Jaitley reiterates elimination of cryptocurrencies but says govt will explore blockchain technology

Jaitley's remarks have reportedly put the cryptocurrency market in a spin while investors and traders in Bitcoin and similar cryptocurrencies are seeing it as a setback to investments, according to media reports.

However, he said that the Government will explore the use of blockchain technology for ushering in digital economy.

According to media reports, the FM said, "Distributed ledger system or the blockchain technology allows organisation of any chain of records or transactions without the need of intermediaries. The Government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

The FM's remarks on cryptocurrency has drawn attention from the corporate world too on Thursday.

Bllomberg Technology, on Thursday, quoted Anshul Vashist, Delhi-based support manager at the cryptocurrency exchange Coinsecure, as saying, "After today’s announcement, people are getting scared. We have seen some dumping of bitcoins."

According to Rashmi Deshpande, Associate Partner, Khaitan & Co., the announcement on cryptocurrency by the FM should not be misinterpreted to mean the cryptocurrency is going to be discouraged by the Government.

Said Deshpande, "The Government's intention is more likely to regulate the circulation to avoid its usage for illegal transactions. In addition, the Government has recognized the viability of block chain technology that powers cryptocurrency. Efforts should be made to bring in regulations at the earliest to achieve this aim."

However, Sameer Sah, also Associate Partner, Khaitan & Co, pointed out that the FM's remark on crypto-currency underscores what the RBI has already indicated.

"Businesses engaged in this will have to evaluate future prospects, but it has always been uncertain how Indian conservative monetary and fiscal policies will view this alternate form of currency," he said.

Mr. Ankush Johar, Director, Infosec Ventures, reiterated that the Government, in the latest Budget, has retained its earlier stance on cryptocurrency.

"Cryptocurrencies are not legal tender is a statement that was made earlier as well, and it is true and very likely that it is being used for illegitimate transactions. More clarity is important," said Johar.

Early in January, Union Finance Minister Arun Jaitley, while replying to queries in the Rajya Sabha about the Central government's stand on cryptocurrency had said that any cryptocurrency is not legal tender in India.

He had also mentioned then that the Central government is considering setting up a committee under the chairmanship of Secretary, Department of Economic Affairs, to look into the issues surrounding cryptocurrency.

According to media reports, in India, the use of cryptocurrency is seen as a violation of foreign-exchange rules.

The income tax department has sent tax notices to people dealing in cryptocurrency after a nationwide survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period, reported LiveMint.

In an earlier release, the Central government had issued a warning to those investing in cryptocurrency.

"There has been a phenomenal increase in recent times in the price of Virtual Currencies (VCs), including Bitcoin, in India and globally. The VCs don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices.There is a real and heightened risk of investment bubble ... which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money."

Unlike regular currency, cryptocurrency is not issued by the central bank of a country. Rather, it is a generated through complex codes or 'blockchain' technology by 'miners'. Bitcoin is one of the most popular cryptocurrencies. Other popular cryptocurrencies include Ether, Bitcoin cash, Ripple, etc.

The main reason behind the popularity of any cryptocurrency is the anonymity and secrecy involved, a feature which has been used to advantage for money laundering and other nefarious activities, according to reports.

However, the significant incredible returns that investment in Bitcoin has delivered in 2017 -- with a rise of over 1,400 per cent -- has fuelled a lot of trading interest, according to media reports.

There are an estimated 150,000 domestic traders in India, the Business Standard said in a recent report.

Interestingly, the number of bitcoins generated is set to decrease geometrically, according to miners; it has been reported that the number of bitcoins in existence is not expected to exceed 21 million.

(Reporting by Uttara Ganguly)