Explained: The proposed cryptocurrency Bill and what it means for India

A Bill to regulate private cryptocurrency in India has led to some frenzy among those who invested in the digital currency. Here's an explainer on what the new Bill is and why there is panic
A representative image showing the bitcoin logo in the background and a person on the phone in the foreground
A representative image showing the bitcoin logo in the background and a person on the phone in the foreground
Written by:

Many who invested in cryptocurrency in the country went into a frenzy on Tuesday, November 23, as the Lok Sabha’s bulletin on the Bills to be tabled included the Bill on cryptocurrency, which may regulate or ban the same. Due to this, reports stated that there was heavy selling on India’s crypto exchanges. The app of WazirX, one of India’s leading cryptocurrency exchanges, crashed as well due to increased user activity.

Chatter regarding the Bill was also in the initial months of the year as it was to be tabled during the Parliament’s Budget session, but it wasn’t. Now, the Bill is listed to be tabled in the upcoming Winter Session. In the description for the Bill to be introduced, it said that the Bill seeks to "create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India,” but also to prohibit all private cryptocurrencies while allowing for certain exceptions. In the event that cryptocurrency is prohibited in the country, then crypto exchanges will not be able to function. Estimates regarding the number of cryptocurrency users vary, with the industry saying there are 1.5 crore registered cryptocurrency users with total assets worth $6 billion.

What is cryptocurrency?

Cryptocurrency could be defined as digital or virtual currency on blockchain technology, and currently in India is not legal tender — that is, a form of exchange like the rupee where you can pay for something with a cryptocurrency, such as Bitcoin. However, it is a medium of exchange, and it is accepted in some parts of the world. In September, El Salvador gave Bitcoin the status of legal tender.

Cryptocurrency such as Bitcoin and Ethereum is decentralised, which means there is no authority (bank, government, authority etc) overlooking it. In contrast, for example, India’s central bank, the Reserve Bank of India, regulates and oversees the supply of the rupee and also issues it.

Blockchain is what enables cryptocurrency to exist and is known to be extremely secure. Simply put, it is an open ledger and is maintained across computers that are linked across a distributed network. Cryptocurrencies use cryptography to secure information or communications. Crypto transactions are recorded on blockchain.

Why there is panic currently

One of the reasons there is panic is because of the word “private cryptocurrency,” especially since there is no clarity on how this is defined. Sharan Nair, the co-founder of cryptocurrency exchange CoinSwitch Kuber, tweeted on Wednesday, November 24, that in the context of the Bill, any currency that is not issued by the government is considered "private cryptocurrency." This, he said, would include cryptocurrency such as Bitcoin, Ethereum and everything else.

There is no consensus, with varying understandings of public and private tokens, but it won’t be cleared until there’s a draft of the Bill in the public domain. It is to be noted that the Bill hasn’t been tabled yet, and there are news reports but no official draft of the Bill in the public domain.

One opinion, according to Livemint, is that popular crypto such as Bitcoin and Ether could be allowed, as transactions made are traceable while still providing anonymity, and those such as Monero and Dash, which obscures transaction information to provide privacy, could be barred.

What the state of those who currently have crypto investments will also only be clear once a draft of the Bill is released.

What has happened before this

A draft version of the Bill was put out in 2019, which not only barred holding, mining, trading or selling of cryptocurrency but even proposed that it come with punishment and imprisonment of upto 10 years. The draft Bill only allowed that technology underlying any cryptocurrency for experiments, research or teaching to be used.

In the months since February — the last time this Bill was supposed to be tabled -- there have been consultations between the Union government and the industry, and the industry opting for self-regulation and welcoming government regulation. There have also been reports regarding banning the use of crypto as currency, but permitting it as an asset class for investors.

Last week, the Standing Committee on Finance chaired by Jayant Sinha met the representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC), among others, and arrived at a conclusion that cryptocurrencies should not be banned, but it should be regulated, reported PTI.

Currently, there are neither specific regulations nor an outright ban on the use of cryptocurrencies in the country.

The RBI, however, has repeatedly flagged issues, saying there are "far deeper issues" involved in virtual currencies that could pose a threat to the country's economic and financial stability.

The RBI had announced its intent to come out with an official digital currency amid the proliferation of cryptocurrencies about which the central bank has concerns.

Former Finance Secretary Subhash Chandra Garg told IANS that cryptocurrencies don't function and provide services as currencies only. “When you 'ban' cryptocurrencies what exactly do you ban? Similarly, what are the permissible exemptions? Do you permit cryptocurrencies to make in platform payments the largest exemption issue? What is the manner you permit the purchase of exempted cryptocurrencies for exempted use by sovereign currencies?" he asked.

The biggest matter which will need to be seen in the proposed Bill is how crypto platforms are going to be permitted to produce goods, services and assets using the technology of blockchain and cryptography when its use as a currency-asset, Garg said. He headed the inter-ministerial committee (IMC) that drafted the cryptocurrency Bill.

Ashish Singhal, Founder, and CEO of CoinSwitch Kuber and the co-Chair of the Blockchain and Crypto Assets Council (BACC) said in a statement that discussions over the last few weeks indicate “there is broad agreement on ensuring customers are protected, financial system stability is reinforced and India is able to take advantage of the crypto technology revolution,” and asked investors to remain calm. 

Related Stories

No stories found.
The News Minute