Amid an intense electoral battle in Maharashtra, just a day before the crucial voting in the state assembly elections, the Bharatiya Janata Party has alleged the involvement of National Congress Party chief (Sharad Pawar) , Supriya Sule, and state Congress chief Nana Patole in a cryptocurrency fraud. The allegations sparked huge political outrage in the poll-bound state, prompting Sule to file a complaint with the Election Commission of India (ECI). However, this is not the first time cryptocurrencies have made headlines for the wrong reasons. Earlier, the Bitcoin scam had created an upheaval in the politics of Karnataka. It is also alleged that the organizations prohibit making transactions in cryptocurrencies to avoid law enforcement agencies. Bitcoin or other cryptocurrencies become a soft political target because there is no one to take responsibility for the virtual currency. As he has not yet been regularized, he is seen in a bad light and politicians attack his rivals for their involvement in his transitions, making it difficult to trace or verify the allegations.

What are cryptocurrencies/bitcoins?

A cryptocurrency is a digital or virtual currency secured by cryptography, making counterfeiting or double spending almost impossible. They exist on decentralized networks using blockchain technology – a distributed ledger enforced by a disparate network of computers.

What does Bitcoin mean?

Bitcoin is the name of the most recognized cryptocurrency, the one for which blockchain technology was created. Cryptocurrency has no intrinsic value and is not exchangeable for another commodity, such as gold. It has no physical form and only exists in the network. Its supply is determined by the protocol and not by the central bank

What is the legal status of cryptocurrency?

India is currently developing a framework for cryptocurrencies, but until it is enacted, cryptocurrencies are not yet illegal. In 2022, the government announced a flat tax of 30% on gains from cryptocurrencies. Taxing cryptocurrency income does not necessarily and explicitly legalize cryptocurrencies.

The Reserve Bank of India (RBI) is also skeptical about the use of private crypto assets and considers it a major threat to the macroeconomic and financial stability of the country.

Minister of Finance Nirmala Sitharaman has repeatedly stated that cryptocurrency issued by private entities cannot be currency. This would be the currency when the Reserve Bank of India issues a digital currency, he had said.

Private digital currencies/virtual currencies/cryptocurrencies have gained popularity over the past decade. Regulators and governments are skeptical of these currencies and concerned about the risks associated with them.

It may be noted that on March 4, 2021, the Supreme Court had quashed an RBI circular dated April 6, 2018, prohibiting banks and entities regulated by it from providing services in virtual currencies.

Currently, crypto assets are not regulated in India. Here, cryptocurrencies are regulated from the perspective of anti-money laundering law. Additionally, income tax and TDS are levied on the income earned from trading these virtual digital assets. Additionally, GST is levied on cryptocurrency exchanges.

In July last year, Finance Minister Nirmala Sitharaman had said that “international collaboration” would be necessary for any effective regulation or ban on cryptocurrencies.

What is the position of the Reserve Bank of India?

Earlier, the Reserve Bank of India had proposed a ban which was overturned by a court order. The RBI sees cryptocurrencies as huge risks to financial and monetary stability. RBI Governor Shaktikanta Das had said last month that such virtual assets could create a situation where the central bank could lose control of the money supply in the economy.

The RBI has recommended that crypto assets be banned. Crypto assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation to regulate or prohibit can only be effective with meaningful international collaboration on the assessment of risks and benefits and the evolution of a common taxonomy and standards.

What is the way forward for cryptocurrencies?

Currently, an inter-ministerial group (IMG), comprising officials from RBI, Sebi and the Ministry of Finance, is exploring a broader policy for cryptocurrencies. A discussion paper from the IMG is expected, which will give stakeholders an opportunity to give their views before India decides on its policy stance on cryptocurrencies.

(With PTI inputs)

Also read: BJP alleges Supriya Sule and Nana Patole linked to cryptocurrency fraud, NCP-SP leader reacts and files complaint