In April 2018, the central bank had tightened rules to discourage the use of virtual currencies like Bitcoins.
The Supreme Court on Wednesday allowed dealing in cryptocurrency, quashing an earlier ban imposed by the Reserve Bank of India (RBI) on trading in virtual currencies such as Bitcoin. The development came as a major relief for the sector, as the RBI ban restricted lenders from facilitating banking transactions for cryptocurrency exchanges and traders. The top court’s order followed a plea by the Internet and Mobile Association of India (IMAI) objecting to the RBI ban. The industry body – whose members carried out cryptocurrency transactions among each other – had claimed the move effectively banned legitimate business activity via virtual currencies.
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A three judge bench of Justices Rohinton Nariman, Aniruddha Bose and V Ramasubramanian pronounced the judgment. A detailed judgement was expected in the evening.
IMAI had argued that cryptocurrency is not strictly currency and was more in the nature of commodity, and the RBI does not have powers to impose such ban in the absence of a law in that regard prohibiting cryptocurrency.
The RBI contended that it had, right from 2013, been cautioning users of cryptocurrencies and that it considers cryptocurrency a digital means of payment which has to be nipped in the bud so that the payment system in the country is not jeopardized. The regulator also argued that it is empowered to take decisions banning cryptocurrencies.
In April 2018, the central bank had tightened rules to discourage the use of virtual currencies such as Bitcoins, prohibiting banks and financial institutions from providing any related services.
The central bank gave entities three months to snap all banking relationships with individuals or businesses dealing in virtual currency. That ban was aimed at “ring-fencing” the country’s financial system from the private virtual currencies, deemed illegal by the government.
Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Bitcoin – the largest and most popular among cryptocurrencies – has appreciated by almost half so far this year, and last month, it touched the $10,000 mark against the US dollar for the first time since October.
Other major cryptocurrencies which tend to move in correlation with Bitcoin have also gained this year; while Ethereum has more than doubled, Ripple’s XRP is up over 75 per cent.
Bitcoin’s 11-year history is replete with fast ascents and equally rapid plunges. In late 2017, it rose three and a half times in just 35 days to reach almost $20,000. It then slumped 70 per cent in seven weeks. Such wild and often inexplicable swings are why Bitcoin faces a struggle to become a functioning currency.
While many regulators around the world have been warning against trading in Bitcoin, some have backed it. In 2017, Japan accepted Bitcoin as legal currency and even officially recognised exchanges dealing in the cryptocurrency.