations on cryptocurrency transactions. Even though these cases are still pending before the court, the government constituted a committee to look into the matter.
RBI’s Ban and The New Bill
RBI and the Ministry of Finance issued press releases warning the public about the risks associated with digital currency transactions. However, this did not stop the public from dealing in virtual currencies. On 6th April 2018, RBI officially banned the use of cryptocurrencies by all banking institutions. This caused a huge uproar as a large number of businesses were negatively affected. Meanwhile, the committee released its report, suggesting a ban on all private cryptocurrencies in India, also drafting a Bill for its regulation. In March 2020, the Supreme Court finally stepped-in and ended the RBI ban.
Recently, the matter has come to light again when the Cryptocurrency and Regulation of Official Digital Currency Bill is listed to be tabled before the parliament. If given the green light, this would be India’s first law dealing with virtual currencies. The Bill is on the lines of the earlier decisions, and seeks to ban private cryptocurrencies. However, the ban would not be like the one RBI imposed in the sense that investors will be given a six-month transition period. This ban would not mean the end of virtual currencies in India. the government, realising the various benefits of cryptocurrencies, seeks to create its own official digital currency, which will be regulated by the RBI, much like the regular currency.
Other Regulatory Frameworks
While India is still in the process of building a regulatory mechanism, many countries have already passed laws for the same. The most prominent example of this is China, who effectively banned all virtual currency transactions in 2017, and are working on bringing their own cryptocurrency into the market. While several state governments in the US have passed regulatory laws for virtual currencies, they also recently enforced a country-wide regulation called the Blockchain and Cryptocurrency Regulation of 2021. The United Kingdom, which is the birthplace of the most popular cryptocurrency (Bitcoin), has well-established regulatory mechanism. The Financial Conduct Authority (FCA) has been tasked with overseeing cryptocurrency’s anti-money laundering and counter-terrorism activities.
While India is moving towards a regulatory framework, there is a still a long way to go. It is well known that Bills often take very long to be passed by the parliament, especially the ones containing new technological issues. It is understandable that drafting a law for regulating something that is changing and evolving continuously can be very challenging. However, instead of a full-proof law, the government can focus for a basic law first. This would give some semblance to the current commotion of cryptocurrency transactions.
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