It is very well-known for everyone, who is involved in the financial market that many countries have different regulations in terms of cryptocurrencies. Different regulations mean different policies on the use or exchange of cryptocurrencies, especially bitcoin since it is the most popular token. The reason for the different regulations can be several but one of the most popular ideas is, that there is no international agreement on what is the main purpose of bitcoin, as it was in the case of money, when everyone agreed that it would be used to exchange anything they wanted and give them certain values, which was possible to pay by money. In the case of cryptocurrencies, we do not see the same practice and controversies are finding their steady roots. To better understand the ongoing controversy over bitcoin in India, the article will review the history of its first appearance in the country and some of the planned regulations to better analyze how did they come to this place.
History of cryptocurrencies in India
The history of cryptocurrencies start in 2008 when Satoshi Nakamoto created the digital coin and in 2010 first payment by bitcoin was made, 10,000 bitcoins exchanged for two pizzas. This is the first time when the cash value was attached to the cryptocurrency. After that, many other coins started to emerge, such as Litcoin, Swiftcoin, etc. After the first appearance of bitcoin in India, RBI issued a press release, that virtual currencies are not backed by a central bank and that their value isn’t underpinned by an asset and thus matter of speculation. With the price of cryptocurrencies were rising and because of its increased popularity and adoption by users outside of its traditional cult following, regulators worldwide began to take notice of this new technology;
Government regulations were giving hands to the bitcoin’s popularity as the Indian government started the demonetization of high-value currency notes in 2016 which lead to the increase of public awareness about online banking and cryptocurrencies. Indian cryptocurrency exchanges started acquiring users at a much higher pace which drove up the volume for cryptocurrency transactions on all Indian exchanges.
After the immense popularity and demand on bitcoin, RBI issued another press realize. There were two petitions delivered to the supreme court to restrict the sale and purchase of cryptocurrencies in India, and the latter asking for cryptocurrencies in India to be regulated. Both the petitions are currently pending in the Supreme Court. One of the reasons for the divided public opinion regarding cryptocurrencies was the competition between the supporters of the traditional way of conducting financial transactions and those, who were fascinated by the innovations that were happening in the industry. Moreover, cryptocurrencies were spreading over many other fields, for example implementing as a payment method for goods and services, implementing the transactions in the entertainment industry that promoted Bitcoin gambling in India that caused a lot of concerns as well. The transactions were made anonymously and it was impossible for the government to track them, as they were unable to understand where the money from the country was leading to.
Leading to the regulations
Because of all those debates and controversies regarding the usage of bitcoin and cryptocurrencies generally, the government made a decision to establish the special Committee that was given the mandate to search for the various issues concerning the virtual currencies and to propose the specific actions that were in need from the government’s side to be taken. The committee created the report stating, that a ban on private cryptocurrencies should have been imposed in India. After that, the government officials or public sector started making the situation believable for the population and started talking about the dangers and risks associated with cryptocurrencies, and that “cryptocurrencies are like Ponzi schemes and also declaring that they are not currencies or coins”. However, legal action was not imposed against it at that time.
The situation changed when the RBI prevented Commercial and Co-operative Banks, Payments Banks, Small Finance Banks, NBFCs, and Payment System Providers not only from bargaining in virtual currencies themselves but also directing them to stop providing services to all entities which deal with virtual currencies. As a result, cryptocurrency exchange was not possible by any banking services within India. It was a very restrictive step, as the main part of owning cryptocurrencies was converting them to real money and vice versa. From that time it became impossible. It massively caused a negative attitude from the general public as they actively started selling their virtual assets as a fair and not be left without the possibility of exchanging them into fiat currencies.
After that, there was another petition made by the supporters of cryptocurrencies, and the final thoughts were heard by the Supreme Court of India in January 2020, and the decision is anticipated. If the Supreme Court concurs with the arguments of the petitioners, then cryptocurrency exchanges would be able to restart services in India; as a result, the cryptocurrency ecosystem in India may be recovered and cryptocurrencies may become a viable investment alternative again.
Finally, to sum up, cryptocurrencies have gone through different steps in different countries. Those who were ready for the innovations and the financial circumstances were stable enough to adapt to the major changes were open to the innovations. Generally, those are developed countries that play a major role in the world economic market, such as the USA, Japan, Switzerland, Canada, Sweden, Germany, etc. When we say that they were ready to adapt to new changes, we mean that they started to find ways where cryptocurrencies could be used. The mutual characteristic of their policy regarding virtual currencies is that they are trying to implement it as a payment method in many services, for example in the USA you can buy a car and in Switzerland, you can buy a railway ticket for your next journey.
Unlike those major economies, not only the developing countries were very cautious about cryptocurrencies, but India as well. As we saw from the example, being a country with a successful economy does not necessarily mean having a pro-crypto policy and the case of India has already shown this. The government did not appear to be ready to meet the new challenges in the financial sector and conducted a very cautious policy regarding this. However, it is anticipated from the general public the situation to change, as we see all over the world, how rapidly the crypto-industry is changing and affecting our lives in many different ways. This is what might affect the decision of the supreme court, in terms of easing the regulations on crypto transactions.