This article will answer a very common question that people have, i.e., if cryptocurrency is Legal or Illegal in India.
There are two different things here to understand-
- Cryptocurrency being legal
- Cryptocurrency being allowed as a legal tender
So, is it legal?
Yes, completely.
In April 2018, the RBI imposed a ban on Indian banks to have a relationship with crypto companies. The RBI was against cryptocurrencies due to issues like Money-laundering and Security. People had started using Bitcoin to accept payments for Weapons and Drugs. So, it became tough for law enforcement agencies to track transactions. Therefore, the RBI decided to impose a banking ban on Crypto in 2018.
Crypto exchanges have been operating since 2013 in India. So, some exchange founders decided to challenge this ban in the Court. They got the chance to explain to the Supreme Court and RBI about how cryptocurrencies and Blockchain work. They believed that the negative aspects related to cryptocurrency are also valid on other asset classes. Eg. Money laundering through property, printing of fake notes, fraud schemes, hacking of bank systems and stock exchange systems, corrupt officials, etc. So, the problem associated with crypto is also applicable to other things as well.
Several exchanges also got shut during this ban. But finally in 2020, this ban on banks was lifted by the Supreme Court and the banks were allowed to have business relationships and provide banking services to any cryptocurrency exchange, because the RBI couldn’t prove any harm that happened to the existing financial system due to cryptocurrency. As a safety measure, reputed exchanges started requiring KYC from users to use their platforms.
And according to Article 19(1)(G) of the Indian Constitution, it is a fundamental right of every citizen to practise any trade or business. And the Supreme Court said that RBI’s banking ban was interfering with this fundamental right.
And this was a really big thing, because it is not easy to win against RBI in the court. So, 4th March 2020 was a historical day for the Indian Crypto Industry. The Supreme Court said that cryptocurrency investments, trading, and exchanges are completely legal.
We can now freely invest in cryptocurrency and have the opportunity to diversify our financial portfolio.
The most important thing here to understand is that this ban was not on Cryptocurrencies! It was just on the banks to associate with cryptocurrencies in any manner.
So, in short, investing and trading in cryptocurrencies is completely legal!
Then, what’s the problem?
The problem is that cryptocurrency is still an illegal tender of money. Now, what does this mean? This means that if I go to a shop to buy a television, and say that I will pay some ‘xyz’ amount of Bitcoin in return. Is it allowed? No! Because cryptocurrency is not yet a legal tender. So, I’ll have to pay in INR.
Now you’ll be thinking that it is illegal and useless. But wait… Hear me out.
Even if I go to the same shop and say pack that television for me but suddenly remember that I don’t have Rupees with me right now. So, I say that I will give you 100 ITC stocks in return. Is that allowed? No! Because even stocks are not a legal tender.
So, currently cryptocurrencies are also being used as an asset for financial investments just like stocks in India. But slowly countries are adopting Bitcoin as a legal tender too. For example- El Salvador made Bitcoin legal tender on June 9, 2021. It is the first country to do so. The cryptocurrency can be used for any transaction where businesses are ready to accept it. Some other countries like Ukraine and Panama are also in the talks to make Bitcoin legal tender.
I hope that you now understand the difference between cryptocurrency being legal and cryptocurrency being allowed as a legal tender in India.
