Cryptocurrency: How the needle moved from ban to regulation

IN LESS THAN two years, there was a discernible shift within the Centre’s stance on cryptocurrencies – to probably outline these digital currencies as monetary belongings and to cease in need of a full ban on their circulation – based mostly totally on two particular triggers: the Supreme Court order of March 2020 that reversed the Reserve Bank of India’s transfer to chop the cash provide to crypto exchanges, and the exponential improve in funding flows into crypto belongings publish the judgment.
The change within the authorities’s stand is obvious from the title and scope of the brand new laws – The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 – which is distinctly completely different from the sooner – Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 –really helpful a few years again by an inter-ministerial committee comprising representatives from the Finance Ministry’s Department of Economics Affairs, Information Technology ministry, SEBI and the RBI, however finally ended up not being launched by the federal government in Parliament.
While the older regulation sought to impose an entire ban on all crypto-related actions together with mining, shopping for, holding, promoting, and dealing, the brand new one, in distinction, will look to make a transparent distinction in the case of its oft used categorisation as a foreign money — with the definitional readability anticipated to have a transparent bearing on the regulatory facet. In not treating these monetary belongings as currencies, indications are that the Centre is aiming to deal with a number of the macroeconomic dangers posed by cryptocurrencies that have been repeatedly flagged by the central financial institution in current weeks, each verbally and in writing.

On Tuesday, the federal government introduced it might introduce the brand new Bill in Parliament in the course of the upcoming winter session. It stated the Bill has been listed to be taken up for introduction, consideration and passing in the course of the session for the aim of making “a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”. “The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” it added.

However, a number of developments occurred within the run as much as the announcement are prone to have formed the Centre’s stance. During the final one month, the controversy on cryptocurrencies gained momentum with a Prime Minister-chaired assembly on November 13 having arrived at a consensus that future steps by the federal government within the subject of cryptocurrency can be “progressive and forward-looking”, following which, on November 15, the Parliamentary Standing Committee on Finance met key stakeholders of cryptocurrency house in India. Last Thursday, Prime Minister Narendra Modi, talking on the Sydney Dialogue, recognized cryptocurrencies as one of many key areas the place democracies ought to work collectively.
The development within the authorities taking over the cryptocurrency debate got here after the central financial institution formally raised its considerations with the digital currencies with the very best ranges in New Delhi. Its considerations included the varied commercials that have been being run by crypto buying and selling platforms, and implications of permitting cryptocurrencies on points reminiscent of cash laundering, terror financing, and even probably undermining RBI’s financial coverage.
This contemporary stance is in stark distinction to that taken again in 2019 via the Bill that proposed to ban mining, holding, promoting, commerce, issuance, disposal or use of cryptocurrency within the nation. That Bill had additionally proposed that mining, holding, promoting, issuing, transferring or use of cryptocurrency be made punishable with a positive or imprisonment of as much as 10 years, or each. This invoice was based mostly on a report submitted by an inter-ministerial committee headed by the Department of Economic Affairs in 2019, which had really helpful that each one non-public cryptocurrencies, besides any cryptocurrency issued by the State, be banned in India. The committee had additionally endorsed the stand taken by the RBI in 2018 to “eliminate the interface of institutions regulated by the RBI from cryptocurrencies” and appeared to construct on it. In April 2018, the RBI, via a round, prohibited all banks from coping with digital currencies successfully, chopping off the cash provide of platforms facilitating entry to those digital belongings.
The round was challenged by the Internet and Mobile Association of India (IAMAI) within the Supreme Court, and in March 2020, the apex courtroom overturned the ban paving the way in which for start-ups to function exchanges and buying and selling platforms.
In the 180-page judgment issued by a three-judge bench led by Justice Rohinton F Nariman, the courtroom put aside the RBI round on grounds of “proportionality”. It identified that the 2019 invoice had not change into regulation, the place as on date was that digital currencies (VCs) weren’t banned. “…but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector,” it stated. “What is worse is that this has been done (i) despite RBI not finding anything wrong about the way in which these exchanges function and (ii) despite the fact that VCs are not banned”.
In the aftermath of the Supreme Court order, cryptocurrency exchanges and buying and selling platforms began mushrooming throughout the nation. This was regardless of a number of massive banks and monetary expertise gamers not permitting using their infrastructure to such platforms. Currently, cryptocurrency exchanges in India function with the assist of a handful of banks together with Punjab National Bank (retail), Federal Bank, Bank of India, Bank of Maharashtra, Indian Bank, Deutsche Bank, and so forth, and one main e-wallet issuer.

In 2021 alone, cryptocurrency exchanges and buying and selling platforms have raised near half a billion {dollars} from marquee enterprise capital and personal fairness funding companies, with variety of buyers of the half a decade previous Indian crypto business having grown to fifteen million, by conservative estimates, round 60 per cent of the investor numbers within the mutual funds business, which is sort of six a long time previous.
Notably, whilst each the federal government and the RBI have been on the identical web page with respect to the functioning of cryptocurrency platforms, they have been in favour of use of the underlying blockchain expertise. On February 1, 2018, whereas making the Budget speech for 2018-19, then Finance Minister Arun Jaitley had stated: “Distributed ledger system or the block chain technology allows organisation of any chain of records or transactions without the need of intermediaries. The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system”. “The Government will explore use of blockchain technology proactively for ushering in the digital economy,” he had stated.