[Jan] Govt. plans law to ban bitcoin & create official digital currency

Question 1

Current scenario?

Answer 1

Cryptocurrencies are not legal tender but as such there is no ban on trading in cryptocurrencies. What it means is if I purchased something then I can not ask the seller to accept cryptocurrency. But if I want to purchase cryptocurrency (bitcoin) then I can

Question 2

How cryptocurrencies have value?

Answer 2

Cryptocurrencies acquire value as they can be generated/mined only in limited number and if more and more people are willing to hold/possess it, its value increases. For example, if a “rare” metal got discovered and suppose it is of no commercial use but everyone wants to keep that metal in their home (for no specific reason) and if the metal supply is very limited then of course the price of metal will shoot up and it may in future it can decline. Exactly same thing is with Bitcoins (cryptocurrency). It can be created only in limited number (for its own scientific reason) through computing technology. Now, if its supply is limited and for whatever reason everyone wants to posses bitcoins then its price will shoot up and it can come down also without any specific reason if people would not like to hold that bitcoin.

Question 3

Legality?

Answer 3

• April 2018, RBI had imposed a virtual ban on cryptocurrency trading in India and had directed all entities which fall under the purview of (regulated by) RBI i.e. banks/NBFCs to not deal in virtual currencies or provide services to those who want to deal in it.
• March 2020 the Supreme court has set aside (quashed) the order, allowing trade in digital assets.
• Government will introduce a bill in the present Budget Session “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. The bill aims to create a facilitative framework for the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India (earlier RBI prohibited but Supreme Court removed the prohibition BUT now Govt. is planning a ban through an ACT), however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Question 4

What is Digital money/currency?

Answer 4

is any form of money or payment that exists ONLY in electronic form. Cryptocurrency is a type of digital money that is secured by cryptography, making it almost impossible to counterfeit or double-spend (and its not a legal tender). The new Bill talks about Official Digital Currency which will be backed by RBI which means it will be a legal tender and there may not be any limit on its creation.