Synopsis: Cryptocurrency has been a buzzword for the last few years. As people make huge investments in them, their legal recognition seems more confusing than ever. In this article, we discuss cryptocurrency’s legal position in India and across the world.What is cryptocurrency? The year was 2009, after multiple attempts by programmers to create a decentralised digital currency, an anonymous programmer dubbed as Satoshi Nakamoto was successful in creating the Bitcoin which went on to become the largest cryptocurrency in the world. As a matter of fact, most people use the term ‘Bitcoin’ while addressing cryptocurrencies. When one tries to define cryptocurrency, we hear terms like digital, decentralised, peer-to-peer, etc. However, to simplify: it is an online currency which is not sourced from the government like fiat currency (such as notes and coins backed by the government), it can be exchanged anonymously and one does not need to trust a third party (like a central bank) to deal with or issue that currency. The value of earliest traded Bitcoins in 2009 was $1 per coin. In December of 2017, its value surged to over $20,000. All of a sudden, the word ‘cryptocurrency’ was trending everywhere, as millennials deemed it as a great investment. There are various other cryptocurrencies apart from Bitcoin like Ethereum, Litecoin, Ripple, Zcash, etc. which enjoy success similar to Bitcoin.
Before verging ahead to discuss the legality of cryptocurrency, we need to understand how cryptocurrency transactions are recorded. These records are kept through a technology called the blockchain, a journal with all data about past transactions which happen in a linear way from the person initiating it to the person receiving it in an anonymous manner, it consist of a timestamp along with a verification making a transaction secure without a governing authority like a bank. The technology has helped majorly in non-crypto based fields like banking and accounting as well. Evolution of law on cryptocurrencies As of the date of writing, there is no global regulation on cryptocurrencies, hence, different countries have adopted different standards of regulation. Most countries are yet to have concrete laws regarding them and hence, they fall under grey areas of law. Countries such as Japan and Russia have legalised the use of cryptocurrencies, however, Russia limits their use. In 2014, the US-Internal Revenue Service (IRS) stated that the Bitcoin (and other cryptocurrencies) are properties which can be taxed. One of the major economies to ban the use of cryptocurrencies is China. Ignoring the extremes on both sides, most countries have adopted a more or less similar approach regarding these currencies: they haven’t declared them as illegal but are planning to regulate them. This table summarises the status of cryptocurrencies in various countries across the globe –
|Country||Status||Compliances, Regulations or Comments|
|USA||Not officially legal, however no express ban on usage||No regulation|
|UK||Legal||Bank of England is soon to release its own cryptocurrency backed by government|
|Canada||Similar to US, blockchain and barter in cryptocurrencies is legal||No regulation|
|Netherlands||Barter in cryptocurrencies is legal||No regulation|
|Australia||Confusing; Partially legal (Brisbane Airport allows usage of Bitcoins)||No regulation|
|France||Illegal||Strict compliances, KYC and personal info required|
|Singapore||Legal||Verification and personal info required. Tax laws in pipelines (World’s first Bitcoin ATM)|
|Japan||Very positive, soon to be legal||No regulation s|
|China, South Korea||Illegal||Mandatory ban; regulations on the way|
India on cryptocurrency Mr. Janardhan Singh, founder and CEO of Unitec, a Bangalore-based firm mining cryptocurrency, says that “cryptocurrencies entered the Indian market in the year 2013 when investors bought Bitcoins for as low as USD 22 – 28 for 10 Bitcoins.” India does not consider cryptocurrencies as valid legal tenders and has maintained the position throughout the lifetime of the anonymous virtual currency, however, it is not completely banned in the country, though restricted. Mr. Janardhan believes that the reason for the same is the inception of some fraudulent crypto exchanges which duped a lot of investors. In June, 2018, it was announced that the government has almost finalised the regulation for cryptocurrency. The Secretary of the Department of Economic Affairs, Mr. Subash Chandra Garg, hinted that the regulation does not aim at a blanket ban. However, it is clear that the system is not in favour of recognising it as a ‘valid legal tender’. In April, 2018, the RBI released a notification that it would be banning banks from processing payments related to cryptocurrencies from July 5, 2018. An appeal calling for a stay on the notification was rejected by the Supreme Court in Internet and Mobile Association of India v. Reserve Bank of India, WP(C) 528/2018.Apart from lack of support from the banks, no infrastructure has been expressly denied to cryptocurrency miners: electricity boards do not have any problem regarding crypto mining rigs operating as they are not concerned with purpose for use of electricity as long as it is paid for. If India does end up banning cryptocurrencies, businessmen like Mr. Janardhan are bound to switch to services like Neteller, Paypal, etc. which make it easier to conduct these transactions without banks being directly involved and such transaction would not be taxable. Mr. Singh believes that India should legalise the same with restrictions and caps on the transactions so that the investments are safe and the government also generates tax revenue.
An uncertain future With the Supreme Court deferring the hearing on the matter of cryptocurrency till September this year, and the government aiming to regularise crypto tokens (non-currency based use of investing money into crypto using fiat money) without expressly legalising them as tender, the future of the innovative currency seems tumultuous in the country. DISCLAIMER: The information provided in this article is for educational purposes only. The same cannot be construed as legal advice.