What next for virtual currency?

News: The Supreme Court has set aside the 2018 circular of the Reserve Bank of India (RBI) on virtual currencies on grounds of proportionality.

Facts:

Virtual Currencies:

• Virtual currency is a digitally tradable form of value, which can be used as a medium of exchange or acts as a store of value or a unit of account.
• Cryptocurrency is a specific type of virtual currency, which is decentralised and protected by cryptographic encryption techniques. Example: Bitcoins, Ethereum, Ripple, Petro (by Venezuela govt) and Alber (By UAE and Saudi Arabia) .
• Blockchain Technology: A Blockchain is a digital, immutable, distributed ledger that chronologically records transactions in near real time. It is managed by a cluster of computers not owned by any single entity; therefore, it is decentralized.

Legal Status of Virtual Currencies in India:

• It does not have the status of a legal tender.
• In 2018, RBI prohibited banks and entities regulated by it from providing services in relation to virtual currencies to ensure that the banking system was not compromised by payment systems which showed extreme `volatility”.

Supreme Court Judgement on Virtual Currency- Key takeaways

• Held that despite the fact that virtual currencies are not recognised as legal tender, they are very much capable of performing some of the functions of actual and real currency.
• RBI 2018 directive failed on the five-prong test to check proportionality — 
  • Direct and immediate impact upon fundamental rights (Article 19(1)(g), which states that all citizens of the country will have the right to practise any profession, or carry on any occupation or trade and business)
  • The larger public interest sought to be ensured; 
  • Necessity to restrict citizens’ freedom; 
  • Inherent harmful nature of the act prohibited or its capacity to be harmful to the general public; 
  • The possibility of achieving the same object by imposing a less drastic restraint.