If during the 'barter era' of stone age, you proposed payments through e-wallets and other electronic/digital modes of payment and termed currencies as legal tenders. one would consider you lunatic, maniac and obnoxious. With passage of time, necessity gave birth to innovation and with innovation came the unimaginable. However, with every advent of an 'unimaginable'came the need to regulate the thing and assess the same on the touchstone of national security and commercial viability. One of the greatest unimaginable products of innovation, worldwide. has been the dawn of crypt/virtual currencies("Crypto Currency").So far as the Indian scenario is concerned, one of the recent challenges faced by the Indian economy is the extant menace concerning legality of Crypto Currencies.
What are Cryptocurrencies?
Cryptocurrencies are a specific type digital virtual currency, which can be traded as an asset or used as a currency through an online distributed ledger, commonly known as 'blockchain', which keeps a record of all the transactions that have ever been conducted in relation to the Crypto Currencies and is shared and agreed upon by the entire network of individual node/user, or computer maintaining a copy of the ledger. The transactions of Crypto Currencies through 'blockchain' are decentralised and protected by cryptographic encryption techniques. Typically, in a transaction involving Crypto Currencies, each newly generated block in the 'blockchain' is to be verified and approved by each node/user before being confirmed, which makes it almost highly improbable to forge entries made in any transaction.
For providing expeditions, decentralised and anonymous transactions , over the years,the Crypto Currencies have gained immense popularity across world and have become one of the most widely used , accepted and intriguing digital currency/asset. Decentralisation would presume that there is no central authority where records of transactions are maintained and instead transaction data is recorded and shared across multiple distributor networks via a distributed ledger technology (commonly known as blockchain).
Developments over the years
Being contentious and speculative in nature, the Crypto Currencies have been viewed with microscopic eye of governments of various jurisdictions and India being no exception to this drive, in November 2017, a high level inter-ministerial committee("IMC") was constituted by the Ministry of Finance, Government of India, under the chairmanship of the Secretary of the Department of Economic Affairs("DEA") under the ministry of finance , government of India to examine the policy and legal framework for regulation of Crypto Currencies of India.
Thereafter, in April 2018, the Reserve Bank of India("RBI"), vide a notification has directed all entities regulated by RBI to not deal in Crypto Currencies or provide 'services' for facilitating any person or entity in dealing with or settling Crypto Currencies. The said 'services' include maintaining accounts,registering, trading, settling, clearing, giving loansagainst virtual tokens, accepting them as collateral, opening accounts of exchanges, dealing with them and transfer or receipt of money in accounts relating to purchase or sale of Crypto currencies.
Treatment of Crypto Currencies in other jurisdictions
The IMC report has studied the status of Crypto assets/currencies on various factors like, regulation, as an exchnge token,legal tender or mode of payment, enforceability and investment options in various jurisdictions. It may noted that globally, countries have accorded different legal treatment to virtual currencies. In some case countries like Russia and Canada allow Crypto Currencies to be traded or bartered for other goods or services and be used for investment purposes, whereas, countries like Switzerland, Thailand and Japan allow it to be used as a mode of payment and jurisdictions like Russia, Switzerland, Thailand etc permits its usage for investment purposes.
The New York (State) allows crypto assets to be dealt as mode of payments subject to the registration and licensing requirements of superintendent and complaince of federal laws and as investment options, subject to the regulations and monitoring Securities and Exchange Commission, which has indicated that it considers Crypto Currencies to be securities.Also, in USA, Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities.
However, China prohibits any and all kinds of transaction in such Crypto Currencies. Intrestingly though, China passed a cryptography law to tackle emerging regulatory and legal challenges in commercial cryptography use-cases. Broadly, the said law requires that all state secrets be stored and transmittedusing "core and common"encryption, and that institutions working on cryptographyhave to establish "managment systems"that guarantee the security of that encryption.
It is to be noted that as of date no country across the world treats virtual currencies as legal tender.
Observation and Conclusion
It seems that the issuance of the notification was largely influenced due to absence of laws and regulations for dealing in Crypto Currencies and their treatment as legal tender. Similarly,the findings, proposition and suggestions of the IMC are suggestive of the fact that there lies a dearth of cogent and evidentiary database and reasoning to address the issue of regulating the Crypto Currencies and in such dearth or absence,the IMC has proposed to restrictive and banning measure than a regulatory measure.
Over the years, the Indian citizenry have delved themselvesinto the use, trade and sale of Crypto Currencies and have established highly successful business in the form of Crypto exchanges and blockchain driven start-ups and thereforeone cannot complete sign off Crypto Currencies. The same needs to be evaluated on the touch stone of state security, finncial stability, consumer interests and commercial viability. Deriving analogy from the globe trends, it may be noted that even the Declaration passed at G20 Leaders' meet at osaka in June 2019, has acknowledged that the crypto-assets do not pose a threat to global financial stability and that there is a need to monitor the developments and remain vigilant to the emerging risk.
The cacaphony of unrest created due to the uncertainity of legality of Crypto Currencies and the tussle between RBI/Government and dealers of Crypto Currencies has been a matter of significant concern. A substantive legislation by Parliament or regulation by RBI should come up for regulating and facilitating the dealings in Crypto currencies and their recognition as a "legal tender", ensuring the following inclusions, amongst other;
The mandatory reporting of sale, trade and usage of Crypto Currencies to RBI to ensure the identity of participants and the amounts transacted, thereby preventing anonymity in cryptocurrency transactions;
Since fluctuation in the value of a currency is not good for an economy, a range or a band width of fluctuation in value of Crypto currencies be considered by RBI gor a specific period, from time to time, so as to recognize Crypto currencies as currency with definitive value;
The Master Circular issued by RBI for Know Your Customer ("KYC") norms, Anti-Money laundering ("AML") standards and combating Terrorism Financing", can be applied mutatis mutandis to tranctions related to Crypto Currencies to curb the potential rsks identified by RBI in relation to Crypto Currencies;
An affirmative obligation be imposed on crypto exchanges to self regulate and comply with KYC/AML regulations and make quarterlyfilings to RBI intimating the necessary information of all trancation in crypto currencies; and
An independent unit be set up by RBI to study, address and deliberate o emerging technologies and market trends governing crypto currencies and advice RBI on regular basis.