Is India on the brink of becoming the next China? Did the central bank make bitcoin illegal? Or legal? Or both? A newspaper reports that bitcoin has become illegal in India, but an Indian exchange denies this. A committee shall decide who is right.
According to the Economic Times of India the Indian central bank, the Reserve Bank of India (RBI), pointed out that the use of virtual currencies like bitcoin is not authorized by the RBI and “could result in the breach of anti-money laundering provisions.” The RBI already warned users, holders, and traders of the risks that the use of bitcoin could result in.
In a somehow obscure quote Arjun Ram Meghwal, Minister of State for Finance, indicated that users of bitcoin might run into trouble without knowing:
"The absence of counterparties in usage of virtual currencies including Bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws."
Megwhal further explained that the creation of virtual currencies as a means of payment are not authorized by the central bank.
The Indian exchange ZebPay, however, disputes that a criminalization of Bitcoin is at issue:
“No, that is not true. Nothing has changed regarding bitcoin’s legal status in India this week. In our opinion, bitcoin is not illegal. Bitcoin is legal under all existing laws. It’s business as usual at all Indian bitcoin exchanges, including Zebpay.”
But, ZebPay continues, “there’s no smoke without fire.” Many new technologies stroke fear, “especially among regulators as it is their responsibility to protect us.” Bitcoin is no exception, and ZebPay appreciates the “concerns of regulators and politicians.” The recent notice of the RBI was a reaction on a prominent Member of Parliament who indicated that Bitcoin is a Ponzi scheme.
Ponzi schemes have become, ZebPay explains, unfortunately common. They use different methods to accept and transfer payments. Most use Rupee, but some, unfortunately, also use bitcoin. And like the Rupee is not a Ponzi, neither is bitcoin. “In fact for a few months now, we have been regularly warning our users to beware of such Ponzi schemes on our website, Facebook and Twitter accounts.”
The idea that bitcoin is criminalized is a result of the misunderstanding that bitcoin is not a currency, but a Ponzi scheme. If you ban Bitcoin because it is used in Ponzi schemes, you also also should ban the internet or smartphones.
Another publication interpreted the statement of Meghwal in a way that Bitcoin is not regulated, but not illegal. However, it is illegal to do things with bitcoin you are not allowed to do with Rupee, like money laundering or drug trafficking. Which might be a first step of regulating Bitcoin as something that is legal by itself.
According to ZebPay, recently an inter-ministerial committee was founded to study the legality of bitcoin in India. It is scheduled to announce a response until April 20, 2017. Until then bitcoin is neither banned in India nor legalized, it is somewhere in an abeyance.
That bitcoin draws attention by Indian regulators is no surprise and has been only a question of time. Since mid-2016 demand for bitcoin has risen rapidly in India. After the government decided in November 2016 to withdraw 80 percent of the circulating cash, the interest in bitcoin grew at an even faster rate.