A cryptocurrency is a digital or virtual currency that uses cryptography for security and is generally based on blockchain technology, a distributed ledger enforced by a disparate network of computers. Bitcoin is the most popular cryptocurrency in the world. The Bitcoin network is owned by nobody, quite like how the email technology is not owned by anyone.
The status of Cryptocurrency has always been on a rollercoaster ever from 2012 till 2020. From the introduction in the market in 2012 to the “ban on the cryptocurrency draft” in 2020, we have discussed it all. Cryptocurrency made its subtle entry sometime around 2012 when small-scale Bitcoin transactions had already started taking place across the country. Somewhere in mid-2013, Bitcoin rose to its popularity. It was in the year 2013 when the vintage-era pizza shop known as Kolonial (Worli, Mumbai) became the first restaurant service in India to accept payments in Bitcoin. Finally, when demonetization took place in the year 2016, more investments in cryptocurrencies started to lower the uncertainties. People started buying large orders of Bitcoins and other cryptocurrencies, which they would sell at a later date. The other well-known types of cryptocurrency are Ether (ETH), Ripple (XRP), and Litecoin (LTC). The use for online shopping and for investment in shares, among other things, began this year.
There have been some apprehensions surrounding the use of cryptocurrencies ever since the Bitcoin crash in 2017. The crash in 2017 happened when the government sent out a warning against the use of the same and ruled out the possibility of fraud termed as ‘Ponzi schemes’. The government still holds the same viewpoint and may continue until and unless the crypto market gets regulated. There is another reason as well for the crypto crash in 2017. Because of the impact of China’s warning against investing in cryptocurrencies, the crypto market was hit badly. The People’s Bank of China went against the investment in virtual currencies and alerted its people against the negative impacts like money laundering, suspicion of market manipulation, and so on. In this year, cryptocurrency was involved in a serious legal procedure. And, in the budget speech of 2018-19, the Finance Minister announced that the government does not consider cryptocurrencies as legal tender. The government also mentioned that they will take all the necessary measures to make sure that the use of cryptocurrencies is eliminated from all activities. Then, a ban was imposed on the use of the same by RBI considering its unregulated setup and risks.
Outside of India, cryptocurrencies have been gaining significant recognition and acceptance. Economic powerhouses such as the United States and China have been in the race for blockchain and crypto hegemony, capitalizing on innovations within the sector by registering record numbers of patents. In Asia, emerging markets such as Thailand and the Philippines have begun the process of developing regulatory guidelines to support the growth of their local cryptocurrency markets, developing frameworks to boost investor protection, and approving licenses for several crypto exchanges.
In the budget speech of 2018-19, the Hon’ble Finance Minister announced that the government does not consider cryptocurrencies as legal tender where he stated as follows:
“112. Distributed ledger systems or blockchain technology allows the organization of any chain of records or transactions without the need for intermediaries. The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore the use of blockchain technology proactively for ushering in the digital economy.”
For India, a draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 was proposed. However, the government didn’t go ahead with the proposal.
The panel had recommended the government consider the introduction of an official government-backed digital currency, to function like banknotes, through the RBI. The Reserve Bank of India in the year 2018 had ordered financial institutions to sever all ties with individuals or businesses involved in virtual currencies such as bitcoin within a time span of three months.
Later in 2020, the Supreme Court intervened into the matter and allowed banks to handle cryptocurrency transactions from exchanges and traders, overturning a ban that had dealt the thriving industry a blow. The Court found that a blanket ban was disproportionate and that virtual currencies had caused no visible damage to banks regulated by the RBI. Thus the Supreme Court judgment offered clarity and hope for a more balanced regulation in the future, but it is to be seen how the bill is going to go ahead with the issue of cryptocurrency.
However, another bill was proposed to be taken up this budget session i.e. “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021,” where it seeks to ban all private cryptocurrencies. This legitimates a way to India’s first digital currency.
Cryptocurrency has presented India with a profound opportunity for economic growth. To miss out on this new wave of innovation would be a lost opportunity that India cannot afford. Globally, over $5.5 billion USD has been invested into blockchain startups, with Indian companies receiving less than 0.2% of these capital investments. Singapore, on the other hand, has received more than $744 million as a result of capital inflows into the fintech economy. Taking into account the dramatic difference in size between the Singaporean and Indian economies, this disparity is cast in even starker relief.
There have been attempts by several governments across the globe to regulate cryptocurrencies, but to date, no major economy has chosen to place a blanket ban on owning them, although concerns have been raised about the misuse of consumer data and its possible impact on the financial system. Private digital currencies have gained popularity in recent years, which has led the regulators and governments to be wary of the risks these currencies pose. However, the economic benefits that the cryptocurrency sector can potentially offer are significant, and other jurisdictions are already reaping the rewards.
Ponzi Scheme: A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds.
Edited By: Ayush Bakshi