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Legal Article by - ROMA (This Article was written by her during her Internship)
THE INTRODUCTION OF FINANCIAL SYSTEM
Over the past few centuries, human existence has undergone profound and robust progress across all facets of life, including finance, health, education, social dynamics and myriads of other things. Since innovation lands in many fields, the finance sector is no other exception.
It started from the early barter system which worked on the double coincidence of wants, where people exchanged goods and services for other goods and services in return. According to Henry Clay, “The direct exchange of goods is called Barter.” A somewhat similar definition was given by Kent, however, he used it in the context of money not being used as a medium of exchange
THE EMERGENCE OF PRECIOUS METALS
Then came the era of precious metals like gold and silver which emerged as a more reliable form of money than the previous perishable commodities. Metal coins were proved to be significantly more resilient, manageable and easily transferable from one place to another. Another important factor that acted as an impetus for the reinforcement of metal coins was the active participation of the monarchs in the emerging financial system.
THE BIRTH AND EVOLUTION OF PAPER MONEY
The next significant step was the origination or genesis of paper money in China during the reign of the Tang Dynasty and then making itself spread across Asia and Europe. Paper money gained popularity because of the ease of being carried away without posing any difficulty. Huge amounts of money could easily be carried off in light paper denominations.
Initially, these paper denominations were supported by tangible assets like precious metals but later evolved into fiat money, which derived its significance from government assurance or backed by the government.
UNDERSTANDING CRYPTOCURRENCY
Before glancing through the genesis of cryptocurrency, one ought to understand what actually is a cryptocurrency, and why was it created
WHAT IS CRYPTO?
Cryptocurrency is nothing but a by-product of the digital and internet revolution. It is decentralised and protected by cryptographic encryption techniques.
Cryptocurrency is nothing but a digital or virtual currency that uses cryptography for security, a digital medium of exchange that operates on a digital blockchain basis of the system.
Being a form of digital asset, it relies on a network dispersed over many computers. This decentralized system permits cryptocurrencies to operate beyond the jurisdiction of governmental and central authority control.
THE DIGITAL REVOLUTION AND ORIGIN OF CRYPTOCURRENCY
The genesis of cryptocurrency is said to be the Global financial crisis of 20083 when people started losing faith in the financial market. It was during such a predicament that a man or a group named Satoshi Nakamoto came up with the new concept of the well-famous cryptocurrency called ‘BITCOIN’. Bitcoin also uses blockchain4 technology. This specific technology allows two individuals to transit directly without making the government involved as a middleman.
Despite many nations imposing reasonable restrictions on cryptocurrency, several others have embraced their adoption exuberantly. India’s stance on it remains in a topsy-turvy scenario. It has neither sanctioned cryptocurrency nor explicitly outlawed it. We are in a mixed stance when it comes to the legality of cryptocurrency. But what is it that makes the Indian government sceptical about crypto?
INDIA HAS A MIXED STANCE ON CRYPTOCURRENCY
In India, there lies no robust mechanism to handle cryptocurrency. payment methods being done through cryptocurrencies remain unattained by the central authority, there exists no formal rules, or regulations catering for the disputes arising from crypto transactions. Engaging in cryptocurrency trading is undertaken by the investor at its peril.
Another imperative point we can say is, that cryptocurrency markets are characterized by high or profound volatility. Moreover, the ambiguous jurisdiction and insufficient jurisdiction of these digital currencies enabled the misuse of these digital assets for unlawful purposes, including money laundering, financial fraud and data theft. What makes situations worse is that these mishappening cannot be dealt with due to the dearth of effective tracing and enforcement mechanisms.
WHAT RBI HAS SAID ABOUT CRYPTOCURRENCY?
Since there lies no robust regulation for managing cryptocurrency, The RBI has issued several statements stating that cryptocurrency lacks underlying value and therefore, cannot be stated as currency.
RBI has even alarmed users, holders and traders of virtual currencies. Including Bitcoins, evaluate the risk in finance, operation, legality, customer safety and security. Moreover, in 2018 The RBI and the Central government imposed a ban on cryptocurrency stating that it had not permitted any company or entity to run schemes involving bitcoins or any virtual currency. RBI noted that consumer security and money laundering were some of the concerns for imposing a ban on these virtual assets. With growing criticism of the cryptocurrency ban, many crypto companies have knocked the Supreme Court gate and demanded justice.
IMPORTANT JUDGMENT ON CRYPTOCURRENCY
The Supreme Court in its landmark judgement of Internet and Mobile Association v. RBI5 , invalidated the crypto ban notification, thereby restoring the operational status of cryptocurrency.
WHAT ARE THE TAX RULES FOR CRYPTOCURRENCY?
One of the most asked questions is, is cryptocurrency taxable in India? The answer is yes. It was not until the 2022 Budget. The government of India announced a 30% tax on gains from cryptocurrencies and a 1% tax deducted at source.
THE PROPOSED CRYPTOCURRENCY BILL
In 2021, The Indian government paved the way for the crypto regulation bill aimed to outlaw all private cryptocurrencies and set a framework for Central Bank Digital Currency(CBDC) to be issued by the RBI. This bill has not yet been formally passed before the parliament.
NEED FOR A ROBUST REGULATORY FRAMEWORK
With no proper and robust legislation that addresses cryptocurrency in India, it becomes extremely challenging for the digital currency to hold water and legitimacy. However, the Supreme Court’s judgement has catalyzed momentum in the crypto market. But things appear still topsy-turvy in this area.
Various experts contend that a complete ban on crypto is not a plausible and pragmatic solution. Rather, the government should aim to harness its advantages by regulating this domain, and for that, a risk-based framework should be invented addressing myriads of legal issues like security, taxation, data storage, privacy and much more. This framework should be formulated after an extensive discussion with people who are au fait with this technology and are active market participants.
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