The Voyage of Cryptocurrencies
~ By Vipriya Anjum
Setting sail in the Indian market
The ship of cryptocurrency markets arrived on Indian shores somewhere around 2012 and has braved several storms and taken on quite a few whirlpools ever since. The voyage in the subcontinent has had several twists, whether the recent SC judgment will bring it towards the light or be the last wave towards the fall is yet to be unearthed.
Small scale bitcoin transactions started taking place in the country in the early years of the decade. This goes back to the time when Bitcoin was in its early stages of development when cryptocurrency investment was merely a hobby generating interest. By 2013, Bitcoin started to gain an audience which enabled few businesses to accept Bitcoin Payments. A vintage pizza shop called ‘Kolonial’ in the Worli area of Mumbai became the first restaurant service in India to accept Bitcoin payments. And soon the development of several cryptocurrency exchanges like BtcxIndia, Unocoin, and Coinsecure made trading of cryptocurrency possible. Aside from these, there exist numerous over-the-counter(OTC) crypto shops and Bitcoin ATMs in major Indian cities. The RBI, ever radical in its views regarding cryptocurrency in a press release in 2013 had cautioned users, holders, and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they are exposing themselves to.
Traversing through the stormy winds of Demonetization & RBI regulations
The next big wave was brought on the 8th of November 2016 when Prime Minister Narendra Modi announced the commencement of the demonetization policy. Bitcoins presented people with a large cash holding a new way to hold such wealth without incurring significant tax burdens, hence normalizing the purchase of cryptocurrencies and the sale of these at later dates. The amounts which could have generated taxes had they undergone circulation through the banking system were circumvented through cryptocurrency purchases. The next milestone in this journey was on the 6th of April, 2018, when RBI issued a landmark circular prohibiting all entities regulated by it, i.e.the entire Indian banking system from dealing in virtual currencies. The fortunes of this growing industry were reversed as several exchanges shifted overseas or closed their businesses altogether. This was when the Internet and Mobile Association of India, an industry body representing cryptocurrency start-ups challenged the RBI circular, arguing that it was a lopsided response by the controller.
A glimmer of sunshine for cryptocurrencies and the voyage ahead
On the 4th of March this year, the SC overturned the RBI’s ban on the acceptance of cryptocurrency payments by the Indian banking system. However, the judgement presents certain red flags. The verdict is based upon the violation of one of the fundamental rights of the Indian constitution – Article 19 (1) (g), which guarantees the freedom to practice any profession. The SC concluded the RBI's measure violated Article 19 (1) (g) for virtual currency exchanges, and that the prohibition measure was not related to the threat. It also came to a conclusion that the central bank had not validated the threat with empirical data or reliably examined substitutes. Yet, one of the reasons for the support given to the industry was that there was "no law banning virtual currencies yet," which means simply that the verdict would not stand once there exists such a law. What most are unaware of is that there is a draft bill to ban the cryptocurrencies that were released on the 28th of February 2019 that could still move through the parliament, making the decision of the Supreme Court void. The verdict also referred to cryptocurrencies as a "by-product" of blockchain technology and mentioned that the government could separate the two. This refrain of separating blockchain and crypto has been the foundation of this policy.
The voyage hasn’t yet ended for this ship too has miles to go before it finally establishes itself. The behavior of the sea is however hard to predict, will it bring calm or high waves of chaos?