Since the Reserve Bank of India (RBI) demonetized ₹500 and ₹1,000 banknotes on 9 November 2016, there has been a sudden surge in demand for Bitcoin in India.
Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
Bitcoin is unique in that there are a finite number of them: 21 million.
Since its inception in 2009, bitcoin has grown in popularity. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
In August 2016, researchers from the University of Kentucky found “robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives”.
The RBI has not banned the use of bitcoins in India. However, it has cautioned users, holders and traders of virtual currencies (including bitcoins) about the potential financial, operational, legal, customer protection and security related risks associated in dealing with such virtual currencies.
The use of Bitcoin in India is not currently recognized or regulated by the Indian government. There is a risk that using Bitcoin could be considered illegal or may be subject to taxation. Additionally, the use of Bitcoin carries a high risk of loss due to its volatile and unpredictable nature, as well as the potential for fraud. As such, it is important to do your own research and seek professional advice before investing in or using Bitcoin in India.
The RBI also said that it has not given any licence or authorization to any entity or company to operate such schemes or deal with Bitcoin or any virtual currency. The central bank reiterated that it has been cautioning users, holders and traders of virtual currencies, including Bitcoins, since December 2013.
In March 2018, the Supreme Court of India refused to hear a bunch of petitions seeking clarity on the legal status of cryptocurrencies and left it to the government to take a call on regulating cryptocurrencies. The court said that it would hear the matter only after the government forms its regulations.
At present there is no regulatory framework governing digital currencies in India. The government’s stance on cryptocurrencies remains ambiguous as it is yet to form regulations around them.
In the absence of clear regulations around cryptocurrencies, trading volumes have surged ahead in India. .
Experts believe that with clarity around regulations will come more adoption and usage of Bitcoin in India. Once regulations are in place, Bitcoin exchanges will be able to obtain licenses from the Reserve Bank of India (RBI) and operate legally in India.
This would give legitimacy to Bitcoin and encourage more people to start using it as a mode of payment.
Currently there are over 10 lakh active cryptocurrency traders in India and with clarity around regulations this number is expected to grow exponentially. With more adoption and usage, Bitcoin could become a viable alternative currency in India.