INTRODUCTION
Cryptocurrency, is a digital asset meant to be used as digital money. This means there is no physical coin or bill. Instead, it is all virtual and online. Bitcoin is a front runner and the most popular cryptocurrency currently. While cryptocurrencies are not likely to substitute traditional currency, they have transformed the way virtually-connected global markets network with each other.
Technology changes at a rapid rate, and the success of a given technology is primarily dictated by the market upon which it seeks to get better. Cryptocurrency is transforming digital trade markets by generating a free flowing trading system, without fees.
One can buy cryptocurrency with a credit card or in some cases, get it through a process called "mining". Cryptocurrency is accumulated in a digital wallet, either online, or on a computer or some other hardware. The key rationale behind the growth in importance of the digital form of currency lies in its character of being easily available and without any geographical restriction.
Changing times have witnessed an enormous rise in the way cryptocurrency is used. Various leading national banks of several countries including the Reserve Bank of India (RBI) had raised their apprehensions over factors like stability and regulation of cryptocurrency.
AN INDIAN LAW PERSPECTIVE
On 24th December 2013, RBI issued its first press release cautioning the users, holders and traders the risks associated with virtual currencies about potential financial, operational, legal, customer protection and security risks.
This was followed by a second press release on a similar premise on 1st February 2017 and again in December 2017, the RBI once more cautioned users of cryptocurrencies and categorically stated that no licenses had been given to operators trading in cryptocurrencies in India.
A subsequent white paper released by the RBI in 2017 provided a greater insight into how the Government of India and regulatory authorities proposed to treat cryptocurrencies in India. The white paper noted that cryptocurrencies were unpredictable in nature. These contentions of the RBI were not supported by any authority and lacked fundamental values. The RBI also noted that the use of cryptocurrencies could lead to a probable peril to the Indian monetary policy. The white paper, however, did highlight the benefits associated with the use of block-chain technology and suggested the development of an Official National Digital Currency, similar to the model adopted by Canada.
The RBI took an authoritative stand on the issue in 2018 and through a Notification dated April 06, 2018 it barred all entities regulated by the RBI from dealing in virtual currencies or providing services to facilitate any transaction involving virtual currencies.
The RBI directed all entities that were engaged in services of cryptocurrencies to cease activities within a period of three months from the date of the notification.
The Supreme Court, in Internet and Mobile Association of India v. RBI (2020 SCC Online SC 275), quashed the RBI's notification dated April 06, 2018.
The court held that while the RBI has the authority to regulate Virtual Currencies, the prohibition imposed through the 06 April, 2018 notification is unbalanced, and, therefore, ultra vires the Constitution. The Court believed that in the absence of any legislative prohibition, the business of dealing in these currencies ought to be taken as a legitimate trade that is protected by the fundamental right under Article 19 (1)(g) to carry on any occupation, trade or business. The Court observed as follows:
"The measure taken by RBI should pass the test of proportionality, since the impugned Circular has almost wiped the VC exchanges out of the industrial map of the country, thereby infringing Article 19(1)(g)."
Though, the RBI was held to be within its rights to issue the circular, the Court proceeded to examine the factor of "proportional damage" and it was held that:
"The Circular was disproportionate because none of the RBI's regulated entities namely, the nationalized banks/scheduled commercial banks/co- operative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them."
Additionally, the Court also relied on the regulatory approaches in other jurisdictions. The Court held that there were alternative regulatory means available to RBI which was not explored. The driving force of the Court's conclusion in this regard was that regulation would be a more proportionate response than prohibition.
The Supreme Court also observed that the circular disengaged the banking sector from cryptocurrency exchanges regardless of the RBI not having established anything erroneous with the functioning of these exchanges. It was also recorded that before issuing the circular, the RBI had not looked at the availability of options and less invasive measures such as regulating cryptocurrency exchanges. The Court further observed that:
"It is contended that all the issues flagged by RBI have already been addressed and that therefore, there was no necessity to disconnect the trade from the regular banking channels."
DURING COVID-19
Perhaps like any other industry, the cryptocurrency market has been affected by the pandemic. However, the effects of the COVID-19 on this sector are not entirely negative.
Even before COVID-19 arrived in the picture, digital assets were slowly becoming a settled niche. The last decade has seen a fresh kind of currency evolve, with the Bitcoin cryptocurrency having surfaced at the right time to save the world with a new definition of speed, transparency, and reliability.
Besides, in times when market commotions have been caused by the COVID-19, digital money and fin-tech apps have seen usage grow massively, thus rapidly catching the pace of overall technical progress.
As the world is evolving and dealing with this current pandemic, cryptocurrency's value and recognition will only grow, from routine payments to much more urbane uses that are yet to be imagined and created by necessity being the mother of invention.
The analysts have found that cryptocurrencies are an attractive option for investment because they do not have any direct correlation between them and traditional investments.
CONCLUDING REMARKS
Cryptocurrencies may still be at an initial stage, and its price is unfamiliar in the future, but it has been the most thrilling and potentially strong currency development after the development of fiat currency, and has given wings to the imagination not only to the rich, but the general public keen for a substitute to fiat currencies and valuable metals.
India, also with its recent judgement by the Supreme Court, is relieved for now until there is a proper regulation with regard to virtual currencies. In the period of such uncertainty, individuals would still invest in cryptocurrencies but financial institutions and the banking sector would not be willing to invest in virtual currencies. The broad scale use of cryptocurrency also seems to be uncertain, as the "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019" has been proposed with the view to forbid all private cryptocurrencies. But for now, looking at the positives to take from the judgment, it has the potential to be regulated than be completely restricted.
The Covid-19 times has taught the world to adopt a virtual and remote life. Having said that, a new beginning of cryptocurrency cannot be ruled out in the coming days, with it becoming an integral part of financial transactions.
This content is purely an academic analysis under "Legal intelligence series".
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Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.
