Is cryptocurrency legal in India?

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There have been a shift towards a digital economy in the recent past. Cryptocurrencies are among those digital transitions. 


What is a Cryptocurrency?

It is a digital currency which uses cryptography.

What is Cryptography?

It is a technique of protecting the information using codes so that only the intended user will be able to extract and understand the information.

What is the technology that Cryptography uses?

Cryptography uses blockchain technology.

What is blockchain technology?

  • It is a technology which uses a technique called digitally distributed ledger. 
  • A ledger is nothing but a record of any transaction. 
  • Normally one centrally controlled ledger is used to store the information of all transactions.
  • But in blockchain, multiple decentralised ledgers are used to store the information, i.e. each information is stored at the same time at different places on different computers.

What is the advantage of blockchain technology?

  • Since a single piece of information is stored on different places at the same time, manipulation of information is very difficult, almost impossible. This is because if you change the information in one ledger, you will have other ledgers to verify whether you have manipulated the information or not.
  • Since manipulation is almost impossible, it offers greater security.
  • Easier access since it is an online currency.

What is the issue with private cryptocurrency providers?

  • They are not regulated by a central bank of any country. For example in India, RBI is the central bank. A private cryptocurrency like bitcoin is not regulated by RBI.
  • Since they are not regulated by any central bank, they have associated risks on their inherent value. Basically they are high risk, high return assets.
  • And because of the high security features that it offers and easy accessibility online, it can be used for illegal and illicit activities. Eg: Payment for illegal weapons or drugs through cryptocurrency.
  • Since it is a digital currency, it can be prone to hacking and other cybercrime related issues. Eg: Ransomeware: Which blocks the whole system along with its data and demands a ransom amount in cryptocurrency for the data release.

Is cryptocurrency a legal tender in India?

  • For any currency to be a legal tender in India, the currency must be regulated by RBI and RBI will provide the guarantee on the value by affixing the sign of the RBI governor. For example, 100 rupee note is a legal tender. If I give this to RBI, the RBI will guarantee me that I get the goods of worth 100 rupees in the Indian economy.
  • As of now, private cryptocurrencies are not regulated and not a legal tender in India.

Does that mean cryptocurrencies are illegal and banned?

They are not illegal. They are not banned as of now.

So can you invest in private cryptocurrencies like bitcoin?

Yes, as of now you can invest in cryptocurrencies on platforms like WazirX, but at your own risk. Government is planning to introduce a ban on all private cryptocurrencies and is expected to roll out it's own state owned cryptocurrency in the near future.

YOUR INVESTMENT IS IN YOUR HANDS. INVEST WISELY!

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