India: Bitcoin: An Opportunity Or A Challenge?


Arrival of bitcoin in India has led to various issues that are required to be addressed. The bitcoin currency has come forth with a great amount of opportunity for the investors. However on the other hand, it has raised a number of regulatory concerns as far as the question of its misuse is concerned. The absence of any regulation governing bitcoin currency has left many questions unanswered. With the growth of usage in internet and digital transactions, growth of bitcoin and other crypto currencies is inevitable.

The imperative question that needs to be answered is - what will the consequences be if bitcoins are awarded a legal status in India? The status as of now is that various governmental communications indicate that the central Bank i.e. Reserve Bank of India has constantly been advising the citizens is keeping a vigil while venturing out in the transactions pertaining to bitcoin in India. It is also pertinent to mention that bitcoins have been awarded legal recognition in several developed states such as United States.


Reserve Bank of India via its' press release dated December 24, 2013 clarified that creation, trade and usage of virtual currencies is neither recommended nor authorised by the Reserve Bank of India. The relevance of this press release is that it brings forward two points regarding bitcoins and its' legal status in India. First, the status of bitcoins in India is that of an unauthorised currency as far as the central bank is concerned and secondly, the bitcoins have still not been accorded the status of being illegal in India.

The usage of bitcoins in India has led to the fears that it might lead to increase in money laundering in India especially after the demonetisation drive that occurred in India in 2016. For the same reason, the use of bitcoin currency has constantly been on the radar of law enforcement agencies.


There is also a question of taxability of bitcoins in India. Very recently a controversy surfaced when Income Tax department slapped notices on around five lakh citizens who traded in bitcoin. The reason for the same was that these customers were classified as High Net Worth Individuals (HNIs).

"Just after conducting a survey across Indian Bitcoin exchanges, the Income Tax (IT) department is said to have issued notices to 4-5 lacs high net worth individuals (HNIs) trading on the Bitcoin exchanges, according to PTI."1


"Bitcoin can be transferred from one country to another without limitation. However, the exchange rate against other currencies can be very volatile. This is partly because the price is often driven by speculation, and also because it is a fairly small market compared with other currencies. Some countries explicitly permit the use of bitcoins, including Canada and Australia. It is prohibited in Iceland, which has had strict capital controls since the collapse of its banks during the 2008 financial crisis."2

As mentioned before, bitcoin have been awarded a valid and legal status in select jurisdictions such as the European Union, United States and Canada. In United States, bitcoin have been duly recognised and have been made taxable under the law.

In China, the use of bitcoin is restricted. China has specifically prohibited financial institutions and payment companies from entering into transactions involving bitcoin. "There are currently no laws, rulings, or announcements from regulatory bodies such as the People's Bank of China (PBoC) or the Ministry of Industry and Information Technology (MIIT) on the legality of bitcoin and its trading."3

It is also important to mention in this regard that the European Union has not adopted any overall position in this regard. However, several restrictions were imposed on the use of bitcoin currency in the aftermath of the paris attacks.

Reference to foreign jurisdictions is to assess what India should do as far as the dealings pertaining to bitcoin is concerned. It is reported that due to the element of anonymity with the usage of bitcoin, it has been used very commonly for terrorism financing and drug financing. There have also been concerns regarding bitcoin being used for the purposes of money laundering. With these challenges in mind, India needs to take a call as whether bitcoin should be declared as illegal currency, per se or if it has to be considered to be legal, and under which regulations it can be allowed to be used. Reserve Bank of India has clarified via press release that it does not authenticate the use of bitcoin as a currency. The effect of the same has been that bitcoin is neither legal nor illegal and still it has still not been conferred the status of a valid currency under the Indian Legal System.


A. Real Estate and Government Services

In the field of real estate, processes consume a lot of time and are bound by red tapism. Due to the decentralized nature of the system of blockchain, there could be an absolute disruption of the existing structure of middlemen and other processes including verification and other aspects of compliance requirements such as regulatory compliance.4 Governments in Sweden, USA and Georgia have already decided on exploring for options in this regard.5

B. Legal Services

In the legal services sector, there is a varied applicability of this currency – it can be used for systemising specific obligations such as contractual duties of payment. These can be automated for self-execution on the fulfilment of contractual obligations. This by itself will result in reduction of monitoring resources and other compliance directives. Thus, decentralization in itself would result in the loss of requirement for execution of contracts based on trust. It can be utilised for automation of processes involved in various documentation and other aspects.6

C. Intellectual Property

In a similar mechanism to the one conceptualized in real estate, this form of technology can be used for the storage of records pertaining to intellectual property. Any transaction with regard to transfer and licensing can be established without hassle through the distributed ledger in a transparent manner, with the accompanying rights and other terms.7

It would provide solutions with regard to revenue sharing and rights management amongst various media enterprises. In fact, it is already used for trading amongst gaming companies with regard to gaming content.8

D. Insurance Sector

In the insurance sector, the applications of block chain are especially useful for providers of wholesale insurance wherein all aspects such KYC regulatory compliances and processing of claims can be streamlined and thereby, provide a lean and effective mechanism for the insurance industry.9

Moreover, smart contracts, as projected by Deloitte, can be extremely effective in dealing with faulting error checking and smooth workflow.10

It can also enhance the reach for micro-insurance, as it would facilitate micro-payments based on availability of data from other connected mechanisms.

E. Healthcare

Blockchain as a mechanism can help in streamlining healthcare processes for patients and therein, contain all electronic records of medical profiles and other health monitoring reports of the patient.11 This can be utilised for small payments and automatic disbursal of health related payments under health plans.


In India, the RBI, SBI and NITI Aayog along with the Secretary of Department of Economic Affairs at the helm, formed an inter-disciplinary committee at the behest of the Government and submitted a report on the regulation of cryptocurrency.12 The Government has encouraged utilisation of the technological benefits of the mechanism as well as cautioned against the likely legal complications due to a number potential grey areas. The Government has to foresee potential fallout occurring due to non-linear aspect of jurisdictional problems which may arise, as payments are international in nature and outside the purview of basic transactional terms. The representatives of the Reserve Bank of India have asserted that the Government is more inclined towards utilisation of fiat currency rather than bitcoins, reflecting the concern of the nodal authorities.13


Bitcoin, in itself, is a mechanism borne out of antipathy towards central authority and regulation. It became popular due to its anonymous nature of transaction and is immensely popular among elements at odds with the law. Thus, such a system, most synchronically, draws concern and caution from central financial regulators and the governing authorities.

Bitcoin and its underlying technology boasts of an immense amount of positives against legal or operational challenges, similar to any new form of technology. There are a number of legal grey areas for applicability of this technology. Most essentially, there should not be any regulation put forth in haste as it may only result in hampering innovation. It would be better to read into the various complexities and realise its implications.

However, if it is left unregulated, it might result in widespread confusion amongst the various elements of the system such as the government, courts, commercial entities, etc. It would be best to approach the issues in a measured sense along with representatives of all stakeholders in order to develop best standards and establish maximum benefit.


1. Income tax department to issue notice to 5 lakh high net worth Bitcoin investors: reports (December 18, 2017) ( )

2. Is Bitcoin Legal in the US ( December 15, 2015 ), ( )

3. Leonhard Weese, Bitcoin Regulation In China Still Unclear, But Chinese Exchanges Thrive Overseas ( November 29, 2017 ), ( )

4 .Don Oparah, Blockchain Will Change Real Estate,( TechCrunch, 19 February2016)

5. Anthony Couse, ' Disruptive Technology and its Use for Improvement in Real Estate'(Weforum, 16 August 2016)

6. CFO Insights, ' Getting Smart about Smart Contracts' (Deloitte Journal,23 June 2016)



9. BI Intelligence, 'How Blockchain can help Wholesale Insurance Industry'(Business Insider, 3 August 2016); see also 9. BI Intelligence, 'How Blockchain can help Wholesale Insurance Industry'(Business Insider, 3 August 2016); see also

10. John Ream, Yang Chu, David Schatsky, 'Upgrading Blockchains' (Deloitte Dupress, 08 June 2016)

11. Id.

12. Sukanya Mukherjee, ' RBI Looking for Cryptocurrency Policy' (Inc42,14 October 2017) (last visited November 26,2017)

13. Beena Parmar, 'RBI wary of Bitcoins' (Money Control, 13 September 2017)

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