Photo: iStock
Photo: iStock

Cryptocurrency not legal tender in India, but blockchain gets new life in Budget 2018

While government does not consider cryptocurrencies legal tender, it will explore use of block chain technology proactively for ushering in digital economy

For the first time, a Union Budget speech has talked about cryptocurrencies and blockchain technology, which indicates that the government is clearly focused on bringing in regulations on cryptocurrencies.

The finance minister in his Union Budget 2018 speech said, “The government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system." However, the government has recognized blockchain and said that a “distributed ledger system or the blockchain technology allows organization of any chain of records or transactions, without the need of intermediaries. The government will explore use of blockchain technology proactively for ushering in digital economy."

The government continues to stick to its stance. “In regards to cryptocurrencies, they don’t consider it as a legal tender, which the finance ministry had mentioned in December. It further says that corporates are not allowed to use it as a payment system and can’t use it for illegal activities. This indicates that if there is money laundering by individuals or corporates, you can expect a crackdown," said Praveen Kumar, chairman and chief executive officer of Belfrics Global SDH, a company that runs bitcoin exchanges in Singapore, Malaysia, Bahrain, Japan, Kenya, Nigeria, Tanzania and India.

Bitcoin exchanges are not happy with this wait and watch approach right now. “There is no repercussion of the Budget announcements to what we are doing right now. Until and unless the authorities make a more concrete comment, for us it is business as usual. Their worry is that the common man is going to enter it because of the price surge. But that has been the stance since December 2013 when the Reserve Bank of India (RBI) first issued cautionary notes. They should give us some more clarity," said Jincy Samuel, chief operating officer, Coinsecure.

Though government is taking a cautious approach on cryptocurrencies, it is bullish on the use of blockchain. Crytocurrency industry believes that blockchain and crytptocurrencies have to go hand in hand.

“Unless it is a decentralized system, it is just another form of keeping track. If you want to apply blockchain in supply chain or manufacturing industry, you are basically putting data in the system for everyone to view. It is then just a centralized system that means someone has an authority to modify it," said Samuel. There are two different ways to run a distributed system—public and private. “Say you want to use it for election. If it is private blockchain, the Election Commission will have full control. So you are not increasing transparency. Public blockchain system is required for transparency and you have to pay those who guard it in the form of cryptocurrency," said Kumar.

The government has again clarified that cryptocurrencies are not legal tender. This means they are not a currency. However, it doesn’t mean that holding cryptocurrencies such as bitcoin is illegal or banned.

As of now, the government has not termed it illegal. However, as a cryptocurrency user you should tread with caution. The price of bitcoin peaked to cross $18,500 in December 2017. Since then the price has dropped, to $8,500 in February 2018.

Bitcoin prices have been extremely volatile in the past few months. Mint Money does not recommend investing in bitcoin or other cryptocurrencies. If you have incurred gains from sale of bitcoins, you should declare it in your income tax return.

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