In a welcome development on the Bitcoin front, Supreme Court of India has taken note of the possible illegal use of Bitcoin and is reported to have questioned RBI on its inaction in taking a decision on Bitcoins. It has given a four week deadline to examine all security related issues pertaining o virtual currencies including bitcoin.
The Supreme Court has also sought information on the steps taken by the government and the RBI to ensure digital currencies aren’t used for terror funding and money laundering.
It may be recalled that the Government of India has been examining the issue of whether Bitcoins have to be legalized in India and there has been a gathering of public opinion in this regard through the Mygov.in website last month. During that time there was a concerted effort from the industry to push the Government into taking a stand inclined to either recognize Bitcoin as a “Legal Tender” or atleast say that the Crypto Currency is being “Observed”.
Naavi.org has been repeatedly stating that Bitcoin and all other privately controlled crypto coins has no place in the economy and there is no option other than declaring them as “Illegal”.
However there is undoubtedly an effort to influence the Government into taking a decision in favour of Bitcoin legalisation mounted by the industry. Even the above report in Cryptocoinnews.com ends up with a hope that “A Ban is highy unlikely”.
Any attempt to promote Bitcoin as a “Currency” that can be used for payment for goods and services is per-se violation of the RBI Act and those who indulge in such promotion may be punishable with imprisonment of 3 years.
It is no secret that Bitcoin is being used by criminals and terrorists and hence any thought of continuing its usage in India is completely unacceptable.
If Bitcoin is not immediately declared illegal, there is likely hood of more Indian Black money being converted into Bitcoins.
It is good that the Supreme Court has taken cognizance of these possibilities and put pressure on RBI to spell out its policy and not remain silent in this regard.
A report in Livemint.com quotes M/s Nisthit Desai, the legal firm that is representing some of the Bitcoin industry players suggests that the industry should “Self-regulate”.
It is not clear how can an illegal activity can “Self-regulate”. The law firm is trying to mislead the public that by what they call “Self regulation”, the ill effects of Bitcoin could be curtailed. The self-regulation that the industry is talking of is for the Bitcoin exchanges to follow KYC principles and identifying the buyers and sellers in the exchange. This will not make “Bitcoin” legal or “Bitcoin Exchange activity” legal. It is surprising that SEBI has not so far taken penal action on Bitcoin Exchanges for running the exchange business like a “Commodity Exchange” without any authority.
Supreme Court should have also pulled up SEBI for its inaction in this regard.
During the recent effort to gather public view on Bitcoin regulation through MyGov.in, there was an effort from MCX itself to support legalization of Bitcoins. When this was vehemently opposed by Naavi.org, the comment posted by MCX on the MyGov.in site was removed without any explanation. This indicated that there were perhaps corrupt elements within the Government who want Bitcoins to be legalized.
The Supreme Court observation and direction therefore may perhaps be making some people in the power corridors a bit uncomfortable.
We however welcome the direction of Supreme Court and urge RBI to immediately come out with
a) Declaration that Bitcoin being represented as “Currency” is punishable under RBI Act
b) Declaration that Bitcoin being traded like either a commodity or a foreign exchange currency is illegal and punishable under RBI Act
Since Bitcoin is per-se not legal, there is no further regulation that needs to be considered except to declare that any person in possession of Bitcoin is presumed to have acquired it illegally through the illegal exchange activity and hence is punishable.
The question of collecting tax also does not arise since the trading itself is illegal and any profits made there on is not legal ab-initio.
Criminal punishment may perhaps be spared if the holders voluntarily declare and hand over possession of their Bitcoin possession to the RBI for destruction like it is done when fake currency or drugs are confiscated.
It is observed that the Bitcoin exchange rate has fallen drastically in the last few weeks and it could be a result of the realization that India may not fall into the Bitcoin trap by allowing current status.
Another trap which RBI should avoid is to restrict its ban only on Bitcoin and leaving other AltCoins. It must be recognized that Bitcoin is easily convertible into other Altcoins and hence all privately controlled Crypto currencies must be considered as fungible and equally illegal. Hence the ban should extend to all such Crytpo Currencies.
Unless RBI introduces its own Crypto Currency, there is no scope for any other Crypto currency to be legally recognized in India. What is left is for the RBI to clear the air and remove the uncertainty that may encourage some innocent persons to invest their hard earned white money into Crypto Coins and lose.