What is Cryptocurrency?
Cryptocurrency can be understood as a digital asset created to function as a mode exchange which uses strong cryptography to secure financial transactions. As the name suggests, cryptocurrencies work through the use of cryptography i.e. mathematical principles and computational practices using which data is stored and transmitted. Some of the popular cryptocurrencies are Bitcoin, Ripple, Lite-coin, etc.
Cryptocurrency Vs Fiat Currency:
Fiat currency, or what we call “money”, is legal tender backed by a country, state or government. Cryptocurrencies are not backed by a country, state or government.
Fiat currency has the following characteristics or functions:
(a) it serves as a medium of exchange; (b) it acts as a unit of account;
(c) it acts as a store of value; and (d) it constitutes a final discharge of debt. Cryptocurrencies can have all or some of the characteristics of fiat currency. Much of this depends on how a jurisdiction regulates cryptocurrency. While some countries have gone to the extent of banning cryptocurrency, others have given it commodity, asset, deposit or security status.
Also read about Acquisition of Start-ups in India
Legal History of Cryptocurrency in India:
The history of cryptocurrencies can be traced back to the time during the 2008 financial crisis when the trust in financial participants, such as banks and government institutions, was sharply waning. Bitcoin was introduced as a currency that had trust as its very foundation, because of how it functions.
It was in the year 2013 that Bitcoin first aroused a big heat in India, with people from all social classes entered the market and made instant transactions or even speculate on it. However, 2013 was also the year for people to started to develop the technology and the industry. The authority at that time initially took a off-hand measure, then they released a post at the year-end of 2013, warning the use of cryptocurrency which may incur risks and danger, but no official regulatory policy was introduced. Then, the whole India crypto-industry walked in the a three-year gold age, with cryptocurrency exchanges and start-ups coming one after another; the coins and the technology introduced into more use cases in practical terms.
2017 was a turning point for the development of the industry: we started to hear about news reporting upcoming severe regulations on crypto-market, and saw instant fluctuation in terms of token value and trading volume as the trend went negative. Actually, the rumors to introduce stricter regulation and the poor performance of the market, driving the price down significantly.
For the first time in July 2017, a petition Dwaipayan Bhowmick v. Union of India was filed in the Supreme Court seeking a regulatory framework for cryptocurrency. A Public Interest Litigation was filed under Article 32 of the Constitution against Union of India, Ministry of Finance and the Reserve Bank of India over the use and business of Bitcoins, Litecoin, Ethereum, etc. The Supreme Court on July 14, 2017, directed the RBI and the other concerned ministries to clarify their stance and enact a bill on the same before disposing off the PIL.
In 2018, the Reserve Bank of India (RBI), India’s central bank and monetary regulator, had issued a circular (2018 Circular) prohibiting banks and financial institutions from dealing in and from providing services that facilitate dealing in virtual currencies. The 2018 Circular was challenged before the Supreme Court in separate writ petitions filed by the Internet and Mobile Association of India and companies running cryptocurrency exchanges in India along with their shareholders and promoters.
On 04 March 2020, the Supreme Court in a seminal decision struck down the 2018 Circular for being unconstitutional in the judgement of INTERNET AND MOBILE ASSOCIATION
OF INDIA Versus RESERVE BANK OF INDIA
It would be interesting to see the how the next chapter in the cryptocurrency legislation would unfold, now that the ban on cryptocurrency is lifted by the Apex Court in the country. Though the cryptocurrency players in India are celebrating the judgement, the fact that RBI has a legal right to file a review petition cannot be ruled out completed.Players in the virtual currency industry are in a wait and watch mode. The coming months would be instrumental for such players. It would be interesting to see if the legislature’s approach is whether to effectively regulate virtual currencies, or simply ban it.
“Along with the lifting of the restrictions on trading, the lockdown has also pushed people to stay at home and many people are spending more time on their desktops and many of them are trading more. Trading volumes are quite robust. Daily crypto trading volume in India maybe USD10-USD30 million,” Ajeet Khurana, the former head of the Blockchain and Cryptocurrency Committee of the Internet and Mobile Association of India (IAMAI) and former CEO of Zebpay, said.
This article is written by Mahima Rathod and edited by Rupreet Kaur Dhariwal.