This article is written by Smaranika Sen from Kolkata Police Law Institute. This article deals with the new Bill of cryptocurrency that is yet to be introduced in Parliament.
We are now at the end of 2021 and cryptocurrency is not a new word for the majority of the population all over the world. It goes without saying that the impact of cryptocurrency is distinctly visible in the world economy. There are more than two thousand cryptocurrencies worldwide as of 2020. The most important factor that is enhancing the growth of cryptocurrency is its harmonious relationship with technology. With the advancement of technology, the expansion of cryptocurrency is almost inevitable.
However, this digital money is still not the default system of financial transactions in the world. The regulation of cryptocurrency by the governments of various countries varies from each other. A lot of countries like China, Bangladesh, Russia, Qatar, Turkey, Egypt, Morocco, Nigeria, Ecuador, Bolivia, etc have explicitly banned the regulation of cryptocurrency.
Recently, it has been observed that India is going to introduce Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which will determine the legal status of private cryptocurrency. Through this article, I will be analyzing this Bill and try to give an overview of the legal status of private cryptocurrency in India.
Cryptocurrency Bill, 2021: an analysis
India in its ongoing Winter Session in Parliament is going to introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. This Bill is mainly going to create a facilitative framework for the usage of digital currency in India which has been issued by the Reserve Bank of India. The Bill is further going to ban all sorts of private cryptocurrencies in India. However, certain exceptions will be there regarding its trading.
Private cryptos: meaning
As the Bill is not yet introduced, the actual interpretation of private cryptos with regard to the Bill is quite difficult to state. If we look back at February 2021, private cryptocurrencies were defined as those cryptocurrencies which are not issued or recognised by the central government. But this definition is not yet confirmed and it is still confusing what the term “private cryptocurrency” will denote in the Bill. However, certain experts have tried to define the term “private cryptocurrency”. Let’s have a glance at one of the expert’s descriptions.
According to Vikram Subburaj co-founder and CEO of Giottus Cryptocurrency Exchange, private cryptos are basically those cryptos whose transactions are not available or are difficult to track in the public domain. Monero is a kind of private cryptocurrency. He further stated that if the Indian government defines private cryptos as those which are not issued by the central, then a lot of cryptos will come under the radar of illegality.
It can be stated that private cryptocurrencies are those whose transaction histories are not available in the public blockchain. They are kind of decentralised in a closed ecosystem.
History of legality of cryptos in India
History shows that India was never in favor of private cryptocurrency. Since 2013, the RBI has been issuing circulars and press releases that denote the potential risks of usage of cryptocurrency in the financial system of India. On the 28th of February 2019, the Inter-Ministerial Committee submitted its report regarding virtual currencies in India. The report came into the public domain on the 22nd of July, 2019. The report highlighted and recommended certain valuable information regarding cryptos and their future in India’s financial system.
Highlighted points of the report
- Cryptocurrency induces market fluctuations. It was stated on the basis of the value fluctuation of Bitcoin from around USD 20,000 in December 2017 to USD 3,800 in November 2018 in less than a year.
- Decentralisation of cryptos makes it difficult to regulate.
- Usage of cryptocurrency can sometimes lead to phishing cyberattacks and Ponzi schemes.
- Certain transactions are impossible to track.
- Cryptocurrency needs a lot of storage and processing power thus a lot of energy resources will be wasted.
- Use of Cryptocurrency may lead to money laundering or can be used for terrorist funding activities.
- There should be a statutory regulatory framework for the regulation of cryptos in India.
- The traditional currency system should not be replaced.
- Private cryptos should be banned i.e. cryptocurrencies not issued by the central government.
- Significant infrastructure is required for the implementation of digital currency.
- A committee should be set up especially which looks, examines, and develops an appropriate digital currency system.
This committee has further prepared a draft Bill titled as Crypto Token and Crypto Asset (Banning, Control and Regulation) Bill, 2018, however, the legal status of this Bill is yet not decided.
In April 2018, RBI issued a circular that distinctly prohibited the usage of cryptocurrency in exchange for business or services from financial institutions in India. This enormously impacted the crypto market of India. In regard to this circular, a writ petition was filed by the Internet and Mobile Association of India. In the case of Internet and Mobile Association of India v. Reserve Bank of India(2018), the petition was filed due to the violation of Article 19(1)(g) of the Indian Constitution i.e. one’s right to carry any trade, business or profession. In regard to this point of law, the Supreme Court divided people into three categories:
- Persons who buy and claim cryptocurrency as a hobby cannot file this petition under Article 19(1)(g).
- Persons who trade cryptos on the basis of crypto-to-crypto can still carry on their profession, therefore they too can’t claim under the mentioned Article.
- Persons whose only way of trading was from banks and due to this circular they have faced losses only they can claim under the mentioned Article.
The Supreme Court further stated that RBI had the power to issue this circular as it was issued to safeguard the public interest, interest of depositors, and banks. However, the Supreme Court held that the circular issued by RBI lacked on the ground of proportionality as the orders issued in the circular were excessive use of power by RBI. Therefore, the circular was set aside.
Impact of private crypto if ban in India
If we go by the assumption that the Central Government will follow the same definition of private cryptocurrency as laid down by the Inter-Ministerial Committee, the existing crypto investors in the country will be heavily impacted. It is, however, speculated that the ban will affect Indian crypto investors adversely. A blanket ban on cryptocurrency will increase the number of non-state players which will eventually lead to unlawful usage of this kind of currency.
Is a complete ban possible
According to various experts in the crypto market, a complete ban is not possible. The Government might put restrictions on the trading of cryptocurrency but it will not fully curb its practices. Crypto’s lying on the blockchain is not controlled by a single entity, thus totally banning its transactions, trading practices might not be possible. Furthermore, decentralized exchanges do not come under government entities, thus many legal complications may arise in regard to the complete ban. The absolute determination of whether a complete ban is possible or not is quite difficult to state as on which basis the Bill will prohibit or what it prohibits says a lot.
Present scenario of the Bill
As of 30th November 2021, the Bill has not been discussed in Parliament in its ongoing Winter Session. The Bill is yet not there on the revised ‘List of Business’ of the Lok Sabha for 30th November 2021. Finance Minister Nirmala Sitharaman has stated that the Bill will be discussed after obtaining its approval from the Cabinet. She has also answered a lot of queries regarding this Bill and has emphasized the fact that this Bill is made on a far more recent analysis of the market scenario and the issues regarding banning will be only clarified once the Bill is introduced in the Houses.
It is firmly to be noted that the Bill is yet to be introduced. Therefore, an analysis of whether the Bill has stated a ban or not on private cryptocurrency is not yet possible. We should also keep in mind that a lot of research, study and expert opinions have been taken into consideration while making this Bill, so let us look forward to it.
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