Banks Will Soon Have To Stop Dealing In Bitcoin, Other Cryptocurrencies: 5 Things To Know

NDTV Profit Team

03 Jul 2018, 09:39 PM IST

Cryptocurrencies are virtual currencies - meaning they can't be touched physically.

The Supreme Court on Tuesday refused to grant a relief on a ban on cryptocurrencies imposed by the Reserve Bank of India (RBI). The central bank had in April this year issued a circular in which it had prohibited banks and financial institutions from providing services in relation to cryptocurrencies such as bitcoins. The Internet and Mobile Association of India, an industry body, had appealed in the top court, seeking a stay on the RBI circular on cryptocurrencies. Tuesday's ruling means that banks will stop dealing in bitcoins and other cryptocurrencies soon.

Here are five things to know:

1. The RBI has time and again warned the general public as well as traders against cryptocurrencies including bitcoins. In its April 6 circular, the RBI had once again pointed out "various risks associated in dealing with such virtual currencies".

2. In view of the associated risks, the RBI had decided to prohibit the entities regulated by it from dealing "in VCs (virtual currencies) or provide services for facilitating any person or entity in dealing with or settling VCs". Such services, the RBI had said, include "maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase or sale of virtual currencies".

3. The RBI had set a deadline of three months starting April 6 to stop dealing in bitcoins and other virtual currencies.

4. On Tuesday, a Supreme Court bench headed by Chief Justice Dipak Misra issued notices to the ministries of finance, law and IT, along with the RBI, and tagged the matter along with similar cases, news agency Press Trust of India reported.

5. The top court was hearing a plea filed by industry body IMAI, which had described the RBI circular as "arbitrary, unfair and unconstitutional". The association contended that the move bars all the RBI-regulated entities from providing services to any individual or business dealing in virtual currencies like cryptocurrencies.

Cryptocurrencies are virtual currencies - meaning they can't be touched physically - that are not regulated, unlike real life currencies such as rupee. Encryption techniques are used in cryptocurrencies to regulate generation of units and verify transfer of funds. Virtual currencies, including bitcoin, have been stuck in a downward trend for most of 2018 after last year's frenzied interest fizzled.