COVID-19 and the Cryptocurrency Market in India

The global pandemic of COVID-19 has managed to endanger not only lives but also the economic stability across the world. In a short duration, it has shaken well-established global businesses and world’s financial system from its core.

Understanding Cryptocurrency

The concept of cryptocurrency was introduced by Satoshi Nakamoto in 2008, as “a peer-to-peer electronic cash system”.[i]It originates from the combination of the terms ‘cryptography’ and ‘currency’. ‘Cryptography’ is the practice of creating and understanding codes that keep information secret, while currency is the money in circulation in a particular country which is issued by its government. Thus, it can be said that it is a form of digital or virtual currency, the currency is kept secure and transactions are verified using cryptography.[ii]

It cannot be traded in the physical form of notes or coins, or through the traditional banking media such as cheques. Rather, it exists on a platform called the ‘blockchain’ which is the main technological innovation behind cryptocurrencies. ‘Blockchain’ is a cryptographically secured global distributed ledger that records transactions between members on the blockchain platform without the interference of any third party (for example, banks and financial institutions).[iii]Each member has a copy of the ledger and any change to the blockchain can only be made with the consensus of all the members.

Why are people attracted towards them?

An important feature of cryptocurrency that appeals to its users is its organic nature that comes from lack of governmentcontrol over it, that it defies any form of manipulation. Members on a blockchain network can transfer funds to each other, without any interference. This is also because there is no centralized institution that is involved in recording or facilitating cryptocurrency transactions, instead a record is maintained by the blockchain. This reduces transaction cost and increases the speed of sending and receiving currency. It provides anonymity to its users as the transactions take place cryptographically.

India and Cryptocurrency in 2020

The year of 2020 has seen an upsurge in bitcoin trading in India due to a number of reasons which have cropped up simultaneously.

Financial Crisis

Yes Bank’s (India’s fourth-largest lender), debacle in March 2020 resulted in raising pertinent questions on country’s banking system. This created panic among people who now started looking for alternatives for their financial security. Cryptocurrencies became a preferred solution and hence this medium saw more than regular trading activity post the collapse.

Supreme Court judgment in favor of Cryptocurrency market -

Internet and Mobile Association v. Reserve Bank of India[iv]

After the launch of Bitcoin, a number of cryptocurrency exchanges began to operate in India. However, due to lack of clarity over the concept and absence of laws prohibiting the transactions, the existence of them was in a vacuum. Following this, the Reserve Bank of India (central bank of the country) in April 2018 issued a circular stating that virtual currencies, referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering. Thus, keeping these risks in mind, it banned the provision of banking services to any person who dealt with such currencies, at the same time not banning the use of cryptocurrencies itself. This prevented any exchange which would have facilitated the use of cryptocurrencies.

The Supreme Court held that while RBI has the power to regulate virtual currencies, the prohibition imposed through the circular is disproportionate and hence, ultra viresthe Constitution. Further adding that in the absence of any legislative proscription, the business of dealing in these currencies ought to be treated as a legitimate trade that is protected by the ‘fundamental right to carry on any occupation, trade or business under Article 19(1)(g) of the Indian Constitution’.

The decision of the Supreme Court is a major victory not only for the digital asset industry but for India’s fast growing fintech industries as well. It makes way for the measured and progressive regulation that will allow India, a leading software exporter and market for fintech to benefit from rapid innovation in blockchain technology and digital assets.

CONLUSION

The turmoil caused by the global pandemic is insurmountable, in such times, digital money and fintech apps have witnessed an unprecedented growth paving way for overall technological progress. However, the whole of the cryptocurrency market including Bitcoin, has collapsed right along with the stock market. Hence, the safety of investing in bitcoins still remains unclear. Even though the Indian Supreme Court has legalized trading with its recent judgement, collapse in prices and the looming uncertainty has only made investments trickier.

[i]Bitcoin: A Peer-to Peer Electronic Cash System by Satoshi Nakamoto. Access here. [ii]Cryptography, Cambridge Dictionary. Access here.  [iii]Imran Bashir, Mastering Blockchain: Distributed Ledger Technology, Decentralization, and Smart Contracts Explained 16 (2d ed. 2018). [iv]2020 SCC OnLine SC 275