Synopsis–The focus will particularly be on defining cryptocurrencies as ‘private’ and ‘public’ as the government is looking to allow public ones, such as those floated by countries, and ban private ones.
Mumbai: The wording of the proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, could spark a legal tussle between exchanges and the government with the spotlight on definition, classification and use.
The focus will particularly be on the defining of cryptocurrencies as private and public, lawyers and industry executives said. The distinction is crucial because the government is looking to allow public ones, such as those floated by countries, and ban private ones. It’s not clear if the legislation will name assets such as Bitcoin or Ethereum.
The exchanges are consulting legal experts on the bill that aims to regulate cryptocurrencies and create a Central Bank Digital Currency (CBDC). They are likely to argue that none of the cryptocurrencies—Bitcoin or Ethereum—are “private” assets as they don’t have an owner or issuer.
India is looking to introduce its own cryptocurrency and will have to differentiate it from the existing ones, while clearly establishing what’s allowed and what’s not. Any ambiguity could be tested by cyrptocurrency exchanges, the experts said.
“The issue is how does one define a cryptocurrency, whether it’s a currency, commodity or a security and the legal status in India would depend on how the law defines it. In most countries it’s legal and regulated,” said Nishith Desai, managing partner at Nishith Desai Associates. “Sound regulation would be welcome in India whereas a ban would be excessive. India missed the first Industrial Revolution in a big way; Indians should not be made to bypass the Fourth Industrial Revolution—blockchain and crypto assets being an integral part of it.”
Nishith Desai Associates has been engaged in drafting a legal opinion on cryptocurrency and several exchanges. It was also part of the case in which cryptocurrency exchanges had challenged a 2018 Reserve Bank of India (RBI) circular in the Supreme Court. The court last year quashed the circular that barred banks and financial institutions from dealing in or facilitating trade in virtual currencies. That saw cryptocurrency exchanges mushroom across the country.
“The Supreme Court order that came in March 2020 is a very robust one and the government will have to come up with a sound bill that will convincingly address the observations of the Supreme Court so as to withstand the judicial scrutiny,” said Rashmi Deshpande, partner at Khaitan & Co. “While exact wordings of the bill will have to be seen, one thing is quite sure—a currency launched by a central bank or a government is more private than the public currency such as Bitcoin.”
Khaitan & Co. partnered Crebaco Global, a research and intelligence firm focused on blockchain technology along with cryptocurrencies, on a proposal that argues for self regulation as against a government framework that could make them illegal. The proposal was sent last month to the Prime Minister’s Office (PMO), finance ministry, law ministry, Ministry of Electronics and Information Technology, NITI Aayog, the Securities and Exchange Board of India (SEBI), RBI and tax departments.
More details are being sought on the likely contours of the legislation.
“We are seeking clarification on how the government is defining ‘private cryptocurrency’ as there is no such concept of a private currency in a decentralised technology,” said Monark Modi, founder and CEO of Bitex Technologies, which runs a cryptocurrency trading platform.
Since Bitcoin is a mathematically issued token, it is public because it is issued on permission-less ecosystem and there is no issuer, the exchanges say. On the other hand, the government is said to be of the view that anything non-sovereign is private.
“The blockchain networks which facilitate crypto transactions are public in nature and that’s why no private entity can be considered as the absolute owner of digital assets,” said Shivam Thakral, CEO, of BuyUcoin. “We, as an exchange, provide trading services to the users, just like any other stock exchange in the world.”
If the government bans private digital currency and only allows those issued by a central bank, the courts may require a rationale for identical treatment of ‘natural digital assets’ such as Bitcoin and other non-sovereign cryptocurrencies that may have an issuer,” said Mandar Kagade, founder principal, Black Dot Public Policy Advisors.
Crypto players may argue that they have a case under Article 14 read with Article 19 of the Constitution which deals with equality before law and the right to do business, Kagade said.
ET reported February 11 that the government is readying a law that could give cryptocurrency exchanges 90 days to unwind operations in India. It would also make investing, trading or holding Bitcoin and other cryptocurrencies illegal, the report said.
( Originally published on Feb 11, 2021 )