CIA 1

LAW OF E COMMERCE

BITCOINS: THE FUTURE OF VIRTUAL CURRENCY

AND ITS REGULATION BY THE RBI

Submitted by
Name: Sanjana. S. Rao
Register No: 1316247
Class: 8 BA LLB C
AREAS OF RESEARCH
Bitcoin is a cryptographic, digital and experimental currency introduced in the digital world
in 2008. It is referred to as a "peer-to-peer, electronic payment system". Unlike the usual form
of currency, it is in virtual form and can be used to make payments online as well as in
physical stores. Though a few countries like US have started regulating Bitcoins, in India, it
remains unregulated as the central regulatory bank, the Reserve Bank of India ("RBI") is
currently keeping a vigil on this virtual currency that is gaining popularity among internet
users, but has not shown inclination of regulating it. Through the course of the paper, the
author aims to highlight as to what are the applicable laws, rules, regulations, guidelines
relating to digital currency specifically bitcoin currency and further shall attempt to examine
the concept of Bitcoins (virtual currency) and throws light on the legality, use and the current
level of regulation by the RBI over the same.

METHODOLOGY

To answer these questions, we shall be adopting primarily a doctrinal mode of research. In

furtherance of the same, which shall further incorporate an analytical mode of research to
look at all the existing legislations in India relating to regulation of bitcoins. In addition, we
shall also adopt a comparative mode of research to analyse the regulation of virtual currency,
both in India and in other jurisdictions.

LITERATURE REVIEW

At present, there are no regulations governing virtual currencies like Bitcoins in India. RBI,
on December 24, 2013, issued a press release on virtual currencies stating that usage of
virtual currencies as a medium for payment is not authorized by any central bank or monetary
authority. While RBI has not legalized Bitcoins, it has declared them unauthorized as of now.
There are however around 23,000 India users who have online Bitcoin wallet where their
digital currency is stored and this number is increasing. Thus, there a dire requirement for
some regulation to be extended to the use of the same. Article 246 read with Seventh
Schedule specifically Entry 36 and 46 of List I of the Seventh Schedule of the Constitution
states that the Central Government is allowed to legislate in respect of currency, coinage,
legal tender, foreign exchange and bills of exchange, cheques, promissory notes and other
like instruments respectively. If Bitcoins fall within the purview of any of the above outlined
categories of instruments, then the Central Government would have exclusive powers to
legislate.
As per the Foreign Exchange Management Act, 1999, currency is defined as "all currency
notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of
credit, bills of exchange and promissory notes, credit cards or such other similar instruments,
as may be notified by the Reserve Bank." According to the definition, RBI has the power to
include Bitcoins within the definition of currency. Currency other than "Indian currency" is
termed as "foreign currency", and regulated by foreign exchange laws. Most likely Bitcoins
can be governed by foreign exchange laws.

STRUCTURE OF THE PAPER

The paper would contain the following subheadings-

1. Introduction & Legality of Bitcoins in India

2. Risks Associated with Bitcoins,

3. Scope for Regulation of Bitcoins Under Indian Laws,

4. Present Bitcoin Portals in India

5. Status of Bitcoin Transactions in Other Jurisdictions

6. Conclusion (which would include possible solutions to the existing lacunae).