Cryptocurrencies are decentralized digital assets that are under the radar of the government. However, cryptocurrencies are not banned in India, but there are no proper regulations that categories them under a specific asset class. The Indian finance minister has also said Bitcoin will not be accepted as a method of payment which indicates that it might be regulated but not banned.
What are Cryptocurrencies and are they illegal?
In simple terms, Cryptocurrencies are intangible digital assets that function on blockchain technology. To simplify it further, you can compare cryptocurrencies to virtual assets or currencies which can be used as a medium of exchange or a store of value. These tokens can be either exchanged for any other goods and services or can be bought and stored for value appreciation in the long term. Either way, cryptocurrencies are similar to the fiat currency that we use but with some differences.
The prime difference between fiat currency and cryptocurrency is cryptos are decentralized.
What is decentralized? you may ask.
The term ‘Decentralisation’ means cryptocurrencies are not controlled or governed by a private body like a company or the government. The whole network of cryptocurrencies works on the blockchain network which is a ‘Peer to Peer’ network that works autonomously with the help of the internet. Unlike the fiat currency which is controlled by the central bank (RBI), cryptocurrencies are not regulated by a central authority.
Because of this, cryptocurrencies are extremely volatile and make huge price swings due to the buying and selling activities of investors.
Are cryptocurrencies illegal in India?
As of now, there are no legislative regulations that term cryptocurrencies illegal. Therefore, if you own cryptocurrencies like Bitcoin or Ethereum, you are not indulging in any illegal activity.
Will Cryptocurrencies be banned in India?
Recently, a lot of investors were spooked by a news report which stated that India might regulate or ban private cryptocurrencies. Although this report turned out to be an over-exaggeration of the statement but still if you are worried about the future of cryptocurrencies in India, let’s find out if these are going to be banned.
As of November 2021, the government of India has not made any formal statements related to the ban of cryptocurrencies. However, the government is trying to regulate the asset so that investors are protected from illegal activities like money laundering, corrupt transactions, etc.
Before the 2021 winter session of the parliament, the government also declared that they might come up with a cryptocurrency bill that will include a framework to regulate the asset, but nothing has come up yet. On the other hand, India’s finance minister, Nirmala Sitharaman had earlier said that Bitcoin (which is the largest cryptocurrency in terms of market cap) will not be recognized as a formal medium of payment in India.
Recognizing the potential of blockchain technology, the government of India is working on a ‘Central Bank Digital Currency’ which will be a cryptocurrency that will be regulated and controlled by the central bank of India.
Bottom line
An absolute ban on all cryptocurrencies is highly unlikely at this juncture, as the government is already trying to govern it instead of banning it completely. By implementing proper rules and regulations related to the asset, the government will not only be able to monitor the inflow and outflows from the asset but also collect additional revenue in the form of capital gains tax and other transaction taxes.
The topic on the ban of ‘private cryptocurrencies’ did not include any definitive indication on which cryptocurrencies will be banned. Although going by the name, it might be possible that the currencies that do not have a public ledger system could be termed under ‘Private Cryptocurrencies.’
Bitcoin and Ethereum fall under a public network system, where any individual can verify and check the transition done on the network. Hence the risk of them getting banned is significantly weak. However, until a formal bill is passed on this matter, we cannot assume anything. Hence, you should limit the exposure to cryptocurrencies and invest only after knowing all the potential risks. And also remember diversifying your crypto holding into the top-most popular currencies like Bitcoin(BTC), Ethereum(ETH), BNB, and others.