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Before we begin as to what exactly is cryptocurrency and how does it regulate in India, lets first understand what is a currency. Currency is money that is used in some or the other form as medium of exchange for goods and services. These currencies are usually issued by the government of that particular country. It is important to note that the concept of currency has evolved from Barter system. In barter system, there was buying of goods in exchange for some item or commodity to compensate/pay the seller. The goods/items which were used in exchange or for payment, their value was generally fixed. In the modern day world, it is kind of similar to that. A generally and universally accepted form of payment is called as currency. Each country has its own currency and the value of these currencies fluctuate on day to day basis depending up on various factors. In barter system the value of the item/commodity was set by the people more often than not, hence making it difficult for the section of people who did not have that high value item/commodity. Therefore, the system of currency came into existence wherein the currency would be issued by the government and the value of the currency would also be set by the government thus making it uniform among the people of the society. In simple words a currency is a monetary denomination that has some value and is issued by the government of that country, which is widely and collectively accepted by the people as a medium of payment.


In India, RBI regulates the production and flow of money. RBI stands for RESERVE BANK OF INDIA which is the apex bank of the nation, it also has the authority to issue currency. Under the ‘Minimum Reserve System’ currencies are issued, wherein minimum reserves have to be maintained by the RBI, in the form of Bullions, Foreign Exchange Reserves and Balance of Payments.

Bullions means the highest purity of gold and silver in physical form usually kept/stored as bars, coins or ingots. The gold and silver metals are of high value. Foreign Exchange Reserves is also known as FOREX which is also considered as an asset and it can be in the form of deposits, bonds, banknotes, treasury bills, and other government securities. If a nation’s currency deflates or devalues, then in such case of emergencies the FOREX ensures that RBI has backup funds to stabilize itself. Balance of Payments (BOP) is a statement of all the transactions between a government body, company or an individual of a nation with another government body, company or an individual of another country. These are monetary transactions which are recorded every year. If all the entries are correct, then the BOP should sum up in a perfect zero. However, in most of the cases, it is not so as the country might not have funds to pay so they have to pay from their reserves. If BOP is surplus, it means that the country’s exports are more than the imports. On the other hand, if BOP is deficit, it indicates that the country’s imports are more than the exports.

The reason why MRS has to be maintained is because the currencies issued by the RBI is a liability to them as it promises to pay the bearer/currency holder. It promises to pay the bearer the sum/value of the currency that he holds. This promise to pay the bearer is duly signed, rather it has the signature of the Governor of India(GOI). Without the signature of GOI, the currencies hold no value.


Now that we know what is currency, how did it take form as it is present today and who is the apex authority that issues the currencies, let us understand what are the types of currencies in India. There are Fiat currencies, then came the gold standard, followed by the system of notes and coins, after which virtual currencies came into existence and now, we have a new form of currency which is known as cryptocurrency.

FIAT CURRENCY- It is a type of currency that is not supported by any physical commodity such as gold and silver. This currency is issued by the government on the basis of demand and supply. There is a relationship of trust between the people and the government. Fiat currencies hold no intrinsic value. It certainly holds value which is not backed by any commodity but by the declaration of the government. A major advantage of Fiat currency is that it allows for better economic control in a country. Since the prices of commodities have highs and lows, Fiat currency gave a more stable approach to economy. However, it has a major flaw as well. If by any chance the people of that nation lose faith in their currency, then such a currency will hold no value at all, but this problem can be solved by having a stable government and good financial policies.

GOLD STANDARD- Gold, Silver and other rare metals were considered prestigious earlier and it is the same till date. Since these rare metals are universally acceptable, they also a medium of exchange. So, Gold Standard is the financial system of a nation, wherein the note and coin currencies of that nation is directly connected with the amount of physical gold held by that nation. In this the rate of gold would be fixed and by this a country could ensure a stable economic situation in the nation. This method was followed to avoid inflation as well as deflation.

NOTES & COINS- They as commonly known as currency. Notes or Paper currency is widely accepted form currency in any nation. In this currency a nation has certain denominations for notes & coins and each note & coin holds certain value as decided by the government. The value of that note is valid only in that particular country. In India, the notes have certain value because the Governor promises to pay the bearer. This system is close to barter system, the difference is that instead of exchanging the goods in order to procure one, we have to pay y either notes or coins to procure any item we want.

VIRTUAL CURRENCY- This is type of currency that holds no physical form, it only exists in electronic form. It is basically a set of programmes that are designed to carry out a set of actions. They are stored in software and can be easily accessed through internet, digital wallets, mobile apps, computers, etc. the transactions in this spectrum occur over safe and secure dedicated networks. Virtual currency is a subset of Digital Currency.

CRYPTOCURRENCY- Now that we know how exactly currencies came into existence and how it regulates, let us understand what is cryptocurrency.

All the types of currencies have one thing in common, that is ‘centralization’. Centralization means the authority is in the hands of an individual or an institution. We have established that every country has a Centralized bank that controls the regulation and flow of money. Cryptocurrency works on a blockchain technology. Blockchain is basically a distributed ledger that records transactions in codes. The basic concept of Cryptocurrency is a Decentralized approach as compared to the current concept of financial system. In the general system of transactions, the details of such transactions are held by the Apex bank of the nation. But in Cryptocurrency it is a system wherein payments could be made from one entity to another without the interference of banks. In other words, where other forms of payments have to go through the Centralized bank, in Cryptocurrency there is no such centralized bank to overlook, but the transaction history is stored in a software. It provides as an alternate method of payment.

The main characteristic of Cryptocurrency that separates it from other forms of currencies is that it is Decentralized in its nature. Cryptocurrency allows for smooth and secure online transactions usually denoted as virtual TOKENS.

This concept of Cryptocurrency was first found by David Chaum in 1983. A cryptographic system called eCash was developed by him, further he developed another system called DigiCash.

The term Cryptocurrency was first coined in 1998 by Mr. Wei Dai as he though of developing a new mode of payment which used cryptography to make economic transactions.

The question as to the creator of the first Cryptocurrency remains ambivalent, but is the speculations are to be true then it Mr. Satoshi Nakamoto from Japan. His identity is still discrete. He supposedly was the first creator of Cryptocurrency, that is Bitcoin. He created it in 2009 and his ideology was also to focus on Decentralized method of payment.

The reason why Cryptocurrencies are booming is because of their wide applicability. Cryptocurrency as a currency is still a new concept and many are adapting to this system and that is the reason why Cryptocurrencies are not widely accepted. There are not just one, but many Cryptocurrencies in the market today. These Cryptocurrencies hold no fixed value, their value keeps fluctuating depending on the supply and demand of these Cryptocurrencies. So, it is no wonder if people start using these Cryptocurrencies, their value is sure to increase. It can also be used for investment purposes. If a person buys one of these Cryptocurrencies when the price is low and sells it when the prices increase, it becomes a good investment option.

Every Cryptocurrency releases only certain number of TOKENS and these tokens revolve in the market creating demand and supply. It is to noted that these Cryptocurrencies exist virtually or online, it has no physical form whatsoever. These TOKENS can be purchased online or through a trusted application that allows for buying and selling of Cryptocurrencies.


India is still very new to this concept of Cryptocurrencies. Till date no companies accept Cryptocurrencies a mode of payment, but they can be traded just like the stock market. In India it is very much possible to buy and sell Cryptocurrencies through various trusted applications. Binomo, CoinSwitch, WazirX, CoinDCX and Bitcoin Wallet are a few applications to name that enable people in India to buy and sell Cryptocurrencies.

As far as their legality is concerned, the Indian Government has told that Cryptocurrencies are not illegal, as any person can buy or sell Cryptocurrencies. There is certain level of practicality of this system’s usage in India. Though the Indian Government has not declared Cryptocurrencies as illegal, does not mean that they can be accepted instantly in the market. India is still a developing country and it takes certain amount of time for Indians to get adapted to a new concept or system. A system that is backed by a certain authoritative body is accepted in India. There are certain applications that allow for online transactions like PayTM, GooglePay, PhonePay and Mobikwik that require a person’s bank details to enable bank to bank transfers. Therefore Cash, Cheque, DD, RTGS, Bank to Bank transfers are widely accepted in India than Cryptocurrencies. Once these Cryptocurrencies prove to be stable, then the companies in India can start accepting Cryptocurrencies as a form of payment. The biggest disadvantage of Cryptocurrencies is that they are pretty volatile and fluctuate a lot, hence their stability is only certain on the demand and supply for that particular Cryptocurrency. They can also be used as a means to avoid tax and for money laundering purposes. However, on the bright side it has a major advantage. Cryptocurrencies allow for transfer of money in the form of TOKENS from one person to another without the interruption of banks as it is a completely safe network.











  10. RIPPLE (XRP)

The above mentioned Cryptocurrencies are the most popular Cryptocurrencies in the world. Therefore, regulation of Cryptocurrencies in India is very possible. It just needs a little stability in its functioning. But a very important point to be noted is that these currencies no matter how much they make transactions secure and smooth, the fact still remains that it is not backed by any centralized bank and hence doubts its very stability. If the market falls, then the regulation of Cryptocurrencies would decrease drastically. But if the market is doing well, then there is no harm done to these Cryptocurrencies. Overall, Cryptocurrencies should not be considered as mode of payment due its lack of solidity, but it should be considered for investment purposes as it makes an excellent option for investment.

Presented by - SANKALP. S. DESHPANDE

College - KLE Society’s LAW COLLEGE


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