The Indian government is mulling the implementation of Know Your Customer (KYC) norms to ensure safe cryptocurrency transactions. As per reports, the Finance Ministry is also looking to develop a specialised framework for international transactions using cryptocurrencies like Bitcoin.
These steps will be taken as part of foreign exchange regulations, according to media reports.
At present, the Reserve Bank of India regards cryptocurrencies as a violation of the country’s existing foreign exchange norms. This is because the conversion of Bitcoins into foreign exchange does not currently fall under the purview of the central banking institution, making such transactions highly unsafe and vulnerable to cyber attacks.
In order to solve such problems, the government is reportedly considering setting up financial awareness programmes, provisions for consumer protection, KYC norms and a framework for monitoring cross-border cryptocurrency transfers. Consequently, the regulatory body will be responsible for monitoring all Bitcoin and other virtual-currency transactions against goods and services.
In the report, the Finance Ministry has also talked at length about security concerns, including money laundering and terrorism financing activities, associated with the use of Bitcoins. Taking its cue from countries like Canada and the US, the Indian government has highlighted the need for stringent, enforceable acts to curb such unlawful practices. These acts will likely include mandate KYC-enabled customer verification for greater security.
Rise Of Cryptocurrency, Bitcoin In India
With the emergence of advanced digital payment technologies, the global Bitcoin market has witnessed rapid growth in recent times. The crypto-asset market is currently worth more than $35 Bn. Despite a 46.9% decline in the last 30 days, Bitcoin’s total share in the cryptocurrency space is more than 47.1%, as per reports by Coin Marketcap.
According to a new study by Cambridge University, around 2.9 Mn to 5.8 Mn people use cryptocurrency wallets, chief among which is Bitcoin. At present, there are about 90 other virtual currencies operating worldwide. Among the countries that have banned the use of Bitcoin are Russia, China, Iceland, Bangladesh, Sweden, Thailand and Vietnam.
As per a 2016 Trak.in report, India boasts more than 50,000 Bitcoin wallets. Of these, 700-800 Bitcoins are operated daily. In March 2017, the Reserve Bank of India (RBI) issued a statement against the usage of encrypted money like Bitcoin. The further use of any such currency will be considered as a breach of anti-money laundering provisions. The Central Bank also warned users, holders, and traders of security concerns surrounding Bitcoin or any other virtual currencies.
The Minister of State for Finance Arjun Ram Meghwal told Inc42, “The absence of counter parties in usage of virtual currencies, including Bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws.”
A month later, the country’s Finance Ministry announced the formation of a special committee that would be suggesting measures for minimising security breaches and vulnerabilities related to cryptocurrency usage. The committee’s report carried the following points:
- Bitcoins would fall under the purview of RBI’s 1934 Act.
- Bitcoin investors should be taxed.
- The RBI would have to issue guidelines regarding investment and purchase of Bitcoins.
- If any foreign payment is made through Bitcoins, it would fall under the purview of FEMA Act.
- Returns from investment in Bitcoins need to be taxed.
In June 2017, it was reported that the government may be inching closer to legalising virtual currencies in India. KYC norms will make the task of customer protection more thorough, experts believe. Over the last few years, a number of startups, such as Zebpay, Coinsecure, and Unocoin, have sprung up in the cryptocurrency space. The domain has already witnessed an increase in funding opportunities in the last year or so.
Bengaluru-based Bitcoin startup Unocoin raised $1.5 Mn in a Pre Series-A round from Blume Ventures, Mumbai Angels and ah! Ventures in September 2016. Ahmedabad-based mobile Bitcoin wallet startup Zebpay raised Series A funding of $1 Mn from angel investors in January last year. Another Bitcoin trading platform Coinsecure secured $1.2 Mn as part of its Series A investment round from an undisclosed investor in April of 2016.
By instating a robust framework as well as KYC norms, the Indian government will be able to wield greater control over the fast-growing cryptocurrency industry in general and its chief player Bitcoin, in particular.