Note: This post has been written by a WazirX Warrior as a part of the “WazirX Warrior program“.
On 18 August 2008, the domain name http://bitcoin.org was registered. Later that year, on 31 October, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. This paper detailed methods of using a peer-to-peer network to generate what was described as “a system for electronic transactions without relying on trust”.
This is how the first cryptocurrency was born with the intention to be used as electronic cash, however, we had multiple cryptocurrencies created using Bitcoin’s underlying technology “Blockchain”.
Cryptocurrencies can not be used as legal tender until the governments legalize it and back it by regulations.
Let’s have a look at the stand various countries have today on this topic. The terms used by countries to reference cryptocurrency include digital currency (Argentina, Thailand, and Australia), virtual commodity (Canada, China, Taiwan), crypto-token (Germany), a payment token (Switzerland), cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon), and virtual asset (Honduras and Mexico). In India, it is yet not clear because we don’t see a uniform term used in the country.
In a number of jurisdictions, surveyed cryptocurrencies are accepted as a means of payment. In the Swiss Cantons of Zug and a municipality within Ticino, cryptocurrencies are accepted as a means of payment even by government agencies. The Isle of Man and Mexico also permit the use of cryptocurrencies as a means of payment along with their national currency. Much like governments around the world that fund various projects by selling government bonds, the government of Antigua and Barbuda allows the funding of projects and charities through government-supported ICOs.
However, the other countries have a very different stand when it comes to regulations of cryptocurrency trading, holding, and mining.
- Spain, Belarus, the Cayman Islands, and Luxemburg. – Working on crypto-friendly regulations
- Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam – Ban any and all activities involving cryptocurrencies.
- Qatar and Bahrain – Bar their citizens from engaging in any kind of activities involving cryptocurrencies locally, but allow citizens to do so outside their borders.
- Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia – No ban on investing in cryptocurrencies but indirect restrictions imposed by barring financial institutions within their borders from facilitating transactions involving cryptocurrencies
Also, this is how few countries made their stand clear on taxation on cryptocurrency:
- Israel – taxed as an asset
- Bulgaria – taxed as a financial asset
- Switzerland – taxed as foreign currency
- Argentina & Spain – subject to income tax
- Denmark – subject to income tax and losses are deductible
- United Kingdom: corporations pay corporate tax, unincorporated businesses pay income tax, individuals pay capital gains tax
- Russia: mining that exceeds a certain energy consumption threshold is taxable
Where does India Stand in Terms of Crypto Regulation?
India stands in no man’s land with its intention tilted the same as Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam, A BAN.
Most recently, on April 6, 2018, the RBI issued a notification prohibiting banks, lenders, and other regulated financial institutions from “dealing with virtual currencies but the notice was struck down by the Supreme court of India in March 2020.
On November 2, 2017, the Centre constituted an Inter-Ministerial Committee, which initially recommended the ‘Crypto-token Regulation Bill of 2018’. This Bill found a complete ban on VCs an “extreme tool” and suggested regulatory measures. At that point, the committee was even fine with the idea of allowing the sale and purchase of digital crypto assets at recognized exchanges.
The Supreme Court noted how the same committee did a “volte-face” in just two years.
From a permissive draft bill, the Inter-Ministerial Committee went on to recommend a “total ban” on private cryptocurrencies through proposed legislation called ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Act’ in February 2019. This proposed law contemplated the creation of a digital rupee as the official currency and a legal tender by the central government in consultation with RBI.
The position as of date is that cryptocurrencies trading, holding, and mining is legal in India.
The picture below shows the legal status of Bitcoin across the globe: