In April 2018, the Reserve Bank of India proposed a ban on dealing and usage of any sort of virtual currencies within banks and financial institutions. The Reserve Bank of India and the Government of India have previously issued several warnings regarding the risk involved in the market of cryptocurrency which included currencies like bitcoin. The regulator provided all the businesses three months to end their links with the same.
Blockchain, not Bitcoin
Later, post the implementation of the ban, in July, the central bank clarified and listed the reasons behind the barring of virtual currency. The first reason being the protection of investors and banks from frauds in comparison to The Ponzi Scheme.
“It has said that it wants to ring-fence gullible investors and lenders from scams, several of which have happened internationally.”
The government further showcased its fear regarding the illegal trade of cryptocurrency, which could cause economic disequilibrium, funding of terrorism and money laundering due to its anonymous nature of transactions.
The prohibition created havoc in the marketplace — the decision directly impacted 50 lakh Indian investors of VC with an estimated $2 billion stake in Bitcoin alone. However, the Reserve Bank of India mentioned it recognizes the weight of Blockchain Technology and distributed ledger technology and would promote its participation for the growth of the financial institutions.
“We also recognize that the Blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has potential benefits for financial inclusion and enhancing the efficiency of the financial system and we also believe that they should be encouraged to exploit beneficially for the economy,”
-BP Kanungo, Deputy Governor, RBI
The VC market clasped down drastically, which resulted in the shutting down of various exchanges in India. Zebpay, the largest cryptocurrency exchange in India, announced its winding up of services in September 2018. Being the best in the industry, Zebpay had the largest and most reliable stakeholders. Zebpay disabled any cryptocurrency exchange but did not disable the accounts of the investors. Other such companies to shut down after the Reserve Bank of India’s circular includes companies like Coindelta, Koinex, and Cryptokart. The Coindelta in their closing dialogue said that the unfavorable environment for exchanges leaves them with no other choice and hence, announced their closure due to economic reasons.
“Much to our regret, we will no longer be able to provide exchange services for cryptocurrencies. It has been really difficult for us to operate Coindelta exchange for the last 6 months. The curb on the bank accounts by RBI has made us handicapped in order to provide seamless deposit and withdrawal services. There has not been any significant progress in the Supreme Court case which makes it difficult to predict when we will see the regulation.”
-Shubham Yadav, Founder (Coindelta)
Similarly, Koinex announced their shut down stating the disruption faced in trading due to the RBI’s decision regarding cryptocurrency. RBI has proposed a jail term of 10 years for dealing in cryptocurrency which has led to a steep fall in the trading section. Such regulatory terms issued by the RBI has led to an outburst of emotions on behalf of the people involved in buying and selling of crypto. Many such Virtual Currency players are planning to shift overseas for operations towards the ‘cryptocurrency-friendly’ locations such as Singapore, Switzerland, Estonia, Malta, Japan, Dubai, and the Cayman Islands. Neeraj Khandelwal, the co-founder at CoinDCX, said that shifting abroad would help their company to expand its business globally. South-East Asia and Europe are highly profitable markets with remarkable technology. Whereas countries like the Philippines, Singapore, Vietnam in Asia, Australia, and UAE are great markets with definite regulations.
Anirudh Rastogi, a managing partner at TRA, a law firm that represents several bitcoin exchanges in India, believes that shifting the company to a different country would serve more like an expensive alternative. He also said that regenerating the entire business idea won’t be an easy task either and thus, only the bigger firms with great financial backing would be able to survive.
The Unocoin ATM controversy
In October 2018, Unocoin, another top cryptocurrency exchange firm, installed India’s first cryptocurrency ATM at Kemp Fort Mall, Bengaluru. It originally aimed at allowing Unocoin customers to withdraw or deposit cash which could be then used to make purchases and sales on the website or mobile app. However, just a week after its installation, the Bengaluru Police arrested the company’s co-founder, Harish BN, claiming that the company failed to take permissions prior to setting up the kiosk in the mall. The next day, Sathvik Vishwanath, another Unocoin co-founder, was taken into custody. The duo failed at branding as they touted the kiosk bitcoin machine as an ATM. The Reserve Bank of India norms doesn’t permit any non-banking entity to set up or operate ATMs. Moreover, the ATM was installed against the RBI’s clampdown of virtual currency in the nation. Earlier, Finance Minister Arun Jaitley has also said how the country doesn’t recognize cryptocurrency as legal tender.
A number of people from the crypto- industry spoke for a period of one week in support of the Unocoin co-founders on how the police have crossed the line by taking them into judicial custody.
“They could have had asked for clarifications, issued a penalty, or there are many other simpler ways in which this could have been dealt with instead of making us look like criminals”
RBI vs Crypto community
Despite the turmoil created in the cryptocurrency industry due to the impending provisions, the Supreme Court has been delaying the hearings. The first court hearing was held on 29th March 2019, wherein the two-Judge Bench of the Supreme Court ordered to list the case in the second week of July. The Supreme Court rescheduled the hearing of the case to from 23rd July to 24th July. On July 24th the court set a new conditional date of 2nd August which was later changed to July 25th for all five pending crypto writ petitions. The hearing for the crypto case was further delayed by the court and was updated to 29th July and then to 2nd August.
It has been a year-long battle for the cryptocurrency community since the Reserve Bank of India proposed a ban on the dealing of virtual currency. A number of stakeholders in VC filed writ petitions to object to the ban. The court hearings related to cryptocurrency petitions have been repeatedly postponed.
The latest court hearing held on 21st August 2019 turned the tables around as severe criticism came in from Supreme Court Justice Rohinton Fali Nariman that asked the Central bank to give appropriate representation to justify crypto ban within a time period of 2 weeks.
What is ahead for cryptocurrency in the country still remains a mystery: