Why Bitcoin, cryptocurrencies often face political heat? Virtual currency's legal status, its future explained
Bitcoin and cryptocurrency are in the news again after allegations were levelled against Congress's Maharashtra chief Nana Patole and NCP (SP)'s Supriya Sule of being involved in "illegal bitcoin activities" to fund their poll campaign. Meanwhile, do you know what cryptocurrencies are? Check here.
Amit intense poll battle in Maharashtra, just a day before crucial voting in the state assembly elections, the Bharatiya Janata Party alleged National Congress Party (Sharad Pawar) leader Supriya Sule and state Congress chief Nana Patole's involvement in a cryptocurrency fraud. The allegations created a huge political outrage in the poll-bound state, prompting Sule to file a complaint with the Elections Commission of India (ECI). However, this is not the first time cryptocurrencies made headlines for the wrong reasons. Earlier, the Bitcoin scam created upheaval in Karnataka politics. It is also alleged that ban organisations do transactions in cryptocurrencies to skip enforcement agencies. Bitcoin or other cryptocurrencies become a soft political target as there is no one to take accountability for the virtual currency. Since it is yet to be regularised, it is seen in the wrong light and politicians attack rivals for involvement in its transitions which are difficult to trace or cross-check the allegations.
What are cryptocurrency/bitcoins?
A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. They exist on decentralised networks using blockchain technology -- a distributed ledger enforced by a disparate network of computers.
What does Bitcoin mean?
Bitcoin is the name of the most recognized cryptocurrency, the one for which blockchain technology was created. Cryptocurrency has no intrinsic value and is not redeemable for another commodity, such as gold. It has no physical form and exists only in the network. Its supply is determined by the protocol, not a central bank
What is the legal status of Cryptocurrency?
India is formulating a framework for cryptocurrencies, but until it is enacted, crypto is not yet illegal. In 2022, the government announced a flat 30 per cent tax on gains arising from cryptocurrencies. Taxing income from cryptocurrencies does no necessarily and explicitly legalise cryptocurrencies.
The Reserve Bank of India (RBI) too has been skeptical about the use of private crypto assets and considers it as a major threat to macroeconomic and financial stability of the country.
Finance Minister Nirmala Sitharaman has repeatedly stated that cryptocurrency issued by private entities cannot be the currency. Currency it would be when the Reserve Bank of India issues a digital currency, he had stated.
Private digital currencies/virtual currencies/crypto currencies have gained popularity in the past one decade or so. Regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.
It can be noted that on March 4, 2021, the Supreme Court had set aside an RBI circular of April 6, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.
Currently, crypto assets are unregulated in India. Here cryptocurrencies are regulated from the perspective of anti-money laundering law. Besides that, income tax and TDS is levied on earnings from trading in such virtual digital assets. Also, GST is levied on cryptocurrency exchanges.
In July last year, Finance Minister Nirmala Sitharaman had said that "international collaboration" would be needed for any effective regulation or ban on cryptocurrency.
What is the Reserve Bank of India's stance?
Earlier, the Reserve Bank of India had proposed a ban that was set aside by a court order. The RBI considers cryptocurrencies as huge risks to financial stability, and monetary stability. RBI Governor Shaktikanta Das had last month said that such virtual assets may create a situation where the central bank may lose control of money supply in the economy.
The RBI has recommended that crypto assets should be prohibited. Crypto assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only with significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.
What is the way forward for cryptocurrencies?
Currently, an inter-ministerial group (IMG), comprising officials from RBI, Sebi and the Finance Ministry, is looking into a wider policy for cryptocurrencies. A discussion paper from the IMG is awaited, which will give the stakeholders an opportunity to give their views before India decides on its policy stance on cryptocurrencies.
(With PTI inputs)