With the popularization of internet technologies, virtual currency – called cryptocurrency has also been invented. A popular form of cryptocurrency is bitcoin. As cryptocurrency became popular, people started investing and trading in bitcoins across the globe even though the trade was not regulated. Trading in an unregulated sector can lead to money laundering, fraud and even terrorist funding. This popularly growing new sector also requires tax reforms to account for the incomes being generated by the consumer. However, there was no existing protection - neither for consumers nor for the business runners in India.
Acting in the interest of consumers, the government cautioned people about the risks in dealing with virtual currencies stating that virtual currencies are not a valid legal tender in India and even made clear that virtual currencies do not have a regulatory protection in India1 . The Reserve Bank of India (RBI) through its notification dated 06.04.2018 prohibited dealing of virtual currencies in India. As per notification, the central bank, while exercising its power, stated that the entities regulated by RBI will not deal in virtual currencies. Therefore, consumers could neither process nor settle their cryptocurrency transactions as the bank entities of the RBI cannot deal in purchase/ sale of virtual currency2 .
There is now a small hope for consumers in India that the cryptocurrency trading may start again. As per the latest judgement by the hon'ble Supreme Court of India in case of Internet and Mobile Association of India v. Reserve Bank of India3 , the court set aside the RBI notification dated 06.04.2018 on the grounds of proportionality. The judgement by the apex court was regarding the future of cryptocurrency in India, as the court highlighted that "In case the said enactment (2019) had come through, there would have been an official digital currency, for the creation and circulation of which, RBI/Central Government would have had a monopoly."4 The 2019 draft enactment Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 20195 prohibits mining, holding, selling, trade, disposal and use of cryptocurrency in the country. However, the said draft bill allows the government, in consultation with the RBI, to issue digital rupee as legal tender.
We raise a question here, whether it is possible for the policy-makers to regulate the virtual currency in India. The Supreme Court judgement highlights the RBI statement regarding the fraud of Rs.2,000 crores (Rupees Two Thousand crores) that took place in India masterminded by Gain bitcoin which promised return on investment, but no return ever happened and also a similar event which happened in a country like Japan where theft of 850,000 bitcoins had occurred. But instead of banning virtual currency, Japan regulated its virtual currency business by amending the Payment Services Act which regularises the cryptocurrency business in Japan.6