Bitcoin trade may come under SEBI

Image showing Bitcoin

The government is considering the introduction of a regulatory regime for virtual or crypto currencies, such as Bitcoin, that could enable the levy of GST on their sale.

The new regime may possibly bring their trading under the oversight of the stock market regulator, Securities and Exchange Board of India (SEBI).

The idea is to treat such currency in a manner similar to gold sold digitally, so that it can be traded on registered exchanges in a bid to “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.

What are crypto currencies?

Read in detail about what is cryptocurreny and how does it works?

A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of currency. A cryptocurrency is difficult to counterfeit because of this security feature.

It allows transacting parties to remain anonymous while confirming that the transaction is a valid one.

It is not owned or controlled by any institution – governments or private.

Bitcoin became the first decentralised cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created like Ethereum, Ripple, etc.

What are the advantages and disadvantages of cryptocurrency?

Advantages:

  • Cryptocurrencies make it easier to transfer funds b/w two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes.
  • These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.
  • It is difficult to counterfeit cryptocurrencies.
  • Due to the fact that Bitcoin transactions cannot be reversed, do not carry with them personal information, and are secure, merchants are protected from potential losses that might occur from fraud.

Disadvantages:

  • As cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if the backup copy of the holdings doesn’t exist.
  • Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.
  • Cryptocurrencies are not immune to the threat of hacking. In Bitcoin’s short history, the company has been subject to over 40 thefts, including a few that exceeded S1 million in value

Why is government considering a regulatory regime for cryptocurrency and not banning it altogether as it is used for various nefarious activities?

The discussion whether crypto currencies should be banned or regulated has been on for some time. In a recent meeting chaired by Finance Minister Arun Jaitley, the pros and cons for both aspects were put forward. A proposal to ban such currency altogether was also considered at the meeting.

On banning it, officials attending the meeting were of the view that banning will give a clear message that all related activities are illegal and disincentivise those interested in taking speculative risks, but it was pointed out that any such move will impede tax collection on gains made in such activities and that regulating the currency instead would give a boost to blockchain technology, encourage the development of supervision ecosystem and promote a formal tax base.

 

References:

An article from The Hindu titled “Bitcoin trade may come under SEBI”

Investopedia

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