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With globalisation and de globalisation impeding the way the global economy functions, Cryptocurrency is creating a method for decentralisation of currency. Cryptocurrency is a digital currency transacted between peers and validated in a public ledger. Cryptocurrency uses a system of cryptography i.e. encryption to control the formation and transaction of coins. Let’s understand whether trading in cryptocurrency is legal in India or not.
Cryptocurrency is stored in digital wallets known as cryptocurrency wallets and transferred to other wallets using digital encryption, unlike traditional currency which is a physical object transferred manually from one person to another. It is created and transferred to an open code which relies on a peer-to-peer network.
Another striking feature of cryptocurrency is its decentralised control. Traditional currency is circulated and controlled by a centralised authority i.e. the government and bank, whereas there is no single organisation that controls cryptocurrency. The rate of such currency’s creation is pre-defined and therefore, there is no need for a centralised institution to regulate the flow of currency in the market. With the popularity of cryptocurrency an important question has been raised regarding the legal status of cryptocurrency in India.
Cryptocurrency became a hit in a very short span of time due to the high-end encryption and anonymity it provided to the cryptocurrency wallet holders. Owners are not required to disclose their identity, location, or bank details to hold cryptocurrency in their wallet as it is not anchored to a person’s identification. The owner can hold crypto coins in their pseudonymously. Thus the question that is trading in cryptocurrency legal in India has ambiguity in its answers as Arun Jaitley, Finance Minister of India has declared that indian cryptocurrency coins but there is no law declaring cryptocurrency trading or cryptocurrency mining as illegal in India.
One of the most eminent cryptocurrencies in the world is Bitcoin. Bitcoin was created in 2009 by a person under the alias Satoshi Nakamoto. Ever since bitcoin has been launched in India legal status of bitcoin has been a question. It works on a decentralised technology ensuring the secure sale, purchase, transfer and storage of money. Bitcoin uses a public ledger known as blockchain that holds decentralised data of all transactions. New blocks are added to the previous block with each transaction updated in the ledger, creating a valid blockchain.
A block is created with the use of cryptography that channels a user’s computer power. A user can earn or ‘mine’ bitcoins by keeping their network functional. However, the system is built with a limit on the number of bitcoins that can be created and mined, rendering any attempts of hacking or limitless mining futile. Only a set limit of 21 million bitcoins are created.
Bitcoin can only be obtained through mining, unlike paper currencies that are printed and circulated by a centralised authority. A person can obtain a Bitcoin through any of the following methods:
Mining of bitcoins.
Bitcoins that are already mined can be purchased on an existing virtual exchange.
Bitcoins can be accepted as payments for goods and services.
Is digital currency legal in India?
The Reserve Bank of India issued a notification in 2013 to warn the public regarding the use of Bitcoin or any other cryptocurrency in India, suggesting that the central bank had undertaken to investigate the issue of potential financial, legal and security risks related to virtual currency. Later, the Finance Minister stated that cryptocurrency and bitcoin was illegal in India, with the RBI silent on the issue. Thus, 2013 rbi notification on cryptocurrency has not cleared the legal status of cryptocurrency.
Presently, Bitcoin is neither legal or illegal in India, with RBI clarifying that people can deal in Bitcoins at their own risk. There are several digital currency exchanges from which people can purchase Bitcoin with credit cards. However, there is a KYC requirement for buying and mining Bitcoin in India, where the buyers have to identify their identity by providing their PAN card information.
With the Prime Minister’s Digital India initiative, cryptocurrency is gaining popularity among Indian investors. In 2016, the RBI and Central Government are contemplating to lay down compliance regarding Bitcoin. There will be a paradigm shift in the trading of Bitcoin if it is legalised in India, leading to the following changes:
Bitcoin would come under the ambit of the Reserve Bank of India Act, 1934. The RBI would lay down the guidelines for investment, sale and purchase of Bitcoins. Investors who deal in Bitcoin will be taxed. Any foreign payment made in Bitcoin will be covered under FEMA. With India moving towards becoming a cashless society, digital currencies like Bitcoin will become a primary investment and payment option in coming years. Bitcoin is associated with several shortcomings and risks, however, being a decentralised virtual currency, cryptocurrencies are the future of global trade and investment.
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