With India's rapid technological growth and remarkable developments, particularly with the outbreak of the COVID-19, the fintech sector has been steadily increasing. Moreover, with the growing popularity and recognition of cryptocurrencies such as Bitcoin, Ripple, Dogecoin, and others among Indians, many have begun to spend most of their time and money in these virtual currencies in the faiths of profiting from the current global trend. The Reserve Bank of India, India's highest financial body, has defined cryptocurrency as a type of digital/virtual money produced by a sequence of typed computer codes that rely on cryptography or encryption and is thus free of any governmental issuing authority per definition. It has arisen as a person-to-person issuance and transaction system that combines private and public keys to allow authentication and encryption for safe transactions enabled by blockchain technology.
The Reserve Bank of India's Statement on Cryptocurrency
India has seen a notable rise in cryptocurrency exchanges due to its undeveloped, uncontrolled industry with a potential worth of over a trillion dollars. As a result of the massive popularity of the crypto market, its overuse within a year, and the possible revenue loss, the Indian government, regulators, and authorities began to pay attention, and in 2013, the Reserve Bank of India (RBI) released a statement warning the public toward dealing in virtual currencies such as Bitcoin. The Indian government formed a high-level Inter-Ministerial Committee in November 2017 to report on numerous problems relating to the usage of virtual currency, and the Committee's report was presented in July 2019, proposing a blanket prohibition on private digital currencies in India.
Although the Inter-Ministerial Committee's report was still pending, the RBI issued a circular in early April 2018 prohibiting all commercial and cooperative banks, microfinance banks, payment banks, and non-bank financial companies (NBFCs) from not only administering virtual currencies but also from delivering support to all entities dealing with cryptocurrencies. This ultimately brought the crypto sector to a pause as exchanges expected banking services to transmit and receive funds in order to turn it into cryptocurrency and pay fees, vendors, and office space, among other things. Even though the situation around cryptocurrencies and their use totally altered on March 4, 2020, when India's most distinguished court, the Hon'ble Supreme Court of India, issued a well-considered judgment quashing the RBI's prior ban. The case was primarily considered by the Hon'ble Supreme Court of India of the constitution, which defines the right to practice any profession or carry on any employment, trade, or business, and the basis of proportionality.
Government's Proposal: The "New Bill"
The Indian government is drafting to propose a new scheme titled "Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" (the "New Bill"), which, while similar in devotion to earlier models, intends to ban private cryptocurrencies in India with certain exceptions in order to encourage the underlying technology and trading of cryptocurrency and provide a basis for establishing new cryptocurrencies. The New Bill recognizes the shaded area of cryptocurrency law and tries to outright outlaw all private cryptocurrencies. However, there is yet a gray area in which all kinds of digital currency will fall under the scope of the legislation.
The Reserve Bank of India has published a notification to the public about the possible abuse of private cryptocurrencies in various ways. But if the New Bill imposes a total prohibition on private cryptocurrency, investors would be forced to invest and trade in unregulated marketplaces. Furthermore, the goal of enacting virtual currency legislation is to make the process of dealing and keeping virtual currency easier in a safer technical environment. Even with the launch of state-owned cryptocurrency that the RBI will control, the risk factor associated with cryptocurrency investment and ownership will stay the same.
India's New Stance Against Cryptocurrency
According to the recent changes to Schedule III of the Companies Act, 2013, the Government of India has recommended that companies report their cryptocurrency assets beginning with the next financial year. That is to say; businesses must now report profit or loss on cryptocurrency transactions, the size of their holdings, and details of any deposits or advances received for the purpose of trading or investing in virtual currency. People working in the crypto industry have greeted this decision with open arms since it is thought that it would allow all Indian businesses to participate.
The Ministry of Electronics and Information Technology issued a draft national strategy on blockchain for 2021, which highlighted the benefits of bitcoin. As a result, prohibiting global virtual money, which has a significant influence in many nations, is not the greatest answer for the country's growth. As a step forward, the government needs to take meaningful steps to regulate cryptocurrencies in order to gain the trust of investors and the general people in developing countries.