In line with developments in other parts of the world post-2008, India saw the beginning of interest in cryptocurrency with the opening of multiple cryptocurrency exchanges between 2012 and 2017 such as Zebpay, Coinsecure, Unocoin, Koinex, and Bitxoxo. The initial official response to this development, characterising much of the period of 2013-17, was one of extreme caution. The RBI issued a series of circulars in this period, notifying the public about cryptocurrency not being a legal tender and the potential financial, operational, legal, customer protection and security related risks that users, holders and traders of Virtual currencies (VCs) could be exposed to. It highlighted and reiterated that no regulatory approvals, registration or authorisation had been obtained by entities carrying on cryptocurrency activities in the country. In view of ransomware attacks in that period where payment was demanded in cryptocurrency, certain PILs were also filed, demanding a ban on crypto. In light of these issues, the government constituted a high-level Inter-Ministerial Committee in November, 2017 to delve into the various aspects of Virtual Currencies, the concerns and propose a course of action.
Landmark events: In the period of 2018-2020, official attitude towards cryptocurrency largely remained in favour of a complete ban, prompting PILs and a subsequent judgement from the Supreme Court that put it at odds with the executive and monetary authority. A summary of these events are as follows-
a) Issues related to Virtual Currencies (VCs)- It observed that cryptocurrencies cannot replace traditional currencies due to various issues such as- being subjected to market fluctuations, decentralised and thereby difficult to regulate; design vulnerabilities leaving consumers open to cyber-attacks and the nature of irreversible transactions which make it impossible to reverse wrong transactions; need for large amount of storage and processing power; greater anonymity with its associated vulnerability to ease of use for money-laundering and terrorist funding activities.
b) Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019- The Committee also proposed a draft Bill to ban cryptocurrencies in the country and provide for an official digital currency. Besides banning its use as a legal tender, the Bill prohibits mining, buying, holding, selling, dealing in, issuance, disposal or use of cryptocurrency and makes such activities punishable with a fine or imprisonment of up to 10 years, or both. The Bill provides for a period of 90 days since commencement of the Act for a person to declare and dispose of any cryptocurrency in his possession. The Bill however, recognises the importance of the underlying technology (DLT) and
permits its use for experiment, research, or teaching.
1 This Bill is yet to be tabled in the Parliament and hence, the text of the bill is currently unavailable.
Ministry of Finance, Government of India
Reserve Bank of India
Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
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