In the recent times, there has been a huge uproar about the ban, issued by the Reserve Bank of India (RBI), on the use of virtual currencies (VCs) and cryptocurrencies such as bitcoins, etc in India. Post demonetization in 2016, it was observed that there was a steep rise in the use of such virtual currencies for making payments of transactions instead of using safer modes of payments such as cash, debit/credit card, online banking, digital wallets, etc in India.
Cryptocurrencies generally mean virtual currencies that are secured using cryptography, i.e., techniques of encryption to secure and verify the transfer of transactions. All such transactions are recorded and verified chronologically in a public ledger known as blockchain. According to RBI, virtual currencies which are in digital form are stored in digital/electronic media that are called e-wallets.
RBI has issued circulars stating that entities using or trading in virtual currencies in India have not taken any approval/license/authorization from RBI or any other governmental authority to operate such schemes or deal with virtual currencies. Thus, the RBI has been cautioning the users, holders, traders and/or investors of the virtual currencies about the following risks:
Virtual currencies may be lost owing to hacking, loss of password, compromise of access credentials, malware attack
As virtual currencies are not created or traded through any central/authorized agency/registry, once the e-wallet is lost, all virtual currencies are also permanently lost and further, there is no framework/mechanism to address and resolve consumer disputes.
Trading of virtual currencies at the international platform exposes greater risk to the use of virtual currencies for illegal or terrorist activities, etc, as there is no genuine information available about the counterparts.
Owing to the rise in use of virtual currencies in India, RBI had issued a circular dated 06.04.2018 thereby prohibiting all entities that are regulated by RBI from dealing in virtual currencies, or from providing services to any person or entity dealing in virtual currencies. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs. Further, RBI has also directed the entities regulated by RBI, which already provide such services, to exit the relationship within three months from the date of this circular, i.e. by 06.07.2018.
A number of cryptocurrency trading platforms and entities have moved the Supreme Court seeking a stay on the RBI Circular dated 06.04.2018 that has banned the use or trade of cryptocurrencies. But a few days ago, the Supreme Court has reportedly refused to provide interim relief of stay on the operation of the RBI Circular dated 06.04.2018. The case is still pending in the Supreme Court for its final orders.
Senior Legal Associate