One of the best things about cryptocurrency is that, as you must already be aware, it is decentralized. Meaning, no governing authority controls it. Having said that, we need to understand a few things to navigate the world of cryptocurrency. Read on.
Although cryptocurrency is decentralized, a government can still invoke a law to trade or hold cryptocurrency. Cryptocurrencies have no border and are global assets that can be bought and sold through any platform from any country.
Around The Globe
Cryptocurrencies are not a fad anymore. They are now one of the major investment options. What they called a bubble, in the beginning, is now one of the leading investment instruments that investors consider seriously. It started off with just $1 in May 2011. It reached its peak in December 2017 – a whopping $19,200!
Cryptocurrencies are regulated as commodities (not as currencies) by many central banks across the world. In spite of this, they have emerged as winners in the trading circuit. Over the last couple of years, several Bitcoin exchanges, which are not regulated by national regulators, are functioning well.
The rising prices of Bitcoin show a steep correction in their prices. As per a report by Wall Street Journal, a majority of Bitcoin trades are prominent in East Asia. South Korea, Japan, and Vietnam together account for about 80% of Bitcoin trading activity. An interesting fact is that Japan allowed Bitcoin and several other digital currencies for payments.
The Situation of Cryptocurrency Regulation in India
Different countries have different regulations on cryptocurrencies. But let’s talk about regulations in India.
‘Is trading cryptocurrencies legal in India?’ or ‘Is Bitcoin legal in India?’ are two of the most sought after questions on Google. The answer is simple: it is neither legal, nor illegal in India. In simple terms, it’s not within the framework of the law.
Bitcoin trade is carried out by unregulated exchanges. The price of Bitcoin went up from $1,000 in January 2017 to $15,000 by the end of January 2017. People invest money blindly and expect huge returns quickly. Most of them lose money due to lack of research and strategy. Hence Reserve Bank of India (RBI) and Finance Ministry are in quite a flux. They do warn people from time to time about the vulnerabilities of the digital currency market, but so far haven’t been able to set any stringent rules. Cryptocurrency trading in India currently resides on the border of law. This may, however, change soon.
The RBI issues warnings related to virtual currencies every now and then. Besides, the tax department is scrutinizing the actions of investors. If you are careful and don’t approach blindly, cryptocurrencies can give you terrific returns on your investments. But at the same time, some people can take advantage of its legal status and launder money.
The RBI’s Stance
The RBI has always stood firm in its opinion that Bitcoin and other digital currencies are not legal tender currencies and that they can’t replace regular currencies. They were of the opinion that digital currencies involved huge risks as they didn’t have a governing body. They issued warnings thrice: in December 2013, February 2017, and again in December 2017.
These cautions came with information to users, traders, and holders of digital currencies, regarding the many risks involved, such as customer protection, economic, operational, legal, and financial. The RBI also highlighted the absence of a governing body: ‘No regulatory approval, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities.’
As a result, as per the RBI, they may pose many problems to users:
- Digital currencies are prone to losses, hacking, malware attack, etc., as they are stored in digital form. Digital currencies are not supported by any authorized agency and the loss of currencies could be permanent.
- Payments take place on a peer-to-peer basis, as there is no governing body in between to take care of transactions, to regulate the payments. So there are no ways to settle any customer disputes if any.
- Users can lose a lot of money very quickly due to digital currency’s nature of volatility
- The cryptocurrency exchange platforms have low legal statuses and hence traders are prone to severe financial risks
- Bitcoins and other digital currencies are used for illegal activities. Money laundering, for example.
Government Panel on Digital Currencies
The Government of India appointed an Inter-Disciplinary Committee on digital currencies. The committee was comprised of nine members, including representatives of RBI, SBI, NITI Aayog, and Department of Financial Services in April 2017. The Committee was asked to scrutinize the existing model of digital currencies in India and come up with measures to deal with issues, such as money laundering, consumer protection, etc. The Committee submitted its report in August 2017.
As of April 2018, the RBI has restricted banks and other financial institutions from ‘dealing with or settling digital currencies’. The regulation further prohibited the trade of digital currencies on domestic cryptocurrency exchanges and gave the exchanges time till 6 July 2018.