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The Journey of Cryptocurrencies in India

The journey of cryptocurrencies in India hasn’t been short of a roller-coaster ride. From facing a ban to now being on the verge of strict regulations, the virtual asset has faced a series of threats.

Despite uncertainty around the future of cryptocurrencies in India, investments in the unregulated digital asset, especially Bitcoin, has shown a breathtaking upward trend since 2020. Data from various domestic cryptocurrency exchanges suggest that more than 1.5-2 crore Indians have invested in the asset class, hitting the $10 Billion mark in November this year. The growing number of cryptocurrency adopters suggests a shift in the investment paradigm in the country that is known to invest more frequently in gold and other safer assets. Ahead of the much anticipated Cryptocurrency and Regulation of Official Digital Currency Bill, let us have a look at the journey of the virtual asset so far.

2008- Inception of Cryptocurrencies
The journey of cryptocurrency started with the publication of a paper titled “Bitcoin: A Peer to Peer Electronic Cash System” in 2008 by a pseudonymous developer by the name of Satoshi Nakamoto.

2010: First Sale Using Crypto
Two years later, the first sale of an item using Bitcoin took place with someone swapping 10,000 Bitcoin for two pizzas. This attached a cash value to cryptocurrencies for the first time. Soon enough, other cryptocurrencies such as Litecoin, Namecoin and Swiftcoin began to emerge and the digital asset started gaining traction.

2013: RBI Issues First Circular Regarding Cryptocurrencies
As crypto investments picked up in India too and exchanges including Zebpay, Pocket Bits, Coinsecure, Koinex, and Unocoin began springing up, the Reserve Bank of India (RBI) issued a circular warning users of the potential security-related risks pertaining to the use of virtual currencies in 2013.

2016-2018: Demonetisation and RBI’s Banking Ban on Crypto
The increases in preference for digital payments brought about by the demonetisation experiment also gave an unintended boost to crypto investments, driving tech-savvy customers to the virtual asset. The Indian banks continued to allow transactions on cryptocurrency exchanges pushing the RBI to release another circular in 2017 conveying its apprehensions with virtual coins. Finally, a warning clarifying that virtual currencies are not a legal tender was issued by the RBI and the finance ministry by the end of 2017.
In March 2018, a draft scheme for banning virtual currencies was submitted by the Central Board of Digital Tax (CBDT) to the finance ministry and just about a month later the RBI came out with a circular restraining banks, NBFCs and payment system providers from dealing with virtual currencies and providing services to virtual currency exchanges. This dealt a heavy blow to crypto exchanges and trading volumes fell by 99%.

November 2018: #IndiaWantsCrypto
On 1st November 2018, ten years after Nakamoto’s paper, Nischal Shetty, Founder of WazirX, started the #IndiaWantsCrypto campaign for the positive regulation of crypto in India. The earliest impact was seen when the campaign received a positive response from Rajeev Chandrashekhar, a sitting Rajya Sabha MP. The campaign was later joined by celebrities such as Sathvik Vishwanath of Unocoin, Polygon Co-founder Jaynti Kanani, renowned entrepreneur and investor Anthony Pompliano, and DJ Nikhil Chinapa. Nischal’s relentless tweets and support for the campaign has garnered widespread acknowledgement with the hashtag trending on twitter during the budget session in February where the crypto bill was announced. Recently, in July 2021, #IndiaWantsCrypto completed 1000 days and the campaign is still going strong with Nischal’s tweets and lakhs of other crypto enthusiasts joining it in it’s course.

March 2020: Supreme Court Strikes Down the Crypto Banking Ban
The ban was a massive setback and resulted in crypto exchanges filing a writ petition in the Supreme Court and the ban was ultimately stricken down, declaring the RBI circular unconstitutional.
Cryptocurrency exchanges, thus, sprung back to life and the SC ruling came at the best possible time, coinciding with the crypto boom.

2021: Announcement of Crypto Bill
However, the battle for cryptocurrencies in India was not over yet. On Jan 29, 2021, the Indian government announced that it will introduce a bill to create a sovereign digital currency and subsequently put a blanket ban on private cryptocurrencies. In November 2021, the Standing Committee on Finance, met the Blockchain and Crypto Assets Council (BACC) and other cryptocurrency representatives and concluded that cryptocurrencies should not be banned but regulated. In early December 2021, Prime Minister Narendra Modi also chaired a meeting on cryptocurrencies with senior officials.

The Bottom Line
Going by the current indications, a strong regulatory framework will be put in place to deal with cryptocurrencies in India. The decision on which regulatory body will take care of the issue remains to be taken. Most likely, the government would treat crypto as an asset class and not a currency. Experts are of the opinion that regulations will bring more transparency and accountability to crypto trading platforms. Checks and balances might also be introduced to prevent fraud and monitor cross-border transactions. Despite uncertainty around the future of the unregulated digital asset, cryptocurrency adoption has gained significant momentum in the last two years, making India the biggest investor. Hence, what turn the crypto journey takes in India post the parliamentary bill will be interesting to see.

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