Cryptocurrency: A New Normal & It’s Status
In the digital epoch of 21st century, everyone and everything is going virtual and the need to virtualize has been even intensified in the pandemic situation, where we are following a no-contact norm. In this ongoing process of virtualization, our modes of payment also became virtual and people began to put an end to the traditional practice of carrying real cash along, while stepping out of their homes because having mobile wallets, plastic money or different payment apps in the mobile phones avail the benefits of real cash. This has become a new normal but whenever we initiate a novel practice, there are always certain stumbling blocks in the way, which needs to be set aside. Similar, impediments followed, when money transactions went online such as privacy issues, limited reach, frauds etc. and in order to overcome these issues, the economy is heading towards another emerging mode of currency, called cryptocurrency. Cryptocurrency is a digital asset designed with the purpose to work as medium of exchange wherein individual coin ownership records are stored in distributed ledger existing in the form of computerized database using strong cryptography to secure transactions, regulate creation of additional coin and to verify the transfer of coin ownership. Cryptocurrencies exists in more than 2000 forms over the internet but only a few are prominent such as Bitcoin, Ethereum, Ripple, Litecoin and Monero. Thereby, in this virtual sphere, it is the need of the hour to throw light on the benefits that such a form of currency will accrue and deliberate over the cons that will follow and to what extent they can be managed legally.
Need For Virtual Currency
The prevailing payment mechanisms involve credit and debit cards, UPI payments and all these mechanism has a centralized authority which can either be a government or corporations, to manage transactions executed through these systems. As a consequence of having an authority to manage all these mechanisms, there is loss of privacy, creeping computerization, massive databases and excess centralization. As quoted by Berkeley mathematician Eric Hughes “Privacy is necessary for an open society in the electronic age”. In addition to this, even in India in the year 2016, right to privacy has been made a fundamental right under Article 21 of the constitution. When such significance has been given to the privacy of individuals, efforts need to be made to keep it intact and protect it from intrusion. At this juncture, comes fore a new form of currency called cryptocurrency, which is in the form of encrypted codes and eliminates the central authority by promoting direct transactions among individuals through distributed ledger. Owing to such encryption and privacy protection, bringing crypto currency into the financial market, will resolve all problems relating to online frauds that are happening as result of sensitive private data being steal and misused by certain anti-social elements and leading to not only the loss of privacy but also pecuniary losses.
The accessibility of the prevalent payment mechanisms has certain requisites such as a cell phone with either android or IOS operating system and high speed internet connection. These facilities are still not available with various sections of society, particularly in developing and under-developed countries. It is not just about accessibility to online payments but also about unbanked individuals, who do not have banks in their vicinity as banks also distance themselves from undeveloped and rural sections. For such sections of society, cryptocurrency will be a savior because cryptocurrency transactions can be executed even through feature phones as it is working through encrypted codes, extending its reach even to the lowest strata of the society.
India’s Stand On Status Of Cryptocurrency
India, the fastest growing economy of the world, seems to be maintaining an unfavourable approach towards cryptocurrency when RBI, the country’s currency monitoring authority, ordered the financial institutions to break off all ties with individuals and businesses dealing in virtual currency such as Bitcoin within three months in April, 2018 but when the matter was petitioned before the Supreme court, they adopted an optimistic view with respect to the same and lifted the ban. Though, the ban imposed by RBI was lifted by the Court’s decision, as a result of this, trading in cryptocurrency is declared not illegal in India but this does not imply that it is legally recognized. So, India, currently, stands in a grey area when it comes to the status of cryptocurrency, when there is a need to have a favourable outlook apropos the same. India being a developing country has around one-fourth of its population living in poverty and as result are excluded from the financial system because they do not have access to banks and cannot avail the services of various online payment mechanisms. Though several schemes has been introduced to promote financial inclusion such as Jan Dhan Yojana but the outcomes accrued are not satisfactory on the ground level. So, Indian government should legally recognize cryptocurrency as a medium of exchange as it can be operated through feature phones and from anywhere and everywhere, though there exits certain risks but regulating the same will help to aver the risks as in the case of stock markets, they are also volatile and carry lot of risks but those are monitored by Securities Exchange Board of India (SEBI) and various other government agencies, hence similar mechanism can be adopted for cryptocurrencies as well.
Every coin has two sides, in the same way, using cryptocurrency as medium of exchange also has both advantages and disadvantages, but its advantages outweigh the concerns raised with respect to its security and stability. This is because both the security and stability concerns can be managed by legally recognizing and regulating the virtual currencies. So, Indian legislature should depict certain proclivity towards this new normal of executing transactions through cryptocurrency.
Legal Status Of Cryptocurrency
Despite having such advantages, there is still suspicion with respect to the legal recognition of cryptocurrency in most of the countries because of the fluctuations in its value and anonymity of its origin. However, certain countries has legally recognized and formulated regulations to administer cryptocurrency but the status conferred differs depending upon the understanding of the cryptocurrency and no country has yet given it the stature at par with fiat money. For instance, Japan while formulating legislations with respect to cryptocurrency, defined it as proprietary value that may be used to pay an unspecified person the price of goods or services purchased and borrowed from an unspecified person, with certain limitations with respect to who will constitute “unspecified persons”. Whereas, Australia, in 2017 when it legally recognized cryptocurrency, particularly, bitcoin, conferred the status of property and subjected it to capital gains tax. Similarly, in the United States of America, though Financial Crimes Enforcement Network(FinCEN) refused to legally recognize virtual currency, yet Internal Revenue Service regarded cryptocurrency as property and issued tax guidelines accordingly. Further, various countries such as Israel and Bulgaria taxed cryptocurrency as assets and financial assets respectively, Argentina, Spain and Denmark subjected the same to income tax, Switzerland regarded it as foreign currency and imposed taxes accordingly and United Kingdom subjected cryptocurrency to different tax regime such as corporate tax, income tax and capital gains tax for corporations, unincorporated businesses and individuals respectively, depending upon the purpose for which the virtual currency is being utilized. Looking into the tax regime and legislations of different countries, it is lucid that virtual currency is not recognized as a medium of exchange rather it is recognized as source of income, thus, hampering the purpose of its introduction.
5. (Paul vigna, 2015)
About the Author
This is Anika Sharma, a student of law, pursuing her B.A.LLB (Hons.) from Maharashtra National Law University, Nagpur. She has always been interested in dabbling her views concerning contemporary socio-legal issues and create legal awareness among the general public. She is recently working as a content writer with Amikusqriae and previously wrote for Lawnomy, a online legal website, certain journals and even in English Newspapers such as The Hitavada and Free Press.