History of Cryptocurrency in India

The history of cryptocurrency in India is marked by a complex interplay of technological innovation, legal uncertainties, regulatory responses, and public interest. As one of the largest and fastest-growing economies, India has played a significant role in shaping the global discourse around cryptocurrency. This article explores the development of cryptocurrency in India, covering its origins, adoption, challenges, and regulatory landscape.

1. Early Days of Cryptocurrency in India

Introduction of Bitcoin (2009 – 2013)

  • Bitcoin’s Global Launch: Bitcoin, the first cryptocurrency, was introduced in 2009 by an anonymous entity known as Satoshi Nakamoto. It brought the concept of a decentralized digital currency based on blockchain technology.

  • Initial Awareness in India: Cryptocurrency remained largely unknown in India during its early years. Tech enthusiasts and early adopters were the first to learn about Bitcoin, primarily through forums and international news.

  • Bitcoin Adoption (2012 – 2013):

    • A few technology enthusiasts began mining Bitcoin in India.

    • Indian startups such as Unocoin and ZebPay emerged, providing platforms for buying and selling Bitcoin.

2. The Growth of Cryptocurrency in India (2013 – 2017)

Rise of Cryptocurrency Startups

  • By 2013, the cryptocurrency ecosystem began taking shape in India with the establishment of trading platforms and exchanges.

  • Key Exchanges:

    • Unocoin (2013): One of India’s first Bitcoin exchanges, it enabled users to buy, sell, and store Bitcoin.

    • ZebPay (2014): A mobile-based cryptocurrency wallet and exchange platform that simplified crypto trading for Indian users.

Initial Enthusiasm and Skepticism

  • Public Awareness:

    • News about Bitcoin’s price surge in 2013 caught public attention.

    • Early adopters in India viewed cryptocurrency as a speculative investment.

  • Government Skepticism:

    • The Reserve Bank of India (RBI) issued its first public caution on cryptocurrencies in December 2013, warning users of potential risks such as price volatility, security breaches, and lack of regulatory oversight.

Emergence of Altcoins

  • Beyond Bitcoin, other cryptocurrencies like Ethereum, Ripple, and Litecoin started gaining traction in India.

  • Indian developers began exploring blockchain technology for use cases beyond currency, including supply chain management, healthcare, and smart contracts.

3. Regulatory Challenges and Uncertainty (2017 – 2018)

Cryptocurrency Boom of 2017

  • The global cryptocurrency market experienced an unprecedented boom in 2017, with Bitcoin reaching an all-time high of $20,000.

  • In India:

    • Cryptocurrency trading volumes surged.

    • More exchanges, including CoinDCX and WazirX, entered the market.

    • Cryptocurrency attracted not just tech-savvy individuals but also retail investors.

Regulatory Crackdowns

  • RBI’s Warning (2017): The RBI reiterated its concerns about cryptocurrencies, emphasizing the lack of legal backing and potential for misuse.

  • Government’s Stance:

    • The Indian government expressed concerns about cryptocurrencies being used for money laundering, tax evasion, and financing illegal activities.

    • The Finance Ministry described cryptocurrencies as “Ponzi schemes” and warned investors about the associated risks.

Taxation Issues

  • There was no clarity on the taxation of cryptocurrency transactions. Investors were unsure whether crypto gains should be treated as capital gains, business income, or something else.

2018 RBI Circular

  • In April 2018, the RBI issued a circular prohibiting banks and financial institutions from providing services to cryptocurrency businesses.

    • Impact:

      • Cryptocurrency exchanges faced operational challenges as banks withdrew support.

      • Many exchanges shut down or shifted operations abroad.

      • Investors and traders turned to peer-to-peer (P2P) trading models to bypass banking restrictions.

4. Legal Battles and Supreme Court Verdict (2019 – 2020)

Challenges to the RBI Ban

  • Cryptocurrency exchanges and industry associations filed petitions in the Supreme Court of India, challenging the legality of the RBI circular.

  • Key Arguments:

    • The circular violated the right to trade and conduct business guaranteed by the Indian Constitution.

    • Cryptocurrencies were a form of innovation that needed regulation, not prohibition.

Supreme Court Ruling (March 2020)

  • The Supreme Court of India struck down the RBI circular, terming it unconstitutional.

  • Key Points:

    • The court recognized the potential of blockchain and cryptocurrency as emerging technologies.

    • It emphasized that banning financial services to cryptocurrency businesses was disproportionate.

Post-Verdict Impact

  • The verdict was a major relief for the cryptocurrency ecosystem in India.

  • Exchanges like WazirX and ZebPay resumed operations and witnessed significant growth.

  • Investor confidence rebounded, and trading volumes surged.

5. Cryptocurrency Resurgence and Government Scrutiny (2020 – 2021)

Pandemic and Crypto Boom

  • During the COVID-19 pandemic, global financial instability and low interest rates drove investors toward alternative assets like cryptocurrency.

  • Bitcoin’s Price Surge: Bitcoin reached new all-time highs, crossing $60,000 in 2021.

  • In India:

    • Millions of new users registered on cryptocurrency exchanges.

    • Companies like WazirX, CoinSwitch Kuber, and CoinDCX saw exponential growth.

Government's Draft Bill on Cryptocurrency (2021)

  • The Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, aiming to:

    • Ban private cryptocurrencies like Bitcoin and Ethereum.

    • Introduce a Central Bank Digital Currency (CBDC) issued by the RBI.

  • Public Reaction:

    • Investors and the crypto industry opposed the ban, emphasizing the potential for innovation and economic growth.

Taxation Developments

  • The government started monitoring crypto transactions for tax purposes.

  • In 2021, the Income Tax Department conducted raids on cryptocurrency exchanges for alleged tax evasion.

6. Current Trends and Regulatory Developments (2022 – Present)

Taxation Framework (2022)

  • In the Union Budget 2022, Finance Minister Nirmala Sitharaman introduced a formal taxation framework for cryptocurrencies:

    • A flat 30% tax on gains from cryptocurrency transactions.

    • A 1% Tax Deducted at Source (TDS) on transactions exceeding ₹10,000.

  • Impact:

    • While the framework brought legitimacy, high taxes and TDS discouraged small traders and investors.

Launch of the Digital Rupee (2022)

  • The RBI introduced a pilot for the Central Bank Digital Currency (CBDC) or Digital Rupee.

    • Objectives:

      • Offer a government-backed digital alternative to cryptocurrencies.

      • Leverage blockchain technology for efficient transactions.

Public Adoption

  • Cryptocurrency adoption in India remains strong despite regulatory challenges.

  • Indian users rank among the top in terms of crypto ownership globally.

7. Challenges Facing Cryptocurrency in India

Regulatory Uncertainty

  • The lack of a comprehensive legal framework continues to create confusion for businesses and investors.

High Taxation

  • The steep tax rates on cryptocurrency transactions have deterred many small-scale investors.

Security and Scams

  • The rise of cryptocurrency scams and Ponzi schemes has undermined trust among the general public.

Banking Restrictions

  • Despite the Supreme Court’s ruling, many banks remain hesitant to facilitate crypto-related transactions.

8. The Future of Cryptocurrency in India

Potential Benefits

  • Economic Growth: Cryptocurrency and blockchain can create jobs and attract foreign investments.

  • Financial Inclusion: Crypto can provide banking access to the unbanked population.

  • Innovation: Blockchain has applications in governance, supply chain management, and more.

Government’s Role

  • A balanced regulatory framework can harness the benefits of cryptocurrency while mitigating risks.

  • Collaboration between the government and industry stakeholders is essential for sustainable growth.

Conclusion

The history of cryptocurrency in India reflects a journey of innovation, challenges, and adaptation. Despite regulatory hurdles and skepticism, India remains a significant player in the global cryptocurrency ecosystem. The future of cryptocurrency in India depends on the government’s ability to strike a balance between regulation and innovation, ensuring that this transformative technology benefits the economy while safeguarding the interests of users.