The Supreme Court, in a major judgement on Wednesday, allowed trading in cryptocurrency, cancelling the 2018 ban imposed by the Reserve Bank of India (RBI).

The apex court allowed a batch of pleas challenging the 2018 circular of the RBI which had prohibited banks and financial institutions from providing services with relation to cryptocurrencies.

In its verdict, a three-judge Bench of Justice Rohinton Fali Nariman, Justice S Ravindra Bhat and Justice V Ramasubramanian, held the RBI’s ban on cryptocurrency as “unconstitutional”.

Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of currency units and verify the transfer of funds, operating independently of a central bank.

“We have allowed the writ petitions,” a bench headed by Justice RF Nariman said while pronouncing the verdict.

According to the April 6, 2018 circular, the entities regulated by the RBI were prohibited from “providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies”.

The April 6 circular was later challenged in the Supreme Court by Internet Mobile Association of India (IMAI) and other petitioners.

The IMAI argued that the RBI had banned cryptocurrency on “moral grounds” as no prior studies were conducted to analyse the effect of these virtual currencies on the economy.

The association contended that the RBI circular has barred all the entities regulated by the apex bank from providing services to any individual or business dealing in virtual currencies like cryptocurrencies.

It further argued that the blockchain technology adopted in these virtual currencies was not disputed and therefore a blanket ban was “arbitrary, unfair and unconstitutional”.

In 2013, the RBI in an advisory had cautioned users, holders, and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they were exposing themselves to.

In July 2018, the top court had refused to stay the RBI circular prohibiting banks and financial institutions from dealing with the cryptocurrencies like bitcoin. It had sought response from RBI, Finance Ministry and Union ministry of Information and Technology.