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Demand for peer-to-peer transactions is rising all across the world. Cryptocurrency the subset of virtual currency is a digital asset upon which no financial Institutions have any control. There are numerous cryptocurrencies available on the Internet including Bitcoin which is the first crypto currency to come in force and considered as a digital gold. The transaction took place on an advanced technology named as blockchain with the assistance of miners. However this blockchain technology is not limited to the virtual currency exchange but can be used in various other sectors as well.
Many countries had accepted this virtual currency as a medium of exchange. However there are few countries who didn’t accept this virtual currency yet including India as this virtual currency doesn’t fall under the ambit of legal tender. There was a leading case of ‘Internet and Mobile Association of India vs. Reserve Bank of India (2020)’ regarding the legality of virtual currency. Recently the government of India has introduced a bill regarding the regulation of cryptocurrency in India.
When we talk about virtual currency, what comes first in our mind is something which does not have the physical appearance? Currently, this peer to peer transaction is becoming very much popular among people worldwide.
Cryptocurrency is a form of digital cash which does not require an intermediary between two parties for a transaction; it can be done directly without third party involvement. Let’s take an example to make this more clear, if a person from India wants to transfer money to a person who is in USA then as a traditional method he have to visit the bank a financial institution who will convert the INR into USD and work as a intermediary between them but the case is entirely different when the money is transferred by way of digital form of currency as that will not require any intermediary like financial institution and a person can directly transfer the INR into USD.
There are multiple numbers of cryptocurrencies probably 2000’s are currently available on the internet and one of them is Bitcoin. Bitcoin is the first Cryptocurrency to come in existence it was founded in 2008 and launched in 2009 by Satoshi Nakamoto whose identity is still a mystery or we can say the invention of bitcoin is itself a secret howsoever on 31st October 2008 he published a paper in which he stated that a version of electronic cash would allow online payment to be sent directly from one party to the other without going through the financial institutions. During that time this was just an idea but currently it has become the mode of trading in lakh and crore as its crypto exchange. If we look into the value of per Bitcoin than during December 2017 it was approx $19000 and during March 2020 it was about $4000. And the Aggregate Market Value of cryptocurrencies is over $270 Billion and more than 50% of the total market value is represented by Bitcoin. Bitcoin is a large market cap and very volatile cryptocurrency. It is also considered as a digital gold for the investment (store of value) purpose.
- There is no need for an intermediary or financial Institution to coordinate between two parties.
- There is no Geographical restriction one can make the peer to peer transaction all over the world.
- The charges for each transfer is comparatively very less.
- The transfer of digital currency is very fast. It requires a maximum of 10 minutes.
- The transactions are irreversible. In case of a wrong transaction the person will not be entitled to recover the asset.
- It can be used for various illegal activities like money laundering, promoting terrorist activities, for drugs etc as we don’t know who is behind the screen,
- The Bitcoin is limited to 21 millions of Bitcoin all across the world and for circulation it is approx 18.6 million Bitcoins.
Bitcoin being the latest digital asset requires the latest technology to work with and this technology is popularly known as Blockchain technology. Blockchain Technology was first described in 1991 by a group of researchers but it became popular during 2009 when this technology was first used for Bitcoin exchange.
Blockchain can be understood as an online distribution system which stores information and can be indicated as a database. Blockchain as a digital database stores information such as transactions, financial transactions that can be simultaneously used and shared with a large decentralized publicly accessible network.
So this blockchain works as an interconnected block which stores the information of a public account known to be ledger which is accessible to every device which is the part of bitcoin network. This system is maintained by ‘Miners’ who are authorized to verify the transaction and in return they get the reward of Bitcoin. These blocks contain three things in it:
- The information data of sender, receiver and transaction.
- Hash of the block, unique as fingerprint and helps to identify the block.
- Hash of previous blocks which connects all the blocks in a chain.
So for completing the transaction of cryptocurrency through blockchain it need to follow a procedure which includes the entrance of transaction then the transaction is transmitted to the peer-to-peer network i.e., blockchain network then to confirm the validity of transaction the miners were appointed who will solve the equation after solving the equation the transaction will clustered together in blocks which will become the part of a chain which stores the information which can’t be deleted and thus the transaction is completed.
While talking of blockchain few other things should also be kept in mind that deleting data from this technology is not possible which makes this technology Immutable and the other thing is that this technology is not limited only to the cryptocurrency exchange but it can be useful for various other areas as well.
Blockchain technology is going to become the future of the country because of its authentic information, transparency of data and the peer to peer mode of connection. Definitely it will help the country and the people in different ways.
ARRIVAL OF VIRTUAL CURRENCY IN INDIA
In India all the monetary system is governed by the Reserve bank of India under Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949 and our current monetary system is based on paper currency and coins. We have been using this paper currency since a way back and arrival of virtual currency in India raises lots of questions among people and in present, numbers of people are there in India who have no idea about what exactly this virtual currency is and how it works.
Exchange of cryptocurrency for the first time took place during 2012-2013. Later on this cryptocurrency gained popularity during 2016 when the government of India had announced the demonetization. However, with rising popularity it also raises the conflict, scam and other illegal activities. One of the biggest scam of Bitcoin was in 2018 and Amit K. Bhardwaj was behind this scam. He was the first person in India to start an e-commerce website which accepts bitcoin as payment (highkart.com) in 2013. He was also the founder of Gain Bitcoin which was the 2,000 crore scam in India. Recently a name Umesh Verma is in the media for a 2.5 crore cryptocurrency scam in India. He along with his son launched Pluto Exchange which issues its own digital currency (Coin Zarus). He promised his investors to provide 20-30% as a monthly return and failed to do so and led to the claim of $272,000 by investors in Pluto Exchange. All these scam or fraud and other illegal activities are the major concern in India when it comes to virtual currency.
Also read: Kerala Elephant Tragedy: Legal Angle
LEGALITY OF VIRTUAL CURRENCY
It is the most controversial question whether the cryptocurrency is legal or not. Since virtual currency is not under the control of any authority or institutions neither it is a legal tender so there is a huge debate going on all across the world upon the legality of cryptocurrency. There are few countries which have accepted it to be legal like Japan in April 2017 declares Bitcoin as a legal currency however few other countries are there who imposed a complete ban on its exchange.
Talking about India, the question on legality raises on 6 April 2018 when the RBI issued a circular in exercising the power conferred under Sec 35A read with Sec 36(1) (a) and Sec 56 and Sec 45JA and 45L and Sec 10(2) read with Sec 18 directing the entities regulated by Reserve Bank of India:
- Neither to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies.
- To exit the relationship with such persons or entities, if they were already providing such services to them.
This circular has been challenged by the Internet and mobile association of India in Supreme Court on the grounds that;
- RBI has no power to regulate or prohibit the exchange of virtual currency.
- The circular passed by RBI is violating the fundamental rights under Article 19(1)(g)of the Indian Constitution.
On 4th March, 2020 Supreme Court held that the circular passed by the RBI was disproportionate as the RBI fails to provide any suffered loss of regulated entities while dealing with virtual currency. Hence the Circular passed by RBI was unenforceable.
Recently in January 2021 ‘The Cryptocurrency and Regulation of official Digital Currency Bill, 2021’ was introduced by the government of India. The aim behind this bill is to create a facilitative framework for creation of the official digital currency to be issued by the RBI and 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. In short the government is planning to impose a complete ban on all the available cryptocurrency in India. However, recent comment of finance minister ‘Nirmala sitharaman’ on cryptocurrency i.e., they are not going to shut down all the options of cryptocurrency in India and people will also get the adequate window for the bitcoin, cryptocurrency and blockchain experiment brings relief to all the private companies dealing with cryptocurrency in India.
We all need food, clothes, shelter as a basic need for our livelihood but one thing is common in all of them i.e., money. Money as a medium of exchange and if we talk about the story of money it is as old as our civilization. Introduction of digital assets can be the end of money as we know it and it is definitely going to change the economic culture of the whole world. Talking about the future of digital currency then it has both advantages along with disadvantages. But the authenticity and transparency in its working is very much needed for the society for the development of the countries. If we look from the economic wide perspective then it has a great future as it is a traceable digital currency. Just like other technologies got the support of country and people this new generation technology needs the support along with proper knowledge and understanding. However we should always look to the both sides of a concept and not avoid the consequences.
 Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008).
 Marianne Webster.
 The Banking Regulation Act, 1949 (10 of 1949).
 The Reserve Bank of India Act, 1934 (2 of 1934).
 The Payment and Settlement Act, 2007 (51 of 2007).
 The Payment and Settlement Act, 2007 (51 of 2007).
 Internet and Mobile Association of India v. Reserve Bank of India (2020).
 Lok Sabha Secretariat, Bulletin Part- II, No. 1989-2025, 26 (2021).
Author: PRATYAKSHA RANI
Editor: Kanishka Vaish, Senior Editor, LexLife India.