New Delhi. Bitcoin and cryptocurrencies are in the news again after Congress Maharashtra unit chief Nana Patole and Nationalist Congress Party (Sharad Pawar) leader Supriya Sule were accused of indulging in “illegal Bitcoin activities” for election campaigning.
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 a decentralized network using blockchain technology. Blockchain is a technology through which currencies like Bitcoin operate. Bitcoin is the name of the most popular cryptocurrency, for which blockchain technology was created. Cryptocurrency has 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 cryptocurrency. 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 taxing the 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 become 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 a ban 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, in which banks and entities regulated by it were barred from providing services in relation to virtual currencies.
RBI Governor Shaktikanta Das had said last month 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. IMG has not yet released 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.