The most common way of raising funds for companies is through an Initial Public Offering (IPO), in which capital is generated by selling of shares to investors, by which the investors get certain voting and ownership rights in the company. Another way of raising funds, which has gained a massive following in the past few years, is through an Initial Coin Offering (ICO). ICO is a fundraising tool, in which investors are existing tokens or coins in return for their investment. It is mainly used by start-ups in order to easily and resourcefully raise funds, in disparity to other rigorous capital raising processes.
Though the popularity of Crypto/Virtual currency or ICO hasn’t gone unnoticed; India still seems to be a bit uncertain about the whole concept. There is no regulatory mechanism to govern/regulate cryptocurrency or ICO in India. Though not acknowledged illegal per se, RBI over certain press releases has clarified its attitude on ICOs.
- Vide press release, RBI cautioned the users, holders and traders of Virtual currencies (VCs), plus Bitcoins, about the potential financial, working, legal, customer protection and security related risks that they are exposing themselves to.
- Vide press release, RBI stated that it has not given any license/ authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.
With regards to Virtual Currencies, the Government had constituted an Inter- Disciplinary Committee to examine the framework existing in India. No report has yet been submitted by the committee. In the meantime, the Reserve Bank of India took strict action through its notification dated April 06, 1018, in which it has notified that entities regulated by the Reserve Bank shall not deal in VCs or provide services which 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/ sale of VCs. As a consequence to this, a petition was filed by the Internet and Mobile Association of India (IAMAI) on May 22, 2018, challenging the April 06, 2018 RBI notification that prohibited banking services from dealing in virtual currencies. The SC refused to impose a stay and indicated that it would reconvene to pass further judgement. The government is likely to issue detailed guidelines on cryptocurrency, in consultation with SEBI, RBI and AIMAI.
It can thus be strongly said that the dawn of virtual/ cryptocurrency has brought forth a revolution in the traditional ways of conducting business, which though risky, can do wonders if properly and effectively regulated. Various other countries have acknowledged the significance of this virtual medium of exchange and have endured losses in order to effectively control and regulate it. Therefore, it is high time that India learns from the mistakes of its peers and acknowledges the potential of cryptocurrency rather than turning a blind eye to it.