Cryptocurrency: 21st Century Myth or Future’s Money?
A cryptocurrency is digital or virtual currency that is secured by cryptography, which makes it virtually impossible to counterfeit or double spending. Many cryptocurrencies decentralized network based on technology-ledger block chain distributed enforced by different networks of computers. A cryptocurrencies characteristic is that they are generally not issued by a central authority, theoretically making them immune to government interference or manipulation.
Features of cryptocurrency
- Irreversible: Transactions involving cryptocurrency can not be restored by anyone. Having said that once the money is sent, delivered even Satoshi Nakamoto can not undo it.
- Pseudonymous: Transactions in cryptocurrency not anonymous but pseudonymous which means that transactions are made in the so-called address. This address contains 30 characters. Therefore, it becomes difficult to determine the real-world identity of users.
- Guaranteed: Funds from cryptocurrency locked in cryptocurrency public key system. which means cryptocurrency can be sent only by the owner of the private key.
- Permission less: No permission is required to use cryptocurrency. Anyone can use it after installing the software.
- Fast and Global: Transactions occur instantaneously and in a few minutes. Because they occur on a global network of computers one can send money to anyone in the world regardless of physical location.
RESERVE BANK OF INDIA’S MOVE: THE NOTIFICATION
Reserve Bank of India on 6 April, 2018 released a notice titled as ‘Prohibition of dealing in Virtual Currency’ which prohibits banks include commercial, cooperative, payment, bank finances small and NBFCs and provider payment system of providing services to any entity or person using cryptocurrency. In short, it includes a circular to all entities regulated by the RBI. These services include maintaining an account, register, trading, settling, clearing and provide loans against a virtual token. A deadline of three months from the date when the circular is passed given to entities that already operate in cryptocurrency to stop dealing in it.
WHY DID GOVERNMENT BAN?
The decision came after a public warning some previously published, in the form of public notices and press statements m ade by RBI due to the nature of unregulated cryptocurrency, and consistent negative announcements made by government officials. In the press statement made by the RBI on April 5, 2018, it says that “Virtual Currency (VC), also with a variety of so-called crypto cryptocurrencies and assets, fears of rising consumer protection, market integrity and money laundering, among others.”
In a press release dated December 24, 2017 RBI warns users about the risks that may be associated in dealing with virtual currency. These risks include: –
- Losses due to hacking, malware attacks, compromise access credentials, lost passwords etc. Because there is no central authority to govern the institution, there may be a loss of e-wallet that can cause permanent loss of virtual currency stored in such e-wallet.
- Price volatility of virtual currency that can lead to potential loss of customers to the value of the virtual currency reasons are the result of speculation. For example in the past cryptocurrencies turns to anger in 2014 when the price of Bitcoin (the most famous currency) increased by $ 1,000. While the rally ended soon after that, the din continued when the price of Bitcoin passes $ 10,000 in December 2017. Retail investors, uninformed of the dangers, began to gather in virtual currency exchanges in this country, making the volume rose in December 2017 and January 2018.
- The use of virtual currencies like can cause money laundering, tax evasion and fraud because nature can not be traced and the difficulty in evaluating the taxability of transactions. RBI also cited media reports which claimed that dealing in such virtual currency can lead to illicit activities. One can use it to buy and sell drugs or weapons.
- There are also legal and financial risks associated with dealing in virtual currency to investors as an exchange platform established legal status in some jurisdictions are not clear. Apart from price volatility, many stock cryptocurrency unregulated mushrooming in this country, putting investors to great danger.
IMPACT OF THE CIRCULAR
The results of this decision the RBI will be doubled. One would be that those who have invested in virtual currency to buy and sell them with the intention of making quick bucks must stop now. The reason is that most of the currency markets in India for example Zebpay, Unocoin require investors to transact with the help of their bank accounts. With the recent move, investors will not be able to use your bank account to deal with this virtual currency. Meanwhile, several exchanges can transact in cash, but the transaction in the shadow of illegality. Another result of this step will be the exchange cryptocurrency should now be closed. Entities regulated by the RBI now must terminate their business within the allotted time.
The consequences of the circle is that until now, several petitions have been filed in the High Court and the Apex Court challenging the notice of RBI. The first to file Kala Digital Eco-system in the Delhi High Court. Then, Digital and Blockchain Foundation of India (exchange consortium cryptocurrency) incorporated in the Internet and Mobile Association of India, the circular also challenged in the Supreme Court. certain exchanges as Coindelta, Koinex, Throughbit, and Coin DCX jointly filed a petition in the Apex Court. The Supreme Court has beaten all the petitions and heard about this on 3 July 2018 and declined to stay Notification RBI.
Two Sides of the Coin: What Reserve Bank of India Failed to Address
In the present situation the RBI acts like an ostrich who thinks that hiding its head in the sand, can expect inconvenience. RBI considers that by prohibiting cryptocurrency, nobody will deal with it and all the inconveniences they will go. Is this the way the RBI being naive? Does it not understand that this will only have an impact on genuine users? Do RBI believes that people will stop trading on the VC?
It only implies that trade in the fast-growing VC will be shifted overseas. Individuals will buy and sell on the exchange outside India. There are various ways by which people can transfer cash (even though LRS) outside India which can, at a later point of time, is used to buy VC. This can lead to abuse as people can sell the currency and hide the income not to declare it to obtain the tax authorities of their incomes. How the tax authorities to inquire about the details of the transaction recently for tax purposes of the exchange cryptocurrency India? Police and in addition other enforcement authorities suspicious transactions obtained details of the exchanges in India when they consistently asked about it. It helps in solving crimes as well. Now, how will they get the information? Moreover, since the VC Indian companies are still allowed to work in the form of cash, some may end up magnifying the risks mentioned earlier.
Most of the job market in India seeks to guarantee that the associated risks are sufficiently reduced and consequently allowing people to deal with cryptocurrency in the field of trade and commerce. Nowadays, a lot of exchanges cryptocurrency in India conduct a comprehensive KYC user and do not deal with cash to keep the traceability of transactions. In fact, RBI has failed to appreciate the effort of the opening exchanges. In any case, this step will only hamper the exchange of wanting to do things legally with transparency. rogue users will, in any case, continue to operate through cash or some other covert mode. In addition, the RBI has failed to realize the potential of technology Cryptocurrency in India called crypto expert Andreas Antonopoulos as “Free Money”. Cryptocurrency is the enabler of the inherent technology blockchain and quite difficult to VC isolates from blockchains. After step RBI global investors and entrepreneurs will uncertain whether India is the ideal place for innovation. Although some of the developed countries in the world such as the USA, Japan has taken a different stance from India with the support of the VC for the reason that they perceive great potential in it in terms of manners innovation. India , this step has closed the door to innovation in this area.
In addition, this step is not only contrary to the aims of improving digital payment systems in India but also violates the fundamental rights of companies operating in the VC to carry out trade, business and jobs.
With the Apex Court, on 6 July 2018, refused to provide any assistance to business entities operating in cryptocurrency banks in India has ceased to provide banking services to the entity. On the one hand, many entities have suspended their operations while on the other hand, some companies and investors decided to fight with the petition in the Apex Court and the High Court because they assume that the RBI notification is arbitrary and unconstitutional. Some also have asked the apex court to decide the legality of cryptocurrency. While there is still ambiguity over regulatory framework relating to cryptocurrency in India. With the passage of the RBI circular, many enterprises suffered heavy losses. Although the RBI move is still in harmony with the government stand on cryptocurrency as Minister of Finance in a press release on 29 December 2017 states that cryptocurrency not legal tender. Thus, by cutting off any hope of ever legitimize the exchange consisting of cryptocurrency, the government encourages businesses of India only to ensure India misfortune turns into another advantage.
It is true to say that Bitcoin and other forms of cryptocurrency is a remarkable technological discoveries of the decade. The use of trademarks blockchain decentralization secured transactions. But there arises difficulty in arranging these transactions are denied the use of cryptocurrencies. Although in my opinion, the government should try to balance. There is a requirement for the government and RBI to study and understand the working of the VC. RBI should realize that cryptocurrencies will not go anywhere. Although RBI has warned users of the associated risks, it is clear there is a shortage of RBI regulations and government side. RBI also failed to provide strong reasons behind such a big step. RBI or the government must provide clear legal frameworks or guidelines that will assist in reducing the risks illustrated by the RBI not take measures such as short-sighted withdraw banking facilities. It is clear that the RBI does not understand transactions involving cryptocurrency more traceable than transactions involving cash.
As it is now with the kind of ambiguity that looms around, it could not say what the outcome will be. Deputy Governor of RBI, BP Kanungo by making a statement that they would consider introducing digital fiat currency immediately extend an olive branch to the users cryptocurrency. This could be of assistance to people who dream of a virtual currency unseating traditional ones in the near future. Despite seeing the current scenario of the legitimate use cryptocurrency uncertain in India in the near future but in this digital age, cryptocurrency has still a long way to go.
Author: VAMSI KRISHNA GANGINENI,
IFIM LAW SCHOOL 1ST YEAR