Ending years of wait-and-watch policy, the government is set to take steps soon to regulate the use of virtual currencies (VCs) like Bitcoin in India. A government panel, formed on April 12 to suggest measures to deal with VCs, are veering towards a consensus that “it is not something which needs to be promoted”, said an official aware of the matter.
Before finalising its report, the panel is also likely to seek views from the public as well as from the cryptocurrency start-ups. The panel, however, may not recommend a blanket ban on digital currencies, as it is difficult to implement. Bitcoin essentially operates on a peer-to-peer basis. It is both a digital asset and payment system, the users of which can transact directly among themselves without a banking intermediary.
The currency in itself is generated through a computer software known by the same name, which ‘mines’ a certain value of this digital currency, transfers it directly among users and maintains records on a distributed ledger powered by blockchain technology. The panel mentioned above, comprises members from department of economic affairs, income tax department, ministry of home affairs, Reserve Bank of India and market regulator Sebi. It was formed after Reserve Bank of India cautioned people in February that no entity/company has been authorised to operate virtual currency schemes. There were also concerns with regard to money laundering
The latest RBI warning seems to have been prompted by the surge in the price of Bitcoin after demonetisation –from about Rs 40,000/a piece in October 2016 to about `1,00,000 now. Besides Zebpay, there are several exchanges like Coinsecure and Unocoin which provide platforms to users in India to trade Bitcoins for any currency including rupee.
Globally, Bitcoin surged to an all-time high of about $1,500 per unit recently, more than tripling in value over the past year, with its most recent rise attributed to strong demand in Japan, where the digital currency has been deemed a legal means of payment.
The US has recognised it as a commodity. The global circulation of Bitcoins are estimated to be worth $24 billion (roughly about 16 million units).
The Indian government panel has not yet firmed up its mind whether to classify VCs as derivative or commodity and what will be their tax treatment. The objective of regulating VCs is to discourage their use like is the case for gambling, one official said. At present gambling in India is regulated by a Central Act and several state Acts, which specifically prohibits public gambling and running or being in charge of a common gaming house.
Though the volume of Bitscoin transactions are very low in India, the number of users have shot up to 10 lakh from below 1 lakh a year ago. Besides fund transfers from overseas, users can use Bitcoins from buying pizza and movie tickets to shopping on Amazon, Flipkart, Freecharge, Bookmyshow and Makemytrip.
Cyrptocurrency start ups are anxious about the government moves on Bitcoins. “We would request the government to make regulation simple, not make very complicated right now,”said Saurabh Agrawal, CEO of Zebpay. Arguing that strong regulations would hinder new players and technology evolution, he said Bitcoin start-ups would cooperate in addressing concerns with regard to money laundering.