Supreme Court lifts curbs on cryptocurrencies, junks RBI circular

Crypto currency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The Supreme Court set aside RBI’s circular asking the banks and entities to stay away from dealing in crypto currency including bitcoin. Bitcoin is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer to peer bitcoin network without the need of intermediaries.

The judgment stated that the circular has been set aside on the ground of proportionality. Developing a market for cryptocurrencies which are formally, traded in derivatives markets in the US, with CME allowing trade in them. Crypto currencies are virtual currencies and are a digital representation of value. They can be digitally traded and can function as medium of exchange.

Rachit Sharma deputy general manager taxmann said that the Supreme Court’s order could be a temporary relief for investors and intermediaries. The government has a draft framework in place for regulating cryptocurrencies. The draft proposes to ban all crypto currencies except the state issued ones. All intermediaries and banks were forced to shut down the platforms providing trading of cryptocurrencies.

Former finance secretary Subhash Garg headed the committee to propose virtual action on currencies. In its report the committee had recommended banning private crypto currencies and penalty for those who dealt in them is imprisonment upto 10 years.  

Drawbacks of cryptocurrencies:

·        Use of crypto currencies is dangerous.

·        They are not stable and have no sovereign backing.

·        Can be used for illegal activities.

Where other countries stand:

CANADA: Crypto currencies permitted as a payment system and as a form of investment. Income is taxed from them.

SWITZERLAND: permitted as a payment system and as a form of investment.

JAPAN: permitted and regulated as payment system.

CHINA: banned for all purposes.

The judgment is also expected to benefit blockchain. Nishit Desai founder of Nishit Desai Associates represented the Internet and Mobile Association of India (IAMAI) said that they have been fighting this issue since 2013. This ruling will facilitate the growth of blockchain for the benefit of e Governance, eVoting, stock, record etc. The government too will benefit as it will be able to collect more direct and indirect taxes.

Exchanges are eager to launch trading in cryptos. Many exchanges have shifted their base to Singapore, Malta & Malaysia. The promoters of one of the largest exchanges, Zebpay recently sold their stake to overseas investors. Zebpay will offer crypto-to-crypto trading.