The legal battle to decide the fate of cryptocurrency in India has finally concluded in favor of bitcoin and its counterparts. Does the rest of the world echo, and what this new ruling mean for investors, read to find out!
Broadly speaking, currency is any system of money that acts as a medium of exchange. All the mainstream currencies that we know of are regulated by national governments through a central banking system, such as the Reserve Bank of India for INR, the Federal Reserve for USD, or the Bank of England for GBP.
Cryptocurrency is also currency in the traditional sense of the word, except that it is an internet-enabled medium of exchange that is not controlled by any centralized authority. Instead, it exists on a shared public ledger. To put things in perspective, recall that all money in a bank account is entries in a database, albeit one that you have very limited control over even as the owner of the money. To that end, cryptocurrency such as Bitcoin is probably more a currency than any fiat money simply because it is a decentralized network of peers that keep track of transactions and account balances.
There are certain remarkable features of cryptocurrency that are the reason for its widespread appeal. The first one is, of course, its decentralized nature, free from government control and regulation, which makes it a transparent system of money. The cryptographic, as well as security features of the blockchain technology, ensure that it is secure and irreversible, a very crucial feature for currencies. In fact, some claims about the immutability of bitcoins go as far as saying that there is a greater possibility of a person being hit by an asteroid than the security of bitcoin being compromised.
Cryptocurrency is the first-ever peer-to-peer money exchange system. It is worth busting the myth about credit cards or any existing digital payment platforms. These may come across as direct payments but they actually pass through a trusted third party i.e. the bank which charges processing fees. In this regard, cryptocurrency is truly peer-to-peer hence there is a minimal transaction cost.
Efforts have been underway to create a way of digital cash since the nineties. The first of such experiments that bore fruit was by the ‘unknown’ person Satoshi Nakamoto – the creator of bitcoin. Thereafter, Bitcoin blockchain became the first-ever cryptocurrency to come into existence in 2008. It was driven by the desire to create an electronic cash system along the lines of a peer-to-peer file-sharing network. As more and more people discovered the technology, further altcoins were launched soon after. 2011 saw the launch of Litecoin, Namecoin, Swiftcoin followed by Peercoin launched in 2012, and Ripple and Dogecoin launched in 2013. However, the most significant is Ethereum, launched in 2015, which also introduced the smart contracts feature. Today, there are over 3,000 cryptocurrencies in existence.
Most of the developed economies of the world have adopted a crypto-friendly approach, including the United States, EU, UK, Australia, Japan, and Singapore, with the exception of China. Japan is not only one of the biggest markets for crypto trading, it was also the first country where people started mining bitcoins.
It may well be more than a mere coincidence that the unknown creator of Bitcoin chose a Japanese pseudonym. While the European Union has a largely favorable stance towards crypto assets across the bloc, it is Switzerland that has emerged as the frontrunner. The Alpine nation has established a global hub for digital currencies known as the ‘crypto valley’ in Zug, ever since the town broke conventions in 2016 to start accepting bitcoin payments for government services.
Germany regards cryptocurrencies as an equivalent of legal tender for tax purposes. Smaller European countries like Belarus and Luxembourg have also adopted a progressive approach towards digital assets, with the latter even exempting them from Income Tax unless they are exchanged for fiat currencies. Both the United States and Canada have allowed the trade of cryptocurrencies as well as their use for buying goods and services from merchants that accept them. Singapore, in January 2020, has passed the Payment Services Act (PSA) which aims to boost cryptocurrency firms and companies.
China, on the other hand, has outright banned all cryptocurrency exchanges and Initial Coin Offering (ICO) websites. In a similar move, Russia is seeking a ban on the issuance and sale of ‘digital financial assets’ such as bitcoin to protect the sanctity of the Rouble against a globally rising Bitcoin Price. Southeast Asian nations Cambodia, Vietnam, Indonesia are also hostile towards cryptocurrencies, as are the South American nations, Bolivia and Ecuador.
Globally, cryptocurrencies such as Bitcoin, Ethereum are considered public cryptocurrencies because of their open and public nature, where any participants can watch, confirm, and verify the transactions. Given that the Indian government has not clarified what exactly it means by, ‘private cryptocurrencies’, the leaders of India’s crypto community is initiating the discussions with the government and helping them understand the decentralized and public nature of public blockchains along with how other countries are regulating their trading with licenses, KYC/AML practices, and a well-structured rulebook.
The crypto ecosystem in India has been through a rough patch in the year 2018 – when the RBI banned banks from providing services for the trading of all virtual currencies. The inability to use Indian banks for their operations led to a near wipe-out of all crypto companies and startups. But soon enough, in March 2020, the verdict by the apex court that overrules the central bank has given the sector their much-needed respite.
In a ruling passed in March 2020, the Supreme Court lifted the ban, and further plans to regulate cryptocurrencies were underway. In this entire span (from 2018 to the present), trading cryptocurrencies have never been illegal in India. On the contrary, 2020 has been the most exciting year for India’s crypto landscape witnessing tremendous growth in the number of investors who have started trusting Bitcoin as an alternate asset class. CoinDCX has been the first exchange to be able to provide a smooth transaction facility to its customers with its variety of products like CoinDCX Go and Insta. With the mass adoption and the grand success of the #TryCrypto movement initiative, there cannot be a more fabulous time for investors!
Cryptocurrencies are by nature, completely decentralized and the transactions within the medium take place on decentralized ledgers called the blockchain. Cryptocurrencies are perfectly capable of being used for various transactions all over the world, including India. That being said, there is no ban on cryptocurrencies in India.
After a long-drawn-out legal battle, cryptocurrencies have finally emerged victorious in India with the Supreme Court lifting the trading ban on banks. <link to blog 1 or 2>
Long story short, the RBI had restricted all banks from facilitating a direct rupee trade for cryptocurrencies. As of March 2020, however, this ban stands canceled owing to a ruling by the Supreme Court. This means that banks are now free to provide services to crypto exchanges. CoinDCX became the first exchange in the country to allow bank transfers, hours after the ban was overturned by the apex court. Users are now free to link their bank accounts to their profile on CoinDCX or CoinDCX Go and start trading.
The ban imposed by RBI in 2018 was, in practice, only a partial ban and by no means had it rendered the trading of cryptocurrency illegal in the country. This is because investors were free to engage in crypto-to-crypto trade, and even exchange BTC in INR with each other but not directly with or through their banks. The removal of the ban has, however, given a fresh lease of life to the industry. With banks now allowed to partner with crypto exchanges, the market is more attractive than ever. This also gives access to a greater number of people to jump onto the crypto bandwagon and become a part of the revolution.
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While it may seem overwhelming at first, trading is easier than you may think. CoinDCX has a step-by-step guide to make your first move into the crypto world a smooth one.
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