All you need to know about the new cryptocurrency bill that seeks to ban private players
New Delhi, Nov 24: The Cryptocurrency and Regulation of Official Digital Currency Bill seeks to ban all but a few private cryptocurrencies to promote underlying technologies while allowing an official digital currency by RBI.
Highlights of the Bill
- The draft Bill seeks to prohibit mining, holding, selling, trade, issuance, disposal or use of cryptocurrency in the country. Cryptocurrency is defined as any information, code, or token which has a digital representation of value and has utility in a business activity, or acts as a store of value, or a unit of account.
- Under the draft Bill, mining, holding, selling, issuing, transferring or use of cryptocurrency is punishable with a fine or imprisonment of up to 10 years, or both.
- A person must declare and dispose of any cryptocurrency in his possession, within 90 days from the commencement of the Act.
- The draft Bill permits the use of processes or technology underlying any cryptocurrency for experiment, research, or teaching.
- The central government, in consultation with the RBI, may issue digital rupee as legal tender. The RBI may also notify a digital currency recognised as legal tender in a foreign jurisdiction, as a foreign currency.
Key Issues and Analysis
The draft Bill bans all cryptocurrencies based on the risks associated with them such as potential use for money-laundering, risks to consumers and threat to the country's financial stability. However, cryptocurrencies also have potential benefits such as better record keeping and more efficient cross border payments. Several countries are trying to mitigate some of these risks through regulations.
The Bill defines cryptocurrency to include information, code or token which has a digital representation of value and is generated through cryptographic means, or otherwise. This definition may be too broad and include various forms of digital tokens which have not been generated through cryptography. Such tokens may not pose the risks associated with cryptocurrencies.
The penalties prescribed for certain offences under the Bill may be disproportionately higher compared to other similar economic offences in the country.
Cryptocurrency: The draft Bill defines cryptocurrency as any information, code, number or token, generated through cryptographic means or otherwise, which has a digital representation of value and has utility in a business activity, or acts as a store of value or a unit of account.
Regulation of cryptocurrency
Ban on cryptocurrencies: The draft Bill bans the use of cryptocurrency as legal tender or currency. It also prohibits mining, buying, holding, selling, dealing in, issuance, disposal or use of cryptocurrency. Mining is an activity aimed at creating a cryptocurrency and/or validating cryptocurrency transactions between a buyer and seller.
In particular, the use of cryptocurrency is prohibited for: (i) use as a medium of exchange, store of value or unit of account, (ii) use as a payment system, (iii) providing services such as registering, trading, selling or clearing of cryptocurrency to individuals, (iv) trading it with other currencies, (v) issuing financial products related to it, (vi) using it as a basis of credit, (vii) issuing it as a means of raising funds, and (viii) issuing it as a means for investment.
Exemptions: The central government may exempt certain activities, if necessary in public interest. The use of technology or processes underlying cryptocurrency for experiment, research or teaching is permitted.
Digital Rupee: The central government may, in consultation with the central board of the RBI, approve digital rupee to be legal tender. The RBI may also notify a foreign digital currency as a foreign currency. Foreign digital currency means a digital currency recognised as legal tender in a foreign jurisdiction.
Offences and Penalties
Under the Bill, mining, holding, selling, issuing, transferring or using cryptocurrency is punishable with a fine or imprisonment of up to 10 years, or both.
Issuing any advertisement, soliciting, assisting or inducing participation in use of cryptocurrency is punishable with a fine or imprisonment of up to seven years, or both. Acquiring, storing or disposing of cryptocurrency with the intent of using it for non-commercial purposes will be punishable with a fine.
The Bill provides for a transition period of 90 days from the commencement of the Act, during which a person may dispose of any cryptocurrency in their possession, as per the rules notified by the government.