What are the Recent Supreme Court judgment on Cryptocurrency entails?

In the recent few years, Cryptocurrency has taken the financial world by surprise. First, by its massive gains and later, through laws surrounding bitcoin regulation and the consequent fall in prices. Amidst all of this, India had regressively banned cryptocurrency, with the Reserve Bank of India categorically asking banks not to deal in any cryptocurrency, and exit relationships with entities dealing in cryptocurrency. However, people in India continued to deal in bitcoins through online trading platforms. In this context, we analyze the recent Supreme Court judgment that has struck down the RBI circular banning cryptocurrency in India as void. 

What is a cryptocurrency and how does it work?

Beginning from the year 2009, there emerged several forms of digital currency such as Bitcoin, Ethereum, Litecoin that have recorded massive gains in the returns offered. A bitcoin is like a regular currency, tradable at the stock exchange, or a transaction in currency. However, it has one fundamental difference – the government does not guarantee this. Thus, the underlying assets are bitcoins that are mined through an extensive algorithmic process that involves very high-level computing skills. It will conceive by its creator who continues to remain anonymous. As a digital alternative to old-fashioned gold. Additionally, it is a new kind of universal money that can owe by everyone and spent anywhere. It can be without involving any third parties like central banks. Moreover, it cannot own by any government and therefore, can decentralize. 

Why was the government banning it? 

The RBI and the government banned it for one simple reason – lack of safety. At a time when the Indian economy is already in stress due to banking system flaws. Additionally, bad debts, frauds, and online money laundering, it has a belief that regulating cryptocurrency would’ve been very difficult. Moreover, given the anonymity associated with the trading of a cryptocurrency over the internet, the government deemed it more appropriate to ban it altogether, rather than developing extensive infrastructure to control cryptocurrency transactions. Other challenges with cryptocurrency include monitoring of risks associated and guaranteeing consumer protection to parties involved. 

Internet and Mobile Association of India vs RBI – why the Supreme Court struck down RBI’s  circular

In striking down the RBI circular, the Supreme Court relied on several international, national, and financial concepts around regulating this new technology- 

India’s FATF Obligations 

The FATF (Financial Action Task Force) defines ‘Virtual currency’ as a digital representation of value that can be traded digitally and functioning as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but not having a legal tender status. Cryptocurrency means a math-based, decentralized convertible virtual currency protected by cryptography by relying on public and private keys to transfer value. The report asks national authorities to undertake a coordinated risk assessment. This is of virtual currency products and services against money laundering and terror financing. 

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RBI disproportionately banned all types of virtual currencies, despite allowing blockchain

The Court said that the RBI has not applied its mind to the fact that not every cryptocurrency is anonymous. These are globally classified into anonymous and pseudo-anonymous. Therefore, if the problem is clear to address, it is the anonymity of transactions. The same can achieve by resorting to the least invasive option of prohibiting only anonymous cryptocurrencies and not a blanket ban. The court notes the paradoxical situation of allowing blockchain technology (the background technology for cryptocurrency) but bans cryptocurrency. 

Balancing interests

Under the Banking Regulation Act 1949, the RBI is under an obligation to act in the “interest of the banking system” and in “interest of the monetary stability” and “economic growth”. No study was undertaken by RBI before the question measure was taken and hence, the decisions are not upon knowledge or expertise.

Cryptocurrency is the new money

The Court also tells on international judgments indicating that virtual currencies around the world are subject to the tax. Additionally, they can see within the definition of “property”. And is also construe as non-traditional currency. Since currency itself has metamorphose from Stone Age to paper currency to paperless transactions. Digital currencies are here to stay and the RBI must take precautionary measures rather than banning the trade in virtual currencies. 

No losses incurred

The Supreme Court also notes that the RBI has not come out with a stand that any of the entities that regulate it such as nationalized banks. Moreover, scheduled commercial banks, cooperative banks, or NBFCs have suffered any loss. Additionally, adverse effects directly or indirectly, on account of virtual currencies. No case is found by RBI in the past 5 years or more, the activities of virtual currency exchanges have a registration on an adverse impact. 

Suggestions such as Aadhar based cryptocurrency verification, developing insurance of cryptocurrency assets. Additionally, the formation of investor protection funds is some of the reforms that the RBI may adopt in the future to safeguard investor’s interest. It is in the evolving virtual currency market. 

Way Forward

Since the highest court of the country has given a green signal to the central bank regarding cryptocurrency. The virtual currency trading in the country will likely be given a boost. Moreover, government revenues could increase through the taxation of these market instruments. Likewise, while also minimizing black marketing and illegal transactions in virtual currencies over the web.