39 comments on “Reserve Bank of India regulations on Bitcoin in India

  1. 1.) When I buy a prepaid credit card, the plastic has no value — the value instead comes from the promise that that card can swiped (redeemed) for purchases up to the promised value stored.

    When I buy a silver round (bullion), I am buying a commodity. Nobody has promised that I can redeem that silver in exchange for anything.

    Bitcoin is more like a commodity in this sense. It really isn’t a prepaid payment. Nobody is promising me that my bitcoins have any value or can be redeemed for anything. Therefore, I haven’t prepaid for anything.

    2.) Also, since the data for the transaction I created is mine (I created with my software running on my computer) that might be protected as free speech. I have a write to create and transmit that data.

    3.) As far as foreign exchange rules — since a coin’s origin is not known (and generally would have a pedigree including many sources of mined coins) that argument of it possibly being mined domestically has a few holes.

    Great to see this type of study performed. So much focus so far has been on the laws in the U.S. and on a couple nations in the EU and what is unappreciated is that bitcoin will be a challenge to the regulations in nearly every country in the world. India, having nearly 20% of the global population, and the largest single destination for remittances, will be among the first where Bitcoin will be addressed by financial regulators.

  2. Cool.
    Thanks for the details.
    I had first stumbled upon bitcoin when i was doing my engineering about 4 to 5 years ago. And i couldnt understand why it was taking so much time doing sync and all. I didnt understand how it works.
    I have just started using it again. Looking forward to discover more. 🙂

      • Oh, didnt know that. Then may be it was 2009 or 2010. Coz, i used to check sites like pirate bay and other hackers type sites. But i didnt understand the bitcoin system at all. And now , i am just waiting for the synchronization to completed in the Bitcoin software…

      • No, you can go to receive and generate your address immediately. But you will not be able to send or receive Bitcoin till the blockchain downloads fully which can take several hours or even a day depending on conditions.
        If you wish to instantly start sending and receiving, then use an online wallet such as coinbase.com or instawallet or electrum or blockchain.info wallet.

      • Thanks ben. So , i can create as many hashes as i want and use them. Its really cool 🙂

  3. Question NO-1-Does dealing in bitcoins violate the provisions of Foreign Exchange Management Act, 1999 specifically Section-3,4,7,13 and moreover does it violate any Foreign trade and exchange laws or any RBI regulations or guidelined.
    Question No-2-Is bitcoin a currency under the Foreign Exchange Management Act, 1999 and if not then why?

    • Ans No 1: As Bitcoin can be mined in India itself, it cannot be classified as an International currency. Even if the coins are mined outside the country, It is very easy to mix the source of coins. This typically cannot be regulated.
      Ans No 2: Bitcoin can be termed as a currency as can Rice and Salt. 🙂 At the same time, all these currencies can be termed as commodities as well. Bitcoin is a unique set of characters which have value due to the fact that they are scare and hard to mine.

      There is nothing like Bitcoin in any legislation.

  4. Mr.Benson could u please explain the concept of mining and the specific question which I want to raise is that whether dealing in bitcoins is legal in India or not and as u stated that there is no such legislation to deal with bitcoins, but FEMA,1999 prohibits to deal with any foreign exchange or foreign security under Section-3 of the Act.
    My question is that whether a person needs an authorization from the RBI to deal with bitcoins or not and if not then why and what provisions of FEMA, 1999 are applicable to bitcoins?
    I am charged for violating Sections 3,4,7 and 13 of FEMA, 1999 for dealing in with bitcoins, please help me regarding this and I am expecting a legal answer 🙂
    Can I be prosecuted for dealing with bitcoins under the aforementioned sections and if not then why and if yes then why….please answer me in a legal context.
    Thank You!

  5. I received 7000 Bitcoins in a business transaction from a business merchant in Dubai and when I transferred 5000 Bitcoins to a currency broker in India for which I received 36,00,000 Rs, subsequently I was charged with the aforementioned sections , so please let me know that whether I can be charged under such sections or not?

    • You are referring to a moot proposition. This is a fictional case. I have seen this as well.
      There is no mention of this in any news. However this case involves Fiat, and as I have said earlier, when Fiat gets involved, Bitcoin moves into the grey area.

  6. Yes u are right and I hope u are one of us, so please guide me through this….whether I need to go in details with bitcoin or simply I can deny that bitcoin is not termed as a currency under FEMA,1999 🙂

    • I am not that much of an expert to make this statement.
      However, Bitcoin can either be looked at as a software as it is mined using computing power and has no physical presence. Or it can be looked at as a currency.

  7. Thank you Mr.Benson and one last thing could u please suggest me any regulation which prohibits dealing in with bitcoins.

    • None that I am aware of. Bitcoin – Bitcoin is just like sending an e-mail. It can never be regulated as there is no central authority and it is non-political. No country owns it. Hope that helps.

  8. Mr. Benson though I agree with you that legality of bitcoins has become a debatable topic globally but don’t you think that after the “Silk Road” incident and the way the U.S Attorney General and F.B.I reacted on it pushes the debate on a more negative use of such decentralized currency and that to in U.S which offers more flexibility in trade and commerce. That is to say it has started from a bad note i.e. it has become a play toy in the hands of criminals using it as an instrument for money laundering. Secondly, in India though FEMA cannot grip Bitcoins but the PMLA, 2002 with its amendment of 2009 and the I.T Act,2000 along with the free gratis of Judicial Review of our courts can grip this GRAY MAN “THE BITCOINS”

  9. Pingback: Revisiting – The Legality of Bitcoin in India | Benson's Blog

  10. Pingback: REVISITING – THE LEGALITY OF BITCOIN IN INDIA | INDIA BITCOIN

  11. Hi Benson. I’m looking for making a transaction in Bitcoins. In this blog you have previously mentioned that Bitcoins otherwise unregulated come within a legal grey area when FIAT gets involved. how or why? What difference does involvement of FIAT make to the legality of the transaction? Which regulations may get violated when FIAT gets involved?

    • Hi Anon,

      The only problem arising from FIAT is that it is regulated by the government.
      There are 3 main types of digital payments
      Closed – Only allowed in the environment of the virtual world. This is unregulated but needs approval
      Semi-Closed – Can be used to purchase a few items outside the virtual world. ie – prepaid topups, etc – This is regulated but approval can be obtained to setup a prepaid method that can buy some controlled items.
      Open – This is where Bitcoin can be defined or not. It allows free transfer of digital currency between FIAT and back. This is regulated and can only be run by Banks in India.

      The discussion arises since people want to know where they stand with this clause.

  12. Pingback: Revisiting the Legality of Bitcoin in India | UnoCoin

  13. Do we have any list of banks from each country that recognize BitCoins and come forward to exchange it into respective currencies?

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