Bitcoins are gaining worldwide acceptance among the digital communities and netizens. They are also becoming an acceptable mode of payment among the e-commerce, online gaming and online gambling industry. Many enthusiastics in India has started accepting Bitcoins for various purposes without realising that use of such Bitcoins in India may be illegal and punishable.
The Central Government and Reserve Bank of India (RBI) have the powers to issue bank notes and coins respectively. Thus private individuals or companies cannot issue bank notes or coins unless authorised by the Central government or RBI. However, till now neither the Central Government nor the RBI has authorised any person or institution to issues, use, generate, mint or mine Bitcoins in India.
RBI has not yet formulated regulations to govern trading or profits generated from Bitcoins. RBI does not consider Bitcoin legal tender and, therefore trading in Bitcoin is not legal. Obviously, there cannot be regulations from RBI for an illegal activity. People who use it, do so at their own risk and responsibility. Regulators are studying the impact of online payment options and virtual currencies to determine potential risks associated with them.
Some guidance can be obtained from the Indian virtual currency schemed issued by RBI. However, Bitcoins, their functionality and legality of use in India is still a grey area. The Information Technology Act, 2000 (IT Act 2000) is the cyber law of India that governs the online acts or missions in the Indian cyberspace. The IT Act 2000 prescribes cyber law due diligence in India and the Internet intermediary liability in India.
RBI believes that the unregulated link between virtual currency (if permitted), and traditional currency with a legal tender status poses challenges as the complete control over the differently denominated virtual currency is given to its issuer, who governs the scheme and manages the supply of money at will.
Under some category of virtual currency schemes which provide for bidirectional flows, it acts like any other convertible currency, with two exchange rates (buy and sell). In such schemes, the virtual currency can be used to buy not only the virtual goods and services, but also to purchase real goods and services. Virtual currency schemes are different from electronic money schemes as the virtual currency being used as the unit of account has no physical counterpart with legal tender status.
A virtual currency scheme may also be designed to compete with traditional currencies used for international trade. The absence of a distinct legal framework implies that the traditional rules under financial sector regulation and supervision, including the institution of central banks, are not involved in the case of virtual currency.
RBI has also prescribed that only banks which have been permitted to provide Mobile Banking Transactions by it shall be permitted to launch mobile based prepaid payment instruments (mobile wallets and mobile accounts).
In short, the dealing in Bitcoins in India is still a “grey area” and it is not safe to consider it “strictly legal”. Till the time Indian government or other regulatory authorities of India make use and dealing of Bitcoins legal in India, the use of the same in India is at the own “legal risk” of concerned person or institution.