Cryptocurrency: A Legal Analysis

 Reading time: 4-5 minutes.

Since time immemorial, money’s form has been changing in the world. In 7th Century BC, Turkey was the first civilization to use minted silver or gold coins during that era. Nevertheless, it has always been important in a trade relation that some sort of payment method is involved, be it bartered goods or coined money. The first kind of fiat money was used in China in 1000 AD. And until the end of Bretton woods system most of the money was convertible to some precious metal or the other.

But recently this kind of fiat money has been tried to be converted into virtual decentralized money like bitcoins and other cryptocurrencies. Cryptocurrencies such as Bitcoin consist of a peer-to-peer network of nodes which jointly maintain a common tamper-resistant record of historical transactions without relying on a central authority or trusted third party. The key innovation is a novel transaction-recording mechanism known as the blockchain.

The latter is made up of blocks – that is, batches of validated transactions – which are chained together – that is, logically linked or tied to each other in such a way that any attempt to edit or otherwise corrupt the historical record is either prohibitively expensive or becomes immediately evident. Cryptocurrencies have popularly been used as a catch-all synonym for what is actually a broader term, namely crypto assets. Crypto assets include any digital asset that utilizes cryptography.

 What are the dangers associated with cryptocurrency?

There are several dangers and security threats associated with cryptocurrencies. Some of the major problems that are there in the usage of cryptocurrencies are: –

  • Security Threats
  • Collapse concerns in cryptocurrency systems
  • Impact on real monetary systems
  • Fluctuation in virtual currency value
  • Money Laundering
  • Anonymity risks
  • Black marketing for cryptocurrencies

What is the international Opinion on Cryptocurrency?

Cryptocurrency is considered to be a heated debate in the field of E-business and E-commerce in the present times. Trading of cryptocurrencies for cash is either banned and prohibited in some countries or is allowed or not regulated in others. A lot of countries are welcoming towards cryptocurrencies while several others are still cautious and have their inhibitions.

 While there are several countries who have showed a friendly approach towards this new form like United States, Canada, Japan, Singapore, Russia, Switzerland etc., there are several others like China, Vietnam, Brazil etc., which are still being extremely cautious and hostile in a way towards cryptocurrencies. Also, there are certain countries around the globe like Germany, Poland, Britain, Thailand etc., who have opted for a neutral approach.

What is the legal Status in India?

The legal status of cryptocurrency in India is difficult to be determined. The main problem with determining the legal status of how bitcoins should be handled is whether they are a currency, security, commodity, or something completely different.

While cryptocurrencies are commonly referred to as a “currency” as they have many common characteristics of one, the legal definition requires a currency to be issued, used and accepted by a country, which is not the case with virtual currency. Another problem with bitcoins and the likes is that not all the countries have legalized its use.

There are several definitions of cryptocurrencies that can be read to understand the legal meaning of the term. It can be concluded that there is enough scope for legalizing cryptocurrency after studying various definitions of it. One has to wait and watch as to which approach the Indian government takes.

Even in the Union Budget 2018, Finance Minister Arun Jaitley reiterated that the cryptocurrencies are not recognized as legal tender. During his budget speech, the then Finance Minister said, “The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

However, Jaitley also added that the government would try and explore the blockchain technology, which drives bitcoin and other crypto-currencies. The recognition of blockchain technology for future use in the digital economy has received positive reactions from the industry. Though the budget did not specifically talk about how blockchain was to be explored, it should be noted that in digital economy the major use for this has been around crypto-currencies like Bitcoins.

What is the probable future of cryptocurreny?

If a SWOT analysis of the cryptocurrencies is done it can be deduced that it definitely has a stable future ahead in the world market. But before that it has an economical and legal battle to win. It is also important to still be noted whether various countries and their governments will still resist cryptocurrencies as a pan-global asset since it is outside their reach and operates beyond it or rather accept its usage and advantages.

There are still several challenges being faced by cryptocurrencies and thus it still would take time to gain the required popularity in the E-Business and E-Commerce market. Lack of awareness.no place to go for in case of complaints or queries are troubles that are just adding to the disadvantages of cryptocurrencies.

Bitcoin and some more cryptocurrencies have also succeeded in attracting investors, and are getting more and more attention, but they have not succeeded yet as currencies. On the other hand, they definitely can be used for immediate investments. Thus, if we go by pure facts ‘Bitcoin is a potential investment-worthy crypto-commodity, which promises extremely high returns in the future with a possibility of huge risks.’

In conclusion…

Every new currency has to face an uphill battle legally and technically. Though cryptocurrency is a huge step towards decentralized digital currency but it is not a fiat currency. Any currency in the world has government or its institution’s backing which cryptocurrency lacks. The value of these cryptocurrencies has also been highly volatile in nature.

The head of the Bank for International Settlements, Augustín Carstens, also said bitcoin threatened to undermine public trust in central banks and posed a threat to financial stability, and he signaled a global clampdown. In India the finance minister in 2018 government, during his budget speech on February 01, 2018 had cleared that the cryptocurrencies are not recognized as legal tender in India. Moreover, the various government has issued tax notices to the investors of the cryptocurrencies and has also warned its people to be aware while investments in digital currencies. Thus, the cryptocurrencies are not legal tender in India.

This article is brought to you in collaboration with Aprajita Jha from National Law University and Judicial Academy, Assam.

          

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