Prohibition of Cryptocurrency

Author: R.Pon Aishwarya, Alliance University, Bengaluru

Introduction:

Evolution has always been the only constant one and money also had its part of evolution. Money was created by man to replace the existing Barter system. [1]A barter system means the exchange of goods between two parties. There was a need for replacements because the people’s requirements would coincide, there was no common measure, not all goods can be divided and they were not easily transferable. Around, [2]770 B.C there was a replica of modern currency by the Chinese. Thus, this system was replaced by the currency in the year 110 B.C. The paper currency was introduced around 1600 A.D by the European. This invention was followed by cards and digital wallets. Till now, a government organization or bank was regulating the flow of money. This was changed after the invention of cryptocurrency.[3]

Crypto currency

Digital wallets have many problems such as technical issues, the possibility of a user’s account getting hacked and exceeding the limit but all these drawbacks were removed in cryptocurrency. In 2018, there were nearly 16,000 cryptocurrencies. A cryptocurrency is digital or virtual money that is used as a medium of exchange. Crypto means a method of using encryption and decryption to secure communication in the presence of third parties which has intent. The advantage of cryptocurrency is there have been no transaction costs, it is a 24 hrs service, there was no particular limit for the transaction, it gives the freedom for the use by everyone and the international transaction has become much easier. At 2018, the stakeholders invested a lot in these types of currency in a prediction that it will improve a lot as nearly a crore user were having 10000 rupees. However, was an abrupt ban of cryptocurrency shocked everyone. 

Reserve Bank of India’s (RBI) Ban:

In 2013, the RBI persuaded people to stop the use of cryptocurrency. They gave another warning in the year 2018 stating that [4]there was no regulatory authority that would increase the risks of malware attacks. They also stated that there was a fraud that is volatile and susceptible to illicit use.

There were also bills in the parliament stating the same in the year 2018 and 2019 but they were never changed into acts. There was also a bill regarding it which was introduced in the year 2021. In that bill, the key factor was that there would be cryptocurrency but not privately owned. In the bill, it was stated that there would be state-owned cryptocurrency. This step brings in a regulatory body like banks into the picture of cryptocurrency but it would automatically block the usage of many famous ones and the effect would be the same as banning it. The experts have stated that it would take the Indian economy and the technology in this field backwards.

Judiciary’s view on Cryptocurrency:

The sudden ban of cryptocurrency by the RBI angered many stakeholders and many cases were filed. One such important case was

[5]Internet and mobile association of India V. Reserve Bank of India

In this case, the Supreme Court struck down the decision of the RBI. This case was filed challenging Article.19(1)(g) of the Indian constitution. The grounds were that this ban killed the business opportunities of the cryptocurrency. Article.19(1)(g) [6]enables the citizens of India to practice any profession or to carry on any trade or business.   

It was stated that many people have invested in it and has become a profession. Thus, the ban takes away this right. The court gave the decision in favour of the petitioner. This made cryptocurrency come into play once again but their future is still uncertain.

Legislature’s point of view on Crypto currency:

In 2019, [7]the inter-ministerial committee on cryptocurrency delivered their report in February. They have addressed various problems such as fluctuations. They[8] have given the example of Bitcoin which reduced its value. It was stated that the cryptocurrency has no definite organization to regulate them that is it is decentralized. The other problem was that the cryptocurrency is vulnerable so the customers are open to online scams. The fourth problem was that cryptocurrency requires a large amount of storage which would adversely affect the economy of the country. The last problem addressed by the committee was that the currency would lead to money laundering and terrorist funding activities.

The committee states that digital currencies have many advantages and the RBI should set up the Ministry of Finance. This ministry should examine and regulate the use of the currency. The committee recommended using the currency with a wider mindset and also asked to take advantage of Distributed Ledger Technology which can be used as a fraud detector.  

After the Supreme Court 2020’s decision of quashing the RBI’s circular on the grounds of disproportionally. The legislature had to make law due to the concerns of the RBI which stated that the ultimate control of the flow of the money should be on their hands. The legislature introduced a bill named the cryptocurrency and regulation of the official digital currency bill, 2021. [9]This bill would create a framework to facilitate the creation of official digital currency which would be introduced by the reserve bank of India. This bill would also prohibit private cryptocurrency in India.

This bill was criticised by many economists and stated that India would miss the bus of cryptocurrency and lack technology. This would also be a drawback towards the Indian economy which has already suffered a lot due to the pandemic. The citizens of India has preferred to invest in cryptocurrency especially Bitcoin as

1. They have more returns than any other investment,

2. The disillusionment with the banking system,

3. India follows a progressive taxation system. This system means a taxation slab is followed that is people with different incomes have different taxation. Due to this, the cryptocurrency has no taxation.

4. This currency is considered digital gold. There was a total of 340 percent increase in cryptocurrency for the past 5 years.

The investment in cryptocurrency of the citizens would further lead to advantages such as:

1. Reduced financial fraud,

2, Reduced corruption,        

3. The immediate transaction is of a lower fee, 

4. Enhanced entrepreneurship,

5. There have been more options in the financial policy,

6. It would attract foreign direct investors,

7. There would be technological advancement and 

8. All these advantages would help in economical development.

Every coin has two sides likewise the cryptocurrency also has theirs and RBI’s concerns should be considered. To avoid these confusions it would be better to look up to other countries that have already faced these problems and made regulations. 

Comparison with other countries:

Japan:

Japan has made cryptocurrency legal in the year 2018 [10]through it became a country that is the most progressive one. The payment of the service act regulated this currency which stated that the business must be registered, a record must be maintained, necessary security measures should be taken to protect the consumers.

From 2017, the tax for the income of the cryptocurrency was levied under the miscellaneous income and investors. There was an amendment in 2020 which asked the foreign cryptocurrency to be registered.

United Kingdom

U.K [11]having similar laws as India also had the same concerns. They were cryptocurrency’s money laundering and terrorism financing activities. The financial conduct authority made regulations to regulate them. The currency should be registered under the FCA. The U.K allowed the use of Crypto assets for three purposes such as :

1. Barter system

2. Investment

3. Capital

Those would be regulated by the cryptoasset task force. The tax is levied under the commercial earning.

U.S.A

There [12]has been no consistent law in the U.S.A for cryptocurrency but they are progressing in making the law at the federal level. The cryptocurrency is regulated under the Bank Secrecy Act. They should also get a license from financial enforcement network and in 2019 there was an amendment that the source of the organization should be mentioned.

Conclusion and Suggestions:

After the introduction of the bill, the finance minister Nirmala Seetharaman has stated that the [13]government would take necessary steps to keep the windows opened for revolution in cryptocurrency. There would be a calibrated response from the government.

Through all these analyses, we can state that the license for any private company on cryptocurrency can be given rather than make it a public entity. Little domination cannot be avoided for the overall development like the big techies and the cryptocurrencies should also be considered the same. The tax should be levied under miscellaneous income like in Japan. Banning private entities from Cryptocurrency would cause an adverse effect on the Indian economy so it should be regulated appropriately. 

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[1]  ‘ The History of money ‘, 2017, < https://blog.continentalcurrency.ca/fx101-history-money/#:~:text=To%20recap%3A%20currency%20evolved%20from,end%20of%20the%20gold%20standard. > accessed on 06.June.2021 ;

[2] Andrew Beattie , ‘The History of money ‘ , 2021 , < https://www.investopedia.com/articles/07/roots_of_money.asp > accessed on 06.June.2021 ;

[3] Jake Frankenfield, ‘ Cryto Currency’, 2021 <  https://www.investopedia.com/terms/c/cryptocurrency.asp > accessed on 06.June.2021 ;

[4] Sandeep Soni, ‘ RBI: Banks can’t cite 2018 crypto-ban order quashed by SC to caution customers against virtual currencies‘, Financial times,2021 < https://www.financialexpress.com/market/rbi-banks-cant-cite-2018-crypto-ban-order-quashed-by-sc-to-caution-customers-against-virtual-currencies/2262513/ > accessed on 06. June.2021 ; 

[5] (Civil) No.528 of 2018;

[6] Article.19(1)(g), Indian Constitution, 1951;

[7] Sawant Singh , Neha Naik and Madhavi Doshi, ‘ India: SC Judgment On Cryptocurrency‘, 08.May.2020, Pheonix legal, < https://www.mondaq.com/india/fin-tech/930894/sc-judgement-on-cryptocurrency > accessed on accessed on 06.June.2021;

[8]  ‘ Virtual currencies in India’ , < https://prsindia.org/policy/report-summaries/virtual-currencies-india> accessed on 06. June. 2021 ;

[9] George Mathew and Sunny Verma,’ RBI plans and an upcoming Bill: Where are digital currencies headed?’, < https://indianexpress.com/article/explained/cryptocurrency-bitcoin-rbi-7285249/ > accessed on 07. June. 2021 ;

[10]  ‘ Crypto currency regulations in Japan’, Knowledgebase, < https://complyadvantage.com/knowledgebase/crypto-regulations/cryptocurrency-regulations-japan/> accessed on 07.June.2021;

[11]  ‘ Crypto currency regulations in United Kingdom’ , < https://sanctionscanner.com/blog/cryptocurrency-regulations-in-the-united-kingdom-uk 217#:~:text=Cryptocurrency%20like%20Bitcoin%20is%20regulated,terrorism%20financing%20(CTF)%20activities > accessed on 07.June.2021;

[12] ‘ Crypto currency regulations in the United States of America’ , Knowledgebase, < https://complyadvantage.com/knowledgebase/crypto-regulations/cryptocurrency-regulations-united-states/> accessed on 07.June.2021;

[13] Nirmala Seetharaman, ‘ TV.18 interview’, 06.March, 2021;