Rbi regulation on bitcoin

rbi regulation on bitcoin

A month ago, RBI Governor Shaktikanta Das had said the RBI has Cryptocurrency and Regulations of Official Digital Currency Bill, The central bank official shared his no-holds-barred opinions on risks and regulatory challenges posed by cryptocurrencies. This has been amplified further by the recent statement of RBI Deputy Governor—“The Financial Stability Institute of the Bank for International. LOCO BITCOINS В рамках фестиваля мы предоставим скидку в размере 10 процентов на все имеющиеся в наличии фото. Вы окунётесь студий:С пн покидая Петербург. В рамках работ как предоставим скидку так и молодых создателей на все.

Speaking to reporters at the conclusion of the RBI's board meeting, the finance minister said talks were on with the central bank on the matter prior to the budget and are continuing. Sankar said cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi Schemes, and may even be worse.

Download your money calendar for here and keep your dates with your moneybox, investments, taxes Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday. This time it's over firm's monthly growth 'Elon Musk is like that guy who accepts job offer but doesn't show up on joining date': Indian Twitter Unable to step out, Shanghai residents scream from homes amid stringent lockdown Watch 'Let me see him for a while': Ukrainian woman weeps by son's manhole grave Banning cryptocurrency the most advisable choice open to India, says Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol.

Banning cryptocurrency the most advisable choice open to India, says RBI Deputy Governor The comments are significant in the context of an ongoing debate whether to ban crypto currencies or not. Dinesh Unnikrishnan. Related stories. Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Trending news. The Court of Appeal also observed that several restaurants in the Miami area accepted Bitcoins as a form of payment and hence Bitcoin functions as a medium of exchange.

Ainsworth [10] namely, that it must be i definable; ii identifiable by third parties; iii capable in their nature of assumption by third parties; and iv capable of some degree of permanence. The court applied the aforesaid four criteria whilst also predicating its reasoning on UK Jurisdictional Taskforce of the Law Tech Delivery Panel's report titled "Legal Statement on the Status of Cryptoassets and Smart Contracts", to affirm its reasoning to declare that crypto assets constitute property under English law.

David Hedqvist [11] , wherein the ECJ was asked to discern whether transactions to exchange a traditional currency for the 'Bitcoin' virtual currency or vice versa, which Mr. Hedqvist wished to perform through a company, were subject to value added tax or not. Therefore the ECJ ruled that the transactions in Bitcoin were entitled to exemption from payment of VAT as they fell under the category of transactions involving 'currency and bank notes and coins used as legal tender'.

Technological innovation has belittled the intermediary role played by banks and financial institutions by supplanting the physical cash transactions and quintessential method of storing data relating to transactional records as well as verifying the same. This technological innovation begat a digital transaction system which is called the Distributed Ledger technology DLT whereby all the independently verified transactions are published and arrayed onto a public ledger and also this ledger is broadcasted across all the computer nodes connected to the common database.

The transactional details of users transacting in crypto-assets stored on a public ledger are secured through blockchain technology as Cryptocurrencies are currently the most commonly used blockchain application. Blockchain is defined as "an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.

Blockchain security predicates upon encryption technology through public and private keys. Blockchain relies on three prime elements in order to function: decentralization, proof-of-work consensus, and practical immutability of transactional record. Blockchain accords a platform like public ledger to its users to independently verify the transactional records instead of relying on the third party intermediary to legitimize a transaction.

Moreover the distributed ledger technology expunges the possibility of concentrating data at a single location by disseminating copies of transaction details to all the nodes connected to the common repository of transactional record. Therefore, multiplicity of copies of blockchain data disseminated on the public ledger makes it immune to tampering because if one would want to alter the transactional record then he has to alter all the copies that are floated across the common database.

As mentioned in the foregoing paragraph, that blockchain technology creates a trustless trust, as it is writ large that a transaction in cryptocurrency is pseudonymous, by incentivizing network consensus to verify the validity of a transaction by the process called mining to ensure that only valid transactions are added to the ledger. The trustless trust that is created, is bolstered by the process of mining as when any transaction is executed and broadcasted over all the nodes then miners, who are independent users vie to solve complex mathematical problems to validate a newly added block containing transaction record for a reward in cryptocurrency, which underlies the concept of proof of work.

Therefore, this very concept becomes the edifice of the trustless trust where the trust is reposed on the complexity and esoteric nature of the cryptographic computational problems rather than on any central financial third party intermediary. The process of mining takes high level of computing power to solve such abstruse mathematical puzzles in order to validate a transaction, which deters miners from verifying a fraudulent transaction.

Permanence and immutability of record is another endogenous feature of blockchain technology and cryptography. Once the transaction is verified by miners, then the transaction details of a user is packaged in a block and each block has a unique identifier or hash function denoted in an alphanumeric code bearing semblance to the previous block on the blockchain, which is then linked to the preceding blocks to form an infinite chain of transactions.

The semblance of these unique identifiers hashes or alphanumeric codes is a testament to the legitimacy of every newly added transaction as every code would contain a reference to the previous block so that each block is linked to every previous transaction.

Thus, this blockchain technology leverages the trust of the users assuring them that they have accurate untampered records that are not susceptible to any influence of any central authority or intruders and ensuring the permanence, transparency and immutability of record of transactions disseminated to all the nodes connected to the public ledger. The virtual currency's ecosystem has evolved into a parallel transparent, easily accessible and secure payment mechanism enfeebling the potency and monopoly over the issuance of fiat currency of the central authority.

But the growth of VCs has endangered not only the exalted status of central banks in their respective jurisdictions but also engendered concomitant risks. Certain factors that might deter widespread use of virtual currencies are as follows:. Triviality of RBI's de-minimis ostensible regulatory control on Virtual currencies exercised by ring fencing the regulated entities: A sop or a befuddled approach?

The disquisition on the incipient stage of virtual currency ecosystem and its technological brilliance, in terms of bringing about a complete metamorphosis in the payment system by introducing an alternative to fiat currency, culminates into an inescapable conundrum of regulatory mechanism for cryptocurrencies as to whether such mechanism is antithetical to the ethos of cryptocurrency and even if such regulation is warranted, then how such regulatory mechanism should curb the vices associated with cryptocurrency transactions sans distorting the rudiments of virtual currencies on which this system thrives today.

The panacea to this conundrum can either be in affirmative or negative and therefore there cannot be any middle path as preferred by the Reserve Bank of India by issuing a circular in , cautioning users, holders and traders of VCs in apropos of various risks associated with virtual currency transactions and exhorting them to avoid participating in them.

Perhaps, a peculiar fact that crops up for consideration is that the depredations that were launched through the circular was only for virtual currency exchanges by interdicting only the interface of virtual currency with fiat currency and hence such a regulatory control is de-minimis or negligible as it deals with only the convertibility aspect of transactional ecosystem of cryptocurrencies leaving the other possible means by which cryptocurrency transactions could be effectuated.

Thus, the interdiction of VCs by ring fencing the regulated entities by severing the ties between the virtual currency exchanges and financial institutions depicts central government's as well as RBI's befuddled approach in tackling the pitfalls of VCs, furthermore the act of interdiction, aimed only at VCEs leaving other possible modus operandi of transactions in VCs like mining and storing VCs in digital custodian wallets rather than on blockchain, relegates as nothing more than a sop in the name of regulation.

The genesis of the need for regulatory regime was reflected in the RBI's Financial Stability Report released in which accentuated the risks and concerns about data security and consumer protection on one hand and its deleterious ramifications on the efficacy of monetary policy on the other hand, of the fast paced innovations such as virtual currencies.

The objects as enshrined in the preamble of the RBI Act as well as in the scheme of statutory provisions, entrust following functions to the Central Bank:. In addition to the following functions entrusted to the Central Bank, Section 45JA enumerates the power of RBI to regulate the financial system of the country to its advantage which is disparate from the powers of the RBI to operate the currency and credit system of the country to its advantage as envisaged in the preamble of the RBI Act.

The concerns sought to be addressed by Section 45JA 1 are public interest, financial system of the country, interests of the depositors and interests of NBFCs. Therefore, anything that may pose a threat to or is conceived to be inimical to the financial system of the country, can be regulated or prohibited by RBI. Moreover, Section 45L addresses yet another concern namely, the regulation of the credit system of the country to its advantage which stands in contradistinction to the power to operate the credit system.

Whilst exercising the power to issue directions conferred under Section 45L 1 b , it is incumbent upon the RBI to have due regard to the objects for which central bank as RBI has been established, its statutory responsibilities and the impact the businesses of such financial institutions, which are regulated as well as monitored by the RBI, is likely to have on trends in the money and capital markets.

The Reserve bank of India also draws its powers from the Banking Regulation Act, , which are conspicuously manifested in the Statement of Objects and Reasons for the Banking Regulation Act, , one of the prime features of which is to widen the powers of RBI so as to enable it to come to the aid of the banking companies in times of emergency. RBI is empowered to determine the policy in relation to advances to be followed by the Banking companies.

The determination of policy may be predicated upon some pertinent factors namely, the public interest, interests of depositors or interests of the banking policy. The directions issued under the aforesaid section may be issued in public interest, in the interest of banking policy, to prevent the affairs of the banking company from being conducted in a manner prejudicial to the interests of the depositors or of the banking company itself and lastly to secure the proper management of the banking company.

Section 36 1 a enlarges the powers of the Reserve bank of India by bestowing it with the powers to caution or interdict banking companies against entering into any particular transaction or class of transactions. The brobdingnagian repository of powers wielded by a central behemoth like RBI galvanized it to cause depredations on the virtual currency's ecosystem by issuing a circular in to ring fence the regulated entities as a pre-emptive action against the possible harm that may be inflicted on the financial system of India.

The Constitutional validity of the aforesaid circular, interdicting the banking companies to accord any services to the persons or exchanges involved in cryptocurrency transactions was challenged, as being ultra vires in the case titled Internet and Mobile Association of India v. Reserve Bank of India [19] , wherein the SC categorically quashed the circular on the grounds of proportionality simultaneously upholding the ban imposed by the RBI on virtual currency exchange platforms. The disquisition on the conundrum of regulatory powers of RBI over VCs transactions is reduced to ascertaining as well as delineating the various other modus operandi through which persons or entities engage or deal with cryptocurrency transactions.

The ban imposed by impugned circular aimed at only the liaison or intermediary platforms namely, the virtual currency exchanges VCEs through which cryptocurrency transactions interact with the market, but there are various other modes through which cryptocurrency transactions can be consummated sans any VC exchange platforms. Another viable mode of generating and dealing with cryptocurrency is through the process of mining, whereby a reward is earned in VC in consideration for miners' services for legitimizing transactions stored in blocks on public ledger by solving abstruse mathematical computational problems.

Furthermore, a person or entity may also engage, deal or transact in cryptocurrency by storing it in digital custodian wallets. As virtual currencies cannot be stored anywhere as being bereft of corporeality, therefore what can actually be stored are the private keys, which can be used to access the public address and transaction signatures. The private and public keys of those who own virtual currencies are stored in a software program called a digital custodian wallet. Moreover, these keys may be stored in different kinds of wallets, depending upon the logistics available to store them, namely paper wallets, mobile wallets, web wallets, desktop wallets, and hardware wallets.

Interestingly, these wallets can be accessed from anywhere in the world and therefore, have great mobility. The easy accessibility as well as great mobility lay impetus on its usage to consummate transactions in VCs, allowing a person to use the cryptocurrency stored in the wallet for buying and selling provided the counterparty accepts or remits transactions in cryptocurrencies.

Thus, upon foreclosing the disquisition on the different modes through which VCs interact with the populace, it seems conspicuous that what actually got hit by the impugned circular was merely one channel, namely virtual currency exchanges, providing platform for its users to facilitate the activity of convertibility whereby users transact in VCs after getting them exchanged for fiat currency or vice-versa leaving other viable modes, still through which persons or entities can transact in VCs merrily.

The actual or the primary target which still eludes regulation is the trade in VCs, which is yet not prohibited by Indian law except trading in them through VCEs and other platforms which facilitates convertibility of VCs into fiat currency. Therefore, the impugned circular does not per se interdict the purchase or sale of VCs.

The genesis of resorting to a tortuous route to assail the VCs ecosystem is premised on the absence and inability of proceeding to confront and target directly as targeting directly is not within the domain of RBI, as also acknowledged by the RBI. Hence, the impugned circular issued by RBI launched a tortuous attack to ring fence the regulated entities by invoking its powers contained in the RBI Act, as well as the Banking Regulation Act, Therefore, in the process of ring fencing the regulated entities by severing the umbilical cord that VC has with fiat currency thereby paralyzing the VC platforms and Exchanges by restricting the access to the Banking services eventually making the convertibility aspect the bidirectional flow of the VCs defunct, has perhaps hit the ancillary target.

Thus, the corollary that is engendered from the aforesaid proposition is that the impugned circular issued by the RBI has hit the VC Exchanges and not the actual trading of VCs, which it actually purports to monitor and regulate. The Apex Court, whilst adjudicating upon the Internet and Mobile Association of India's [20] case adumbrated that RBI did not have any cogent material placed before it prior to issuing a circular to interdict the VCs interface with the regular banking sector.

The ban imposed by the circular that ensued into paralyzing the VCEs by ring fencing the regulated entities was effectuated despite not only the RBI but also the Supreme Court unable to find anything wrong about the way in which these VCEs function and despite the knowing that VCs are not declared as unlawful and thus not banned in many countries.

Ban imposed by any executive decision is considered to be an extreme step of administrative action and the ban imposed by the RBI circular is one which may be considered as an intrusive measure when less intrusive alternatives were available and yet neglected. The proportionality and legality of a complete prohibition or a ban are factors which are tested on the touchstone of actual harm test evolved by the Constitutional courts whilst exercising its powers of judicial review.

However, the RBI failed to prove the 'actual harm' suffered by any of its regulated entities on account of the provision of banking services to the online platforms running VC Exchanges which fortified the relief claimed by the petitioners to quash the impugned circular imposing ban, suffused with infirmities of being disproportional as well as bad in law. The former accorded a great leeway in allowing users to buy and sell crypto-assets but only on a recognized virtual currency exchange whereas the latter recommended the imposition of a complete ban.

The action of imposing a ban whilst seeking to assail its primary target to address the growing concomitant risks of unintentional breaches of anti-money laundering laws and countering financing of terrorist activities directives, instead prompt the miscreants to carry such nefarious activities surreptitiously so that they can be away from the gaze of the law enforcement agencies.

Therefore, the ban in my view as rightly held by the SC wasn't a viable panacea to the conundrum of formulating a regulatory scheme for the parallel economy of cryptocurrencies. The legitimacy of Cryptocurrency ecosystem looms in limbo and uncertainty around the globe as manifested by the manner in which it has been dealt with, by either resorting to foiled or dodgy attempts made by the European Union and many other sovereign jurisdictions in tackling the concomitant perils, which users transacting in crypto-assets may expose themselves to.

As virtual currency ecosystem is hinged on unfettered decentralization and anonymity which are its inextricable features and therefore sine qua non for any transaction to be termed as a cryptocurrency transaction, therefore tweaking the same features for the purpose of regulation would tantamount to belittling the VC ecosystem. Perhaps, it's like fitting a square peg into a round hole when it comes to fitting cryptocurrencies into the traditional legal framework governing fiat currency.

The discourse on regulation of virtual currencies is suffused with core technical deficiencies like decentralization and anonymity, which engenders inherent semantic ambiguity in definitions of VCs rendered by various money market regulators and financial institutions across the world. The money market regulators and International bodies also realize the need to bring uniformity and coherence in the definitions of VCs before regulating it, so that it may facilitate in framing a regulatory mechanism to streamline the technical deficiencies, further to also mitigate the risks associated with it in tandem with sustaining the sine qua non features of VCs ecosystem.

Moreover, International financial institutions and regulators are apprised of the gradual growth of the parallel economy, begat by VCs and thus apprehend the possible supplanting of fiat currency by VCs in future. Therefore, to thwart the building of a parallel economy of VCs as feared by many critics, many central banks across various jurisdictions have begun to frame rules to curb the vices associated with the transactions in cryptocurrency.

But Indian Central Bank RBI took an extreme step by imposing a ban, which was an impulsive as well as an early step against newly innovated virtual currencies, which is yet to flourish and become an equivalent of fiat currency.

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