Cryptocurrencies have had their fair share of the limelight in recent times. Especially, with the recent judgment of the Supreme Court making bank transactions with cryptocurrency exchanges and trading platforms legal in India, they have generated a lot of interest among investors and all and sundry. Before we get into technicalities, let’s demystify cryptocurrencies.
To put it simply, cryptocurrencies are a form of digital currency which works on the principles of cryptography or the science of encryption of information. A currency has to act as a medium of exchange with both the seller and the buyer agreeing on the transaction details. For this, cryptocurrencies use blockchain technology which creates a digital ledger where details of each transaction are stored in a decentralized peer-to-peer based network. It is this decentralization that makes cryptocurrencies fundamentally different from traditional or “fiat” currencies.
Due to the centralized nature of fiat currencies, they are susceptible to some fundamental problems, which is evident from the example of Zimbabwe. In the early 1900s, it went on to print fiat currencies at an alarming rate. But the country failed to uphold the value of the currency on the national or international stage. This resulted in people resorting to using foreign currencies like USD or the Chinese Yuan, and the government of the nation had no other way but to legalize them. Thus, if the economy of a nation fails, then fiat currencies collapse as a whole. There are also other concerns associated with fiat currencies such as high transaction fees and privacy issues. Cryptocurrencies being encrypted and decentralized address these concerns.
The legality of Cryptocurrency across the world
Owing to their decentralized nature, cryptocurrencies have been tricky territory when it comes to legalities. There is a wide range of stances that countries across the world have taken on this form of currency based on various factors such as the financial situation of the country in question, the lobbying power that financial institutions possess, and the government’s agenda. In the USA, for instance, cryptocurrencies are not considered legal tender but rules regarding cryptocurrency exchanges vary from state to state. Some countries like Venezuela have gone on to legalize and in fact, have created domestic cryptocurrencies for their people. Countries like Germany treat cryptocurrencies as legal tender. Flip the coin and you have countries like China and Russia both of whom are critical about the use of cryptocurrencies in their respective countries. Various countries like Australia and Brazil have taken a neutral stance on the use of cryptocurrency. India too had followed a neutral position for long until a circular issued by the Reserve Bank of India in April 2018 barred financial institutions regulated by it from entering into any transactions involving cryptocurrencies in India.
The legality of Cryptocurrency in India
The Indian cryptocurrency landscape has gone through dramatic changes in recent years. The initial years of cryptocurrency in the nation had seen investors buying Bitcoin in India freely. Free trading of cryptocurrencies was exercised in India till the RBI circular.
On April 6, 2018, RBI issued a notification according to which the apex banking institution of the country requested all financial institutions to restrict the purchase of cryptocurrencies in India. This notification stated that individuals who owned Bitcoin in India or any other cryptocurrencies would have to convert them to legal tender within 3 months. The notification claimed that digital currencies came with ‘various risks’. According to RBI, the steps issued in the circular would cause investors to stay away from the highly volatile BTC market in India.
Since the circular, the Internet and Mobile Association of India representing many Bitcoin exchanges and startups in India, along with investors, have gone on to take legal steps to strike down the restrictions imposed by RBI. After going through various judicial processes, finally, on March 4, 2020, the plaintiffs had a reason for cheer. In what the BTC markets and the Bitcoin exchanges in India call a historic decision, the apex court ultimately overruled the decision taken by RBI in April 2018.
Here is what Sumit Gupta, CEO, and Co-founder of CoinCDX had to say in a tweet, soon after the judgment:
“BIG NEWS :
Supreme Court of India has lifted RBI’s banking ban against #Crypto deeming it unconstitutional.
Kudos to everyone who was involved and fought against the ban.
Together, we did it.
This tweet from one of India’s leading bitcoin exchanges shows the amount of confidence and enthusiasm that the cryptocurrency fraternity in India has regarding the future.
The Supreme Court cited inadequate reasoning provided by RBI and its failure to prove that cryptocurrency trade harmed traditional banks, for its judgment. Owing to inconsistencies in the legal definition of virtual currencies, the SC contended if they even fell into the regulatory ambit of RBI. Ever since the judgment, there has been a demand for more comprehensive regulation of cryptocurrencies in India.
Various cryptocurrency exchanges reported substantial spikes in Bitcoin prices afterward. CoinDCX was the first Bitcoin exchange in India that allowed INR deposits in its exchange soon after the court legalized it.
What does legalization mean for cryptocurrencies in India?
India, being one of the largest markets in the world, with a substantial young population, is likely to witness widespread adoption of cryptocurrencies in the future. This adoption and increased use can translate into stability in the value of cryptocurrency in India which can further fuel more adoption. Apart from adoption as a currency, Indian investors will have the option of diversifying their portfolios with investments in cryptocurrencies such as Bitcoin, Ethereum, etc. The increasing adoption of cryptocurrencies, both as a medium of exchange and as investments, will further increase the number of companies and banks accepting cryptocurrencies for transactions. Moreover, legal recognition is now likely to open up more avenues for blockchain startups in the country which can lead to the development of more innovative and inclusive financial instruments based on virtual currencies.
Globally, cryptocurrencies such as Bitcoin, Ethereum are considered public cryptocurrencies because of their open and public nature, where any participants can watch, confirm, and verify the transactions. Given that the Indian government has not clarified what exactly it means by, ‘private cryptocurrencies’, the leaders of India’s crypto community is initiating the discussions with the government and helping them understand the decentralized and public nature of public blockchains along with how other countries are regulating their trading with licenses, KYC/AML practices, and a well-structured rulebook.
The crypto ecosystem in India has been through a rough patch in the year 2018 – when the RBI banned banks from providing services for the trading of all virtual currencies. The inability to use Indian banks for their operations led to a near wipe-out of all crypto companies and startups. But soon enough, in March 2020, the verdict by the apex court that overrules the central bank has given the sector their much-needed respite.
In a ruling passed in March 2020, the Supreme Court lifted the ban, and further plans to regulate cryptocurrencies were underway. In this entire span (from 2018 to the present), trading cryptocurrencies have never been illegal in India. On the contrary, 2020 has been the most exciting year for India’s crypto landscape witnessing tremendous growth in the number of investors who have started trusting Bitcoin as an alternate asset class. CoinDCX has been the first exchange to be able to provide a smooth transaction facility to its customers with its variety of products like CoinDCX and Insta. With the mass adoption and the grand success of the #TryCrypto movement initiative, there cannot be a more fabulous time for investors!
Click here to read where India stands in 2021.
With all the factors in favor of the Indian investor, this is the perfect time to buy Bitcoin in India. The spike in activity on cryptocurrency exchanges is proof enough that the experimental investor is taking the plunge. In the years to come, the cryptocurrency market is only likely to get more competitive. In a market like this, the key is to enter at the right time. Investing now can mean better returns as the price increases due to optimism and stabilization as cryptocurrencies become more popular. Thinking about investing in cryptocurrencies?
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