New Delhi. Bitcoin and cryptocurrencies are back in the news after Congress Maharashtra unit chief Nana Patole and Nationalist Congress Party (Sharad Pawar) leader Supriya Sule were accused of indulging in “illegal Bitcoin activities” during the election campaign. Many questions are being raised regarding cryptocurrencies and Bitcoin, what are they and what does the law say about their use.
Cryptocurrency is a digital or virtual currency that is secured by cryptography (code). It is almost impossible to counterfeit or use them twice. They exist on decentralized networks using blockchain technology. Blockchain is the technology that powers currencies like Bitcoin. Bitcoin is the name of the most popular cryptocurrency, for which blockchain technology was created. Cryptocurrencies have no physical existence. Its supply is determined by the protocol, not by the central bank. Talking about their legal aspects, India is preparing a framework for cryptocurrencies. However, it cannot be called illegal until it is implemented.
The government had announced to impose tax on profits from cryptocurrency at the rate of 30 percent in 2022. However, despite the imposition of tax on income from cryptocurrencies, cryptocurrencies cannot be considered mandatory and clearly legal. The Reserve Bank of India (RBI) is also skeptical about the use of private crypto assets and considers it a major threat to the macroeconomic and financial stability of the country.
Finance Minister Nirmala Sitharaman has repeatedly said that cryptocurrencies issued by private entities cannot be “currency”. It will be a currency only when the Reserve Bank of India issues a digital currency. Sitharaman had said in July last year that any effective regulation or ban on cryptocurrencies would require “international cooperation”. Earlier, the Reserve Bank of India had proposed imposing restrictions which was rejected by a court order. RBI considers cryptocurrencies as a huge risk to financial stability and monetary stability.
It is noteworthy that on March 4, 2021, the Supreme Court had quashed the RBI circular dated April 6, 2018, which had barred banks and entities regulated by it from providing services in relation to virtual currencies. RBI Governor Shaktikanta Das had last month said that virtual assets could create a situation where the central bank could lose control over the money supply in the economy. Currently, an inter-ministerial group (IMG) comprising officials from the RBI, Securities and Exchange Board of India (SEBI) and the Finance Ministry is considering a comprehensive policy for cryptocurrencies. The IMG is yet to release a discussion paper on this, which will give stakeholders an opportunity to put forward their views before taking a decision on India’s policy stance on crypto currencies.
