Abstract:-
The technological revolution has resulted creating a new type of currency known as cryptocurrency. It is only available in electronic or digital form and can only be traded online. Because of their increased privacy and lower transaction costs, virtual currencies have grown popular. The increased use and interest in these currencies by people worldwide, including India, demonstrates the need for a strategic legal framework to deal with virtual currencies both inside and outside the country. The decentralized and anonymous nature of virtual currencies complicates their regulation even more. Other threats, such as money laundering, terrorist funding, and tax evasion, are being accelerated by crypto currency, and must be addressed as soon as possible. The authors attempted to light the legal and awareness issues surrounding cryptocurrency by conducting a survey. The legal issues and challenges are focused in this paper based on an analysis of current laws.
Keywords:-
Government, legality, RBI, Crypto currency, decentralized, block chain.
Introduction:-
Today’s economies are all money economies because all economies have accepted specific currencies (money) as a medium of exchange. Money supply causes inflation and deflation in economies due to excess supply and contraction in money supply, so governments regulate currencies in different countries to combat inflation or deflation situations. Many countries around the world are now focusing on digital currencies and transactions. Even some people do not want to regulate their currencies and transactions. It resulted in more significant innovation in a new cryptocurrency, one of the most advanced, ambiguous, and regulation-free currencies. In this article, I attempted to research crypto currency, its development, and transactions in India.
Crypto currency is a type of virtual currency protected by an encryption code. These are built on a decentralized network system built on blockchain technology. The mode of operation distinguishes cryptocurrencies from other types of online transactions.
The primary distinction between cryptocurrencies and traditional digital transactions is that there is no single or central ledger available; instead, the recording of transactions is done by all users participating in the system simultaneously, reducing the possibility of it being hacked. As a result, this provides an answer to one of the most frequently asked questions about crypto currency security and hacking. In comparison to other virtual currencies, the currencies have a safer interface.[1]
Understanding and considering cryptocurrencies is critical with a growing reliance on the virtual interface and an ever-increasing.The debate over cryptocurrencies as the future currency has already gained traction emphasizes the significance.
Blockchain technology, a public ledger that monitors all transactions that have ever occurred within the network and is accessible to all, is used in a decentralized network such as Bitcoin.As a result, everyone on the network has access to every account’s balance. Every transaction is a file that contains the sender’s and recipients’ public keys (wallet addresses) and the number of coins transferred. The sender must also sign the transaction with their private key. All of this is just basic cryptography. Finally, the transaction is broadcasted inside the community; however, it should be confirmed.[2]
Cryptocurrencies, such as bitcoins, can and are used in various ways, including purchasing goods, investing, mining, conducting business transactions, and so on. Because of the industry’s rapid growth, governments and other stakeholders worldwide are paying closer attention. Cryptocurrencies are becoming increasingly popular. Worldwide, law enforcement agencies, tax authorities, and legal regulators are attempting to comprehend the concept of cryptocurrencies and where they fit within existing regulations and legal frameworks.[3]
Research methodology:-
I have chosen quantitative research methodology for this study. I drew on secondary data from financial websites, the government of India, journals, newspapers, books, and magazines, among other sources.
Literature review:-
Rahul J. Nikam (2018) In his book Model Draft Regulation on Crypto currencies In India, the focus is on India making a firm decision on crypto currency trading and regulating it, as well as how the RBI should be more receptive to the concept of crypto currencies and grasp the value and prospects that come with it.
M Trivedi (2018) in his book Strengths, Weaknesses, Opportunities, and Threats of Crypto currency in his project, as well as its expansion in India discuss the cryptographic forms of money have been seen as profitable investments. Because of its several advantages, including: ease of access, the absence of any middleman, quick instalments, low currency rates, and information security. Cryptographic types of money, on the other hand, suffer the consequences of certain flaws. The security of data and digital currency has been a major worry.
Gunjan Jindal and Sheza Azeen (2018) in their book Legal acceptance of bitcoin in India highlight how bitcoin plays a critical function in accumulating the nation’s growth percentage and how it would not be possible unless the government pushes to make the transactions legal and imposes its rules on it in their Legal acceptance of bitcoin in India.
The legality of Cryptocurrency in different countries:-
USA:-
The US government recognized Bitcoin in 2013 as a decentralized virtual currency that can conduct transactions.
Germany:-
Germany is one of the few European countries that allow cryptocurrencies and actively participate in the development of blockchain solutions.
France:-
France legalized the operation of digital currencies such as bitcoin and cryptocurrency exchanges, taxation, and authority for those involved in the trading and use of such currencies by issuing a regulation note on July 11, 2014.
Canada:-
The Canadian government accepted Impak Coin as the country’s first legalized cryptocurrency in August 2017. Previously, the Quebec regulatory authority legalised bitcoin for a limited number of business models, including ATMs and exchanges.
India:-
The Indian government may sooner or later legalise crypto currency in the country through special provisions, laws, and regulations.
Impact of Crypto currency on Tax Regime:-
Another region that has attracted the eye of regulators is the monetary elements of cryptocurrencies. Legal characterization of cryptocurrencies is essential to figure out their tax consequences. The critical difference is whether or not cryptocurrency is a commodity (capital asset including stock) or foreign money. Cryptocurrency transactions are difficult to tax like another asset or foreign money. Cryptocurrency transactions may also entice capital advantage tax, profits tax, transaction tax, and wealth tax. Even if cryptocurrency transactions are void and illegal, the tax regulation is empowered to price taxes on such transactions. In March 2014, the Internal Revenue Service of the United States ruled that Bitcoin may be treated as a property for tax purposes. Rather than foreign money, Bitcoin functions as a medium of exchange, a unit of account, and a store of value and operates in some environments like actual foreign money. This way, Bitcoin may have difficulty with capital profits tax.[4]
Impact of Crypto currency on Consumer Protection:-
Cryptocurrency transactions are based on confidence in equal equality, promoters, and system transactions. In addition to this, other laws that may be relevant are consumer protection law, contract law, money laundering laws, intellectual property law, and banking laws. Various estimates show that cryptocurrency-related crime is rising, keeping pace with the rapidly growing market. It forces investigators to focus on high-profile cases, says security professionals and officials, leaving small investors to fend for themselves.
Why do we need a framework and strategies for cryptocurrencies?
Recently, there has been such rapid growth in the value and popularity of cryptocurrencies that they can no longer be dismissed as a fad. Cryptographic or cryptocurrencies have generated opposing viewpoints as they have emerged as a digital alternative to more traditional exchange methods such as cash or credit cards. On the one hand, the school of thought views cryptocurrency as a financial medium for fraudsters, terrorists, and criminals, particularly in ransomware scams and Dark Web trading. Recent increases in the value of various cryptocurrencies, on the other hand, have established it as a viable investment that can positively impact the wallets and trading practices of mainstream investors worldwide, thanks to the positive hype surrounding blockchain technology. According to reports, Cryptocurrencies will become a mainstream payment method for goods and services within the next decade. However, it is contingent on public awareness and willingness to invest in cryptocurrencies.
Challenges of cryptocurrency in India:-
So some virtual currency systems are linked to real-world monetary systems. They may impact real-world money’s demand and supply facilities in India.
Cybercriminals and unauthorized attackers can create as much virtual currency as they choose if they break the system and understand virtual currency. It will allow you to create fake virtual currency or steal virtual money by simply changing the balances of your accounts.
Opportunities of cryptocurrency in India:-
There will be much more competition as a payment method in the future because some banks may issue their cryptocurrency. In the coming years, decentralized and hybrid apps will dominate the market. A large fund is distributed to state leaders, but the money vanishes and reduces to shards due to corrupt minds. The money disappears and reduces to splinters. Cryptocurrency will undoubtedly aid the country’s efforts to eradicate it.
The legal position of cryptocurrencies in India:-
India is one of the countries that make the best use of cryptocurrencies; the future of digital currencies is a hotly debated topic. The RBI has frequently issued press releases regarding cryptocurrency security concerns, such as Bitcoin. In India 2017, a committee chaired by Shri Subhash Chandra Garg was formed to investigate the legal issues surrounding virtual currencies. According to the Committee Report, no private cryptocurrencies should be permitted in India.
The RBI published a circular. In April 2018, the government prohibited commercial and cooperative banks, small finance banks, payment banks, and NBFCs from dealing in virtual currencies and providing services to all entities dealing in virtual currencies. The Internet and Mobile Association of India (IMAI) filed a writ petition in the Supreme Court on May 15, 2018, seeking the withdrawal of the RBI Circular. The Supreme Court issued an order overturning the RBI’s earlier ban.
Cryptocurrency legal issues in India:
- The anonymity of transactional parties.
- Problems caused by a lack of proper authority.
- There are no well-defined laws.
- Tax evasion, money laundering, and other interconnected issues.
India’s Current State of Cryptocurrency:
There is a number of topics outlined in various Indian statutes to assess the legal status of cryptocurrency under Indian law.
The Payment and Settlement Systems Act of 2007:-
This act gives the RBI the authority to certify any type of prepaid payment instrument. A prepaid payment instrument is defined by the RBI as “payment instruments that enable the purchase of goods and services against the value stored on such instruments.” The amount stored on such instruments represents the amount paid for in cash, by debit to a bank account, or by credit card by the holders. It has been discovered that cryptocurrencies are not stable and fluctuate on a regular basis. Furthermore, because they do not meet the definition of a “Prepaid Payment Instrument,” they may or may not be accepted as a means of facilitating the purchase of goods and services. As a result, the Payment and Settlement Systems Act of 2007 does not apply to it.
The Coinage Act of 2011:-
Section 2 (a) of The Coinage Act, 2011 defines a “coin” as a made of metal or any other material that is recognized as legal tender and stamped and issued by the Government or any authority empowered by the Government for this purpose, including a one-rupee note issued by the Government and a commemorative coin. Postal orders, credit and debit cards, and electronic money issued by any financial institution, post office, or a bank are specifically excluded from the definition of “coin.” As a result, Bitcoins do not qualify as coins under the Coinage Act of 2011 and thus are not protected by it.
The Reserve Bank of India Act, 1934 (RBI Act):-
The first component of the definition in the RBI Act is met by a cryptocurrency, which is classified as an instrument and derives its value from a variety of factors changing. The definition’s factors, however, have no bearing on the value of a cryptocurrency. Its value, or price, rises as demand rises, and other factors such as its recognition or being declared illegal affect its value as well. As a result, if cryptocurrencies are viewed as a similar type of variable, only the RBI Act of 1934 considers them to fall under the definition of a derivative.
The Securities and Contracts (Regulation) Act of 1955:-
Section 2 (h) of the Securities Contracts (Regulation) Act of 1956 defines the term “securities.” A close reading of this provision reveals that cryptocurrencies such as Bitcoin are not covered by the “sub-clauses mentioned in this section.” The only way to include a cryptocurrency in the definition of “securities” is to invoke sub-clause (ii) (a), which grants the Central Government the authority to declare certain instruments as securities. However, the Central Government does not recognize cryptocurrencies as legal tender and does not consider them to be legal tender at this time.
Foreign Exchange Management Act of 1999 (FEMA):-
Under section 2(h) of the Foreign Exchange Management Act of 1999 written that “close and critical examination of the given definition, it is discovered that cryptocurrencies do not fit within any of the instruments in the given definition, but this does not rule out the possibility of the Reserve Bank notifying the same as currency.” However, we must wait until that happens because Japan has declared Bitcoin legal tender in its country. As a result, any currency other than the Indian rupee must be considered Foreign Currency under the FEMA and must follow the rules and guidelines.
The Indian Copyright Act of 1957:-
A computer program is defined as “a set of instructions expressed in words, codes, schemes, or any other form, including a machine-readable medium, capable of causing a computer to perform a specific task or achieve a specific result,” according to Section 2 of the Copyright Act of 1957. As a result, if cryptocurrencies are examined broadly, the above definition, which includes a set of instructions expressed in codes or any other form, will suffice to bring them under its purview.
The Information Technology Act of 2000:-
An asymmetric cryptosystem is a term used in the scope of the Information Technology Act of 2000. Cryptocurrencies function by issuing a private key to each owner and holder of a cryptocurrency. As a result, it is understandable that cryptocurrencies can be assessed and used under the definition of the term “Asymmetric Crypto System” as part of the IT Act of 2000.
Indian standpoint on the legality of cryptocurrency:-
As of now, there is no law in India that makes it illegal to invest in or trade in cryptocurrency. The RBI issued a circular in April 2018 prohibiting the use of bank payment systems for cryptocurrency payments. However, in March 2020, the Supreme Court overturned the blanket ban on cryptocurrency. There is still no clear law in India regarding cryptocurrency, but if you wait until legislation is in place, it will most likely be too late to enter the market, as most potential currencies will become unaffordable. It is always recommended, as with any investment, to buy low and sell high.
Suggestions:-
The first suggestion is to impose a regulatory approach based on economic instruments. It is frequently viewed as a regulation of being exchanges where cryptocurrencies are exchanged for fiat money, whereas the other exchanged commodities would fall under government regulation. This will limit the scope of the cryptocurrency, making it subject to other existing regulations.
The second suggestion is to tell the regulators must be cautious when categorizing cryptocurrency, as this will determine its legal status.
The third suggestion is to ensure minimum qualification criteria for companies involved in cryptocurrencies will be established, which will include resolving consumer complaints, maintaining specific records to avoid illegal use, and developing high-tech software to provide good service.
conclusion:-
Based on the inferences that can derive from this research paper. The current reality revolving around cryptocurrency is clear that there is a lack of clarity in India concerning cryptocurrency legislation. A well-structured cryptocurrency regulation about crypto trading exchanges, blockchain technology, investors, and those engaged in such a sector is urgently needed, and as such, such law requires increased attention. Banning global virtual money, which has impacted many countries, is not the ideal choice for our country’s development. To maintain investors’ trust and the general public in the emerging nation, the government must take meaningful steps toward regulating cryptocurrencies.
Saunak Ash
NMIMS School of Law
[1] Rui Zhang, Rui Xue, and Ling Liu., Security and Privacy on Blockchain. ACM Comput. Surv., 1January 2019.
[2] Jim Harper, Bitcoin Foundation Lobbying, BITCOIN FOUND. (July 9, 2014)
[3] ArtusKrohn-Grimberghe& Christoph Sorge, Practical Aspects of the Bitcoin System
[4] Hughes, Scott D.. “Cryptocurrency Regulations and Enforcement in the U.S. 2017