CRYPTOCURRENCY
We have all heard of the term Cryptocurrency in the modern world. As its name suggests Cryptocurrency is “virtual currency” with an encrypted data string that denotes unit of money, with a purpose to make crimes such as counterfeiting and double spending next to impossible as the system is governed by the security of cryptography.
It is further monitored by blockchain, a peer-to-peer network which serves as a secure ledger for the process of buying, selling and transferring goods and items. Being decentralized the process of buying and selling of items are not issued by government or financial institutions rendering them secure from manipulation and foul play. The generation and verification of the authenticity of the cryptocurrency transactions using the blockchain technology is monitored by a process called mining, where in a network of computers or a sophisticated hardware like ASICS (application specific integrated circuits) solves an extremely intricate computational math problem. The first computer to resolve the problem receives the next block of cryptocurrency and the process begins again.
Although the process of mining is expensive, meticulous and sporadically rewarding, it has a magnetic appeal for many investors because of the incentives miners are provided, respecting their work with the crypto tokens. The first ever Crypto currency introduced in the market was back in 2008 by the pseudonymous developer Satoshi Nakamoto, ten years after Wei dai published a description of "b-money" [1]as an anonymous, distributed electronic cash system.
CRYPTOCURRENCY IN INDIA
RBI (Reserve Bank of India) were never up for the rise of cryptocurrency as a mode of transaction, constantly issuing warnings to the public against its use.
The bank was adamant on its stance reminding users, holders and traders of virtual currency about the various legal, financial, operational and security risks associated with the system being decentralized in nature and backed by no provisions. Provided this the commercial banks continued to allow transactions of the digital currency forcing RBI to reiterate its concerns in 2017, by issuing a warning talking about non recognizability of the currency as a legal tender.
The government later formed a committee to study the market of the currency and propose plans of action. Following which contrasting Public Interest Litigations (PILs)were filed in the Supreme Court. One asked for its ban due to the uncertainty and governance problems,the other PIL demanded for its regulation keeping privacy as top priority.
Central Board of Direct Taxes (CDBT) through their then chairman Sushil Chandra voiced their opinion about the creation of a chain of black money by the system mentioning the ways uninformed people in the midst of nowhere are magnetised by the idea. Thus, leading to the fall of cryptocurrency prices, exchange fees and withdrawals.
The Inter-Ministerial Committee (IMC) formed to understand and regulate the crypto world proposed a bill to the finance ministry to refrain from a ban, instead adopt principles of blanket ban to the system. India In a way did as the Supreme Court lifted the curbs imposed by RBI, which prevented financial institutions from providing access to banking services engaged in Crypto Transactions.
BACC (Blockchain Crypto Assets Council) in their meeting with the Standing Committee of finance stated their interest in regulation and evasion from a ban. Following which the finance ministry informed the parliament about passage of a bill regarding the same as the laws governing Cryptocurrency were inadequate
Prime Minister Narendra Modi’s meeting with senior officials regarding the regulation of crypto currency indicated his stance even after constant apprehension by RBI.
LEGAL ISSUES OF CRYPTOCURRENCY
According to a report by the Russian Government cryptocurrency can prove to be a medium to evade payment of taxes.
Moreover, if not regulated well it will lead to a “tax gap” which is the difference between the taxes paid and taxes owed. Estimates by the White House currently stand at a gap of approximately 7 trillion Dollars by the next decade. Introduction of various private cryptocurrencies like Monero, Zcash, and Dash have potential to huge scams and terror to the security of the user. Unlike public cryptos like Bitcoin, Ethereum which are backed by public ledgers and public portfolios, private currencies are in the hands of private entities. The market has over 10000 cryptocurrencies circulated but only 20-30 have an understandable use case for their crypto offering. In India this issue is mentioned in the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which reads “The Bill also seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” [2]
Thus the fear with private cryptocurrencies is its anonymity as it obscures the origin and destination of the transfer of funds. But exactly what constitutes ‘private’ is still unclear and bewildering. Not only does it affect the security of one, some currencies are known to show a loss of data and an increased scope of phishing which forms the basis of the argument of the relevancy of a currency backed by no authority. A report by cybersecurity firm Sophos revealed that ransomware, fueled by cryptocurrency, was involved in 79 percent of the global cybersecurity incidents, Topping the list were the The Conti and REvil ransomware attacks. A beginning to ransomware and malicious cryptomining until better global regulations are laid.
REGULATION OF CRYPTOCURRENCY AROUND THE WORLD
European Union nations have a soft touch regulatory framework for the industry.
The draft legislation titled Markets in Crypto Assets Regulation (MiCA) by the European Commission is said to treat cryptocurrency as financial instruments upon commencement of the legislation as it ensures consumer protection, introduces the concept of licensing requirements and defines conduct within the institution of cryptocurrency. EL Salvador became the first country to recognise Bitcoin as a legal tender stating its expectation to reduce poverty and advent digitalisation within the nation. Owing to the dual system of governance in the United States different states laid down their own laws for the matter.
New York for example launched “BitLicense" a legal framework for crypto exchanges whereas Wyoming protects Crypto developers from security measures on achievement of certain standards. China on the contrary had a radical approach, initially accepting the crypto movement to banning mining and trading of the currency. China now is trying to develop their own version of the currency which is centrally regulated. Lastly, The Securities and Exchange Commission (SEC) of Thailand drafted regulations in order to control the volatility in the crypto trade, allowing only deposits of client’s assets to a commercial bank with interest rates set after discussion with the said client.
CONCLUSION
During its lifetime, cryptocurrencies such as bitcoin have demonstrated a great deal of promise as a tool to reshape the value, use and concept of wealth.
Although it faces criticism and apprehensions due to its large use in black markets, the currency still paves way for numerous legitimate functions and strengths over conventional legal tender, notably in the realm of online transactions. One can’t overlook the change cryptocurrency can bring to the modern world but first the establishment of proper legislation, provisions to tackle the associated issues is the need of the hour. Before laying down strong foundations one can’t think of a merry future, the pillars holding the institution should be strong enough to withstand the hazards and storms the institution may bring, for a common man to use the currency within the boundaries of the legal system is what I would consider progress as then we can be assured that lawmakers are looking into the main point of disagreement between the authorities worldwide, the credibility of the industry.
-- [1] W. Dai, “B-money,” Nov. 1998. [2] the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
This article is written by Arohan Pattnaik of Symbiosis Law School, Noida.