The News in Brief:
- The Union Government is to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021, in the Winter Session of the Parliament.
The Aim of the Proposed Legislation:
- The proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.
- The Bill also seeks to prohibit all private cryptocurrencies in India but with certain exceptions to promote the underlying technology of cryptocurrency and its uses.
- Currently, the Bill is not in the public domain and no public consultations have been held.
- In 2020, the Supreme Court lifted the ban imposed by RBI on crypto currency. The ban applied only to the use of Indian banking channels for crypto transactions. Thus, individuals continued to trade in cryptocurrencies using peer-to-peer networks.
- As per the court, very little evidence to show that crypto currencies pose a threat to the Indian Banking system.
- Recently, cryptocurrencies have seen an exponential increase in interest with Indian exchanges clocking impressive user additions and a sustained surge in daily trading volumes.
- On February 5, 2021, the Reserve Bank of India instituted an internal panel to suggest a model for the central bank’s digital currency.
- The recent move of the Union Government comes after a week of first-ever Parliamentary panel discussion on crypto finance. In this discussion, a consensus was reached that cryptocurrency needs to be regulated, instead of its complete ban.
- The proposed Bill has been prepared after several meetings with stakeholders and discussions on regulating digital currencies.
- RBI and the Securities & Exchange Board of India (SEBI) have raised concerns about the unregulated growth of cryptocurrencies in India, by keeping vulnerable retail investors in focus.
- Cryptocurrency or crypto-currency is a collection of binary data which is designed to work as a medium of exchange or form of payment that can be exchanged online for goods and services.
- A cryptocurrency can be defined broadly by two distinctive features, firstly it is based on a distributed ledger meaning that records of its ownership are held across thousands of computers simultaneously, rather than any centralised system.
- Secondly, it is not issued by a centralised authority such as a central bank. For instance, bitcoin is created by computers solving increasingly complex mathematical problems. Thus, it limits the supply of cryptocurrency.
- Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manage and record transactions. What tempts people with this technology is its security.
- Some public cryptocurrencies are Bitcoin, Ethereum, and Litecoin while Monero, Zcash, and Dash are private cryptocurrencies.