Bitcoin is seven years old now, and although the cryptocurrency has gained broader acceptance and grew a large userbase, the laws and regulations around it are still a grey area. However, when compared to its initial years, there has also been a softening of stance towards the cryptocurrency from governments. Authorities are beginning to tolerate it more as they continue to track it vigilantly. Rather, they are looking for the best regulations for it, rather than trying to shun it. The scare is over. One such example of changing perceptions can be found in India.
It was in June 2013 when the Reserve Bank of India (RBI) formally touched upon the topic of virtual currencies in a report related to the regulations and infrastructure of the financial sector. The report mentioned about the use of online and mobile technologies (virtual banks, virtual currencies) and said, “…these developments pose challenges in the form of regulatory, legal and operational risks.” It further said, “The regulators are studying the impact of online payment options and virtual currencies to determine potential risks associated with them.” The stance of the apex bank only got more rigid with time and it issued an advisory titled as, “RBI cautions users of Virtual Currencies against Risks” in a press release in December 2013.
At the time when this warning was issued, India already had few bitcoin exchanges and services running. But the issue of the caution note resulted in temporary or indefinite suspension of operations by many such websites and services. In fact, the first bitcoin raid by a team of Enforcement Directorate (ED) officials was carried out just three days after the issue of RBI’s warning.
It was said that bitcoin trading practices were violating the Foreign Exchange Management Act (FEMA) rules. The portal BuySellBitcoin soon after read, “Post the RBI circular, we are suspending buy and sell operations until we can outline a clearer framework with which to work. This is being done to protect the interest of our customers and in no way is a reflection of Bitcoin’s true potential or price.”
Another such notice appeared on the website of INRBTC, which read, “In light of RBI’s notice, services of INRBTC.com are being suspended indefinitely.” It also added that, “All pending orders will be cancelled and the deposits on those orders will be refunded 100 percent to the users.”
This was the darkest phase for bitcoin in India and things have been relatively brighter even since. An answer by RBI Governor Raghuram Rajan during a television show in December 2014 gave a boost to bitcoin (and other virtual currencies). He said, “I have no doubt that down the line, we will be moving towards a primarily cashless society…and we will have some kinds of currencies like this (bitcoin) which will be at work.” He further added, “I think these virtual currencies will certainly get much better, much safer and over time will be the form of transaction, that’s for sure.”
But this wasn’t good enough to end the confusion over the regulatory landscape in the country. Thus, entities engaged in bitcoin (and other virtual currency) operations and services have tried to overcome the issues like ‘hawala’ transactions (money laundering) and investor fraud “electronic – ponzi” schemes by following strict KYC (know your customer) guidelines. The suspicion that individuals are indulging in ‘hawala’ transactions in the name of virtual currency trading had in fact prompted the raid at BuySellBitcoin, a bitcoin exchange back in 2013.
The nascent bitcoin industry continues to fight the odds. There are many bitcoin service-providers and exchanges that operate in the country and try to be on the right side of law by following their self-laid-out protocol. Some of these exchanges are coinsecure, BTCXIndia, Unocoin, and LocalBitcoins.com. There is also BuySellBitcoin, re-branded as Zebpay, which made news recently as it raised $1 million.
Zebpay describes itself as “the fastest and easiest way to buy and sell bitcoins in India.” As reported by the Times of India, “Ahmedabad-based startup Zebpay has raised $1 million funding in order to promote bitcoins in India, even if the virtual currency is yet to get direct support from regulators across the globe, including the Reserve Bank of India.” The report also suggests that, “A part of the funding will be used to develop the blockchain technology, which is used to record bitcoin transactions in a secured manner.”
Zebpay’s fundraising has almost coincided with a RBI report released in December 2015, which covered the Financial Regulation Sector. In the report, the Reserve Bank of India has praised and endorsed the blockchain technology. According to the report, “With its potential to fight counterfeiting, the ‘blockchain’ is likely to bring about a major transformation in the functioning of financial markets, collateral identification (land records for instance) and payments system.” The statement by the apex bank has been cheered by the bitcoin community.
As per a news report published in August 2015, “India has around 50,000 bitcoin enthusiasts, with 30,000 of them actually owning the currency.” While the figures would be slightly higher now, India still isn’t a significant participant in the virtual currency revolution, but its potential can’t be challenged.
Given its huge population, increasing usage of internet users, and tech-savvy individuals and entrepreneurs, India presents a great stage for such virtual currencies in the times to come. The regulatory aspect remains a huge hindrance as the real growth of the bitcoin industry can only happen when the regulatory “uncertainty” doesn’t exist.
On the other hand, the authorities want to ensure that they understand the bitcoin (and like virtual currency) ecosystem well, before formally framing regulations around it. The biggest challenge lies in ensuring that no illicit practices are carried out in the name of virtual currency trading. A disruptive process has begun globally and a virtual currency future is almost inevitable. When the time is right, India will arrive – in a big way.