In a Bill that is to be tabled in the Parliament in its Winter Session, the Central Government is set to put a hold on all private cryptocurrencies in India. However, there would be certain exceptions allowing “to promote the underlying technology of cryptocurrency and its uses”.
The Central Bank of India, RBI is also set to launch its own official Digital Currency.
Prices of cryptocurrencies such as Bitcoin and Ethereum fell as much as 15 per cent in response to the news of the ban. As the news of regulation of cryptocurrency broke out, the threat of a ban triggered panic as users of cryptocurrency in Indian exchanges started selling their holdings.
Even so, industry experts have claimed that the government may not go for a blanket ban and instead, merely regulate cryptocurrency trading. For this reason, buyers are advised to remain calm and not rush into selling as the contents of the Bill are not known yet.
According to the government bulletin, the prohibition is a part of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will be introduced in the next session of Parliament. In addition to prohibiting all private cryptocurrencies in India, the Bill seeks “to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI)".
Let’s take a quick look at what exactly are cryptocurrencies and how the proposed Bill may affect their use in India.
What is Cryptocurrency?
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Cryptocurrency is a digital or virtual currency, as opposed to physical money such as Dollars and Rupees which are available as notes, coins, cheques, cards etc.
- Cryptocurrency is not issued by any central bank or government authority, therefore it is not subject to government interference and control.
- The technology used behind such digital currencies is “cryptography” and a decentralized framework through “blockchain technology”, which means that information is stored in and distributed through a large network of computers.
- Blockchain network ensures the integrity and security of data and cryptography makes the currency difficult to counterfeit.
- In simple words, cryptocurrencies are the systems which make online payments secure and fast. They are denominated in terms of virtual tokens and carried out by ledger entries to the system.
Advantage of Cryptocurrency
- They are portable and easy to transfer
- Easily divisible
- They are resistant to inflation
- More transparent than other forms of currencies
- Data Security
Disadvantages of Cryptocurrency
- May be used for money laundering and tax evasion
- Market may be controlled by few people
- Still not accepted worldwide
- Lack of inherent value
- Volatility in price
Types of Cryptocurrency
- The first cryptocurrency that was introduced was Bitcoin, which has the most value and is most popular among investors.
- There are many thousand types of cryptocurrencies, and many more are still being introduced.
- There are more than 18.8 million bitcoins in circulation today with a total market capitalization of about $1.2 trillion.
- Ethereum or ETH is a popular alternative of Bitcoin and is currently the second largest digital currency after Bitcoin.
- The goal behind ETH is to enable smart contracts by launching financial services and products that are freely and easily accessible to everyone.
- Litecoin (LTC) is another type of cryptocurrency similar to Bitcoin and ETH. It has a market cap of $14 billion and is fast gaining prominence as an open-source global payment network.
- Cardano, Polkadot, Stellar, Dogecoin, Bitcoin Cash, Solana, Binance Coin, Tether and Monero are other important kinds of cryptocurrencies in the world today.
Is a ban on cryptocurrency possible?
More than 10 crore Indians have invested in cryptocurrencies which has emerged as a sought after investment for youth in the country. The government release has implied of a ban on cryptocurrencies as concerns remain over the digital currency being used for terror financing, money laundering and other illegal activities. The Centre is also wary of misleading claims of huge returns on cryptocurrency investments. Nevertheless, an outright ban would not be feasible and careful regulation would be the way to go. Moreover, cryptocurrencies will also not be recognised as legal tender as that may pose a threat to fiat currency and Indian taxation system. At present, cryptocurrencies are not taxable in India, but taxpayers must declare their profits from the same.
Investors have been advised to wait and watch for government action and not resort to selling in panic. The stakeholders have asked for regulation to curb illegal practices and there may be amendments to the Bill regarding the same. The definition of “private cryptocurrencies” has also not been explained by the government and it is likely that major cryptocurrencies like Bitcoin and Ethereum will stay out of its ambit
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