Legality of Bitcoin, Digital Rupee and CBDC - The Red Carpet


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Tuesday, May 9, 2023

Legality of Bitcoin, Digital Rupee and CBDC

Cryptocurrency और Digital Rupee में क्‍या है फर्क, अगर शुरु हो गया इसका  इस्‍तेमाल तो आपको क्‍या होगा फायदा?| Zee Business Hindi

Advanced money like bitcoin operates independently from any central authority or governmental oversight. All other things being equal, distributed programming and cryptography are used. Duplicates of every bitcoin exchange are stored on servers all around the world and are retained as a public record of all transactions. In 2008, the domain name was acquired, and a research paper titled "Bitcoin: A Mentoring Electronic Cash System" was published. It provided an overview of the design principles and structure of a decentralised digital currency system.

Bitcoin is the most commonly used electronic currency. The name "convertible virtual money" refers to the fact that it has a real-world counterpart. Charge recommendations apply to the exchange of convertible virtual currency as well as its use to pay for services and goods.

Every exchange is shared among hubs and announced to the entire organisation. At regular periods or nearby, developers aggregate these exchanges into a group known as a block and upload it to the blockchain permanently. This is the complete guide to bitcoin accounts. Similar to how conventional coins are kept in actual wallets, virtual currency is stored in computerised wallets that can be accessed by client programming or a variety of web and equipment setups.

Is it legal to acquire bitcoin in India?

India presently allows the use of bitcoin. The government of India has proposed a 30% level rate crypto tax on pay from digital money transactions because there are still no laws or regulations governing Bitcoin. In India, there isn't a central authority who has promoted or governed Bitcoin as a payment mechanism. Furthermore, there are no widely accepted conventions, rules, or principles for resolving disagreements that can arise when handling Bitcoins. In line with this, bitcoin exchanges have their own set of procedures. It is challenging to argue that Bitcoins are illegal because there has never been a restriction on them in India before.

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In India, the legality of cryptocurrency has been a hotly debated subject. Numerous decisions made by the Indian government make it obvious that they want to grant cryptocurrencies a recognised legal standing. In November 2017, the Indian government formed a high-level Inter-Ministerial Committee to investigate a number of issues pertaining to the use of virtual money. Then, in July 2019, this Committee presented its findings, which recommended an outright ban on private cryptocurrencies in India.

It is noteworthy that the RBI issued a circular in April 2018 prohibiting all commercial and cooperative banks, small finance banks, payment banks, and NBFC from not only dealing in virtual/digital currencies themselves, but also instructing them to stop providing services to all entities which deal with virtual/digital currencies before the Inter-Ministerial Committee's report was even submitted. As a result, the development of the cryptocurrency industry in India was constrained because exchanges needed banks to send and receive money.

Trading platforms for cryptocurrencies responded by submitting a writ petition to the Supreme Court. In the case of "Internet and Mobile Association of India v. Reserve Bank of India," the Supreme Court reversed the ban after finding the RBI circular to be illegal. Although virtual currencies do not yet have the legal tender status, the Apex Court noted that they do display digital representations of value and can be used as a medium of exchange, a unit of account, and/or a store of value.

The Indian government is now debating the "Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" (the "New Bill"). The New Bill wants to promote cryptocurrency commerce and its underlying technology, restrict private cryptocurrencies in India with a few exceptions, and facilitate the creation of an official digital currency that will be issued by the RBI.

The New Bill seeks a complete ban on all private cryptocurrencies in order to solve the issue of the lack of laws surrounding cryptocurrencies. The duality in the New Bill's proposal results from the RBI's ongoing uncertainty about which bitcoin kinds will be covered by the concept of private cryptocurrency.

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According to the most recent updates to Schedule III of the Companies Act of 2013, the Government of India issued instructions in March 2021 requiring companies to disclose profit or loss on transactions involving cryptocurrencies, the quantity held, and information regarding deposits or advances from any person trading or investing in cryptocurrencies as of the start of the new financial year. The owner of any virtual currencies must also disclose the quantity of their holdings as well as the specifics of any deposits or advances they have received for the purpose of trading or investing in cryptocurrencies.

"Any income from transfer of any virtual digital asset should be taxed at the rate of 30%," Indian Finance Minister Nirmala Sitharaman stated in the Union Budget 2022. Additionally, it has been proposed that a 1% tax deduction at source be applied to cryptocurrency transactions. The minister further highlighted that taxing a digital asset is not the same as saying cryptocurrencies are now accepted as legal cash.

What is Digital Rupee?

A digital version of currency notes produced by a central bank is known as a Central Bank Digital Currency (CBDC) or Digital Rupee. A sort of electronic money that can be used in contactless transactions is digital currency, or rupee. The central bank's digital version of currency notes is known as the CBDC, according to RBI. The central bank (in this case, the RBI) issues it as a sovereign or fully autonomous currency in accordance with the nation's monetary policy.

Structure of CBDC

A CBDC based on tokens would be a bearer instrument similar to banknotes; the recipient of a token would have to attest to the validity of his ownership of the token. As it would be more similar to actual money, a token-based CBDC is considered as the preferred CBDC-R form. 

An account-based system would necessitate the upkeep of records of balances and transactions for each CBDC holder, as well as the identification of who owns the financial balances. In this situation, a middleman will confirm the account holder's identification. For CBDC-W, this system may be taken into account.

CBDC can be classified into two types

1) Retail (CBDC-R): Retail CBDC would be potentially available for use by all

2) Wholesale (CBDC-W) is designed for restricted access to select financial institutions.

Difference between digital rupee and cryptocurrency

A decentralised digital asset and medium of exchange based on blockchain technology is known as a cryptocurrency. It has, however, mostly generated controversy because of its decentralised character, which refers to its operation without the use of any middlemen like banks, financial organisations, or central governments. On the other hand, the Reserve Bank of India (RBI) will issue Central Bank Digital Currency (CBDC) that would be accepted as legal cash online. 

In that it would be backed by the government, the digital rupee will vary from Bitcoin, Ethereum, and other cryptocurrencies. Second, the digital rupee will be similar to holding a physical rupee equivalent since it has intrinsic value due to government backing.

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Benefits of Digital Rupee

A digitised currency will not only lower transaction costs but also make it simpler for governments to access all transactions taking place within authorised networks. It will be impossible to escape the government's scrutiny, making every transaction subject to the applicable domestic laws. As a result, the government will have better control over how money leaves and enters the nation, giving them the opportunity to establish a space for better budgeting, future economic plans, and a climate that is generally much safer. 

The fact that digital cash is not physically harmed or destroyed is another advantage. They cannot be physically misplaced either. Unlike real notes, a digital currency will have an infinite lifeline.

Issues related to CBDC in India

Cyber Security: The vulnerability of CBDC ecosystems to cyberattacks may be comparable to that of the current payment systems.

Privacy issue: Large amounts of data are anticipated to be produced in real time by the CBDC. It will be difficult to use the Data effectively and to protect its privacy and address concerns about its anonymity.

Digital divide and financial illiteracy: The NFHS-5 offers data segregation based on the distinction between rural and urban areas. In remote areas, only 48.7% of men and 24.6% of women have ever used the internet. Therefore, CBDC may widen the gender-based financial inclusion barrier in addition to the digital divide.

The Reserve Bank of India has been praised for taking the laudable step of launching CBDC in order to change the very nature of money and its operations. Financial inclusion will be fueled by digital money, which will also improve the payments industry's resilience and efficiency. To improve the Delivery-Versus-Payment method for secured and guaranteed payment and settlement of money, the CBDC and the central bank's RTGS will work together. The integration of CDBC with RTGS will support the Central Bank's mission of financial inclusion, interoperability, and transparency.

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