Regulation of Cryptocurrency in India

A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a digital leadger or computerized database using strong cryptocurrency to secure transaction record entries ,to control the creation of additional digital coin records ,and to verify the Transgender of coin ownership.It typically does not issued by a central authority .Some cryptocurrency use decentralized control as opposed to centralized digital currency and central banking systems.When a cryptocurrency is minted or created prior to issuance or held on a centralized exchange ,it is generally considered centralized .When implemented with decentralized control,each cryptocurrency works through distributed ledger technology, typically a block chain ,that serves as a public financial transaction database.

Bitcoin ,first released as open -source software in 2009 ,is the first decentralized cryptocurrency .Since the release of bitco over 6000altcoins have been created.

In 1983,the American Cryptographer David Chaum conceived an anonymous cryptographic electronic money called crash.Late ,in 1995 ,he implemented it through Digicash ,an early from of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient.This allowed the digital currency to be untraceable by the issuing bank,the government,or any third party.

In 196,the NSA published a paper entitled how to make a mint :the Cryptography of Anonymous Election Cash,describing a Cryptocurrency system ,first publishing it in an MITmailing list and later in 1997,in the American Law Review.

Of ecoCryptocurrency are not legal tender in India,and while exchange are legal ,the government has made it very difficult for them to operate .Although there is current a lack of clarity over the tax status of cryptocurrencies,the chairman of the Central Board of Direct Taxation has said that anyone making profits from Bitcoin will have to pay taxes on them.Other income Tax Depart mentioned sources have suggested that cryptocurrency profits should be taxed as capital gains.Cryptocurrency exchange regulations in India have grown increasingly hash.While technically legal ,in April 2018 the Reserve Bank Of India banned banks and any regulated financial institutions from dealing with or setting virtual currencies.The sweeping regulation prohibited trade of cryptocurrency on domestic exchanges and gave existing exchange until 6july 2018 to wind down.India’s government seems to be looking at the possibility of less prohibitive cryptocurrency regulations.In 2017,the special Secretary of economic affairs formed a committee to suggest ways of dealing with the potential AML/CFT and consumer protection issues related to cryptocurrencies.In 2018,reports suggested that a government committee was drafting new legislation which introduced greater cryptocurrency protections for the common man.

In India ,over the past few years,the use of technology,including blockchain ,to fuel financial transactions has boomed significantly .Such development has not gone unnoticed by most regulators such as the Reserve Bank Of India which has reacted ,for the most part ,favourably .Whilst the present government has supported innovation to promote a digital or cashless economy , cryptocurrency still remains an outlier.The RBI tool notice of the use of Cryptocurrency in open markets around 2013 and has since responded by cautioning users,holders and traders of the use of virtual currency while remaining silent on the legality of its ,including in 2017 .Similar ,other regulations ,such as the Enforcement Directorate and income tax department ,have been swift in their actions to shut down businesses associated with cryptocurrency by conducting raids under the guise that the use of Cryptocurrency was in violation of foreign exchange and anti-money laundering regulations .

In light of the above ,most entities dealing in cryptocurrency took a backseat in their operations from 2017 onwards ,especially after the RBI prohibited cryptocurrency for regulated entities ,when global and as well local markets seems to be moving towards an economy being driven by technology .

After the RBI circular dated April 6,2018 the dealing of Cryptocurrency In India Today has been substantially blocked.Through the Circular ,the regulator banned all RBI regulated entities from dealing in cryptocurrency.These entities were provided a three month period within which all accounts dealing with cryptocurrency had to be shut down.Consequently ,while the RBI per se did not ban cryptocurrency ,it chocked any financial dealing contemplated by a buyer ,seller or trader in cryptocurrency.Othe regulators ,such as the Securities Exchange Control Board of India have continued to remain silent on its stance on cryptocurrency.

Statutory provisions

Several stakeholders have approached the judiciary by filing petitions before the Indian Supreme Court in order to compel the government to provide clarity .

The two primary petitions seeking to address the legality of Cryptocurrency were filled by Vijay Pal Dalmia and Siddharth Dalmia through civil writ petition 1071 of 2017 on June 2017 and Dwaipayan Bhowmick through civil writ petition 1076 of 2016 on November 3,2017 .

The grounds for the stated petition ,as available on piblic sources ,was based on 1)the anonymous natural of Cryptocurrency transaction which makes them well -suited for funding terrorism ,corruption ,money laundering,tax evasion etc.3) production and introduction of new cryptocurrency has been generated by private parties ,without the intervention of the government ,and hence violating the Constitution 3)the use of Cryptocurrency has been in contravention  of several laws such as FEMA and the Prevention of Money Laundering Act,2002,4)Ransomware attacks have aoocured through the use of Bitcoin 5)Illegal cryptocurrency providing an outlet for personal wealth that is beyond restriction and confiscation 6) cryptocurrency exchange have encouraged benami transaction and made it difficult for government authorities to identify such transaction and 7)trading of illegal cryptocurrency bypass prescribed KYC Norms ..

The grounds for the petition ,as available from public sources ,inter alia include 1)Bitcoin trading /transaction ,being unregulated ,lack Accountability 2)investigators can only track Bitcoin holders who convert their Bitcoin to regular currency ,3) counterfeiting of Cryptocurrency is not an issues so long as the minors keep the blockchain secure 4)bitcoins may be used for trade and other financial activities without Accountability ,having an effect on the market value of other commodities 5)conversion of Bitcoin into foreign exchange does not fall under the purview of the RBI ,making such transaction highly unsafe and cyber attack 6)presently no regulate cryptocurrency transfers 7) cryptocurrency has the potential to support criminal ,anti social activities like money laundering , terrorist funding and tax evasion and8)use of Cryptocurrency could result in financial implications if left unchecked.

RBI’s primary reason is to protect its investors ,since cryptocurrency lacks lacks any intrinsic value and affords annonymity to its holder .Per news reports ,the RBI is determined to ring -fence gullible investors and lenders from sacms,several of which have happened internationally of know -ypur customers regulations does not per se assist in reducing the threat of fraudulent transactions since it may be difficult to identify the original gliders of Cryptocurrency.

In fact ,the anonymous nature and lack of intrinsic is value of Cryptocurrency are the primary distinguishing factors from prepaid instrument ,the latter being completely legal and regulated today.Prepaid instrument and payment systems are regulated by the payment and settlement act,2017 and RBI masters directions on issuance and operation of prepaid payment instrument date october 11,2017.

Given that cryptocurrency is often associated with speculation ,one could explore whether the acceptance of certain cryptocurrencies such as tokens could constitute a deposit or a security .The Securities Exchange board ,unlike The RBI ,continues to remain silent on the subject ,possibly since ,in India ,a security has been defined to include shares ,scrips ,stocks ,bonds ,debentures ,debenture stocks ,or other marketable Securities of alike nature in an incorporated company or body corporate.


While industry participants await the government’s decision on cryptocurrency and details regarding the contours of a possible ban,mosr stakeholders argue that,luke every banned activity,the activity does not come to a halt but instead moves to jurisdictions permitting such activities,as the Indian experience also suggest post 207 after the RBI Circular.It has previously been reported that the RBI itself looked to launch a digital currency using blockchain technology and,deapite it’s discomfort with cryptocurrency ,has promoted the use of blockchain




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