A study on Legal Framework of Cryptocurrencies with special reference to its
regulation in India.
Introduction
Cryptocurrencies are mostly known as virtual currencies or digital assets, which are totally
being handled by Blockchain technology and the same has not been issued by any central
authority/ government. The cryptography secures the cryptocurrencies , which in turn ensures
that the same cryptocurrency is not double spent or counterfeit. Thus, after looking into how
cryptography secures the cryptocurrencies, now most of us are being trapped by the thought
that, how is it possible to maintain such a secure system and does that mean cryptocurrencies
cannot be hacked or misused? Why is that government having issues with the use of
cryptocurrencies? Why did they bring regulations and why is there always a hype that is
around cryptocurrencies? Is it that difficult to understand them? So, to answer all these
riddles, let us read the following article to know why there is an hype around
cryptocurrencies and why it is considered as Rocket science by the layman. Let’s get started.
Background
It is very important to understand the past, from where did this concept of cryptocurrency
actually come from. This would play an instrumental role in understanding the current
regulations and why there is an hype around it. In the year of 1998 the programmer named
Wei Dai, was first to propose the concept of the Cryptocurrency and he had anonymously
distributed the same throughout the decentralised electronic cash system. Yet, the same was
not complete and due to which in the year of 2009 Satoshi Nakamoto created the most
accepted form of cryptocurrency known as Bitcoin. Basically, the cryptocurrency was defined
as a currency which never existed physically, but the transactions of the same can be recorded
digitally by the decentralised system and it manages the issuances of the new units as well
and it is very well secured by the cryptography. In the year of 2009 there was one
cryptocurrency , but in the present there are more than 600 cryptocurrencies which have been
used and issued overall. As we all understood the history of the cryptocurrency, one question
we are still pondering upon is, how is blockchain technology used to secure the
cryptocurrency? So let’s understand the mechanism of the Block chain technology now.
Blockchain Technology
Blockchain is known as DLT which is otherwise known as distributed ledger technology and
it primarily maintains the ledger which is the decentralised part, being a decentralised part ,
no authority can maintain or approve the record of the database. So, now how are the values
of these cryptocurrencies determined? Basically the value of the cryptocurrencies are derived
from various factors such as demand supply, coin mining , media forecast, etc. Thus, the
value of the cryptocurrencies are usually highly unpredictable, unlike gold . The
cryptocurrencies can range anywhere between negative or positive value overnight. This is
the major reason , there is always negative hype around crypto’s as such. The reliability and
distributed consensus made the people believe in the blockchain technology when the
application of blockchain technology was used in the first cryptocurrency, the public didn’t
need the central authority to look into the function and rather the technology was much more
reliable. Well, when the values of cryptocurrencies are never stable then what is the actual
purpose of the same? If this is the question that is running in your mind , here comes the
answer.
Purpose of Cryptocurrencies
Basically,Cryptocurrencies help in transferring the funds directly without the help of trusted
third parties and they use public keys and private keys to protect the transfers . They use
public keys to use the wallets, while the private keys belong to the sole owner and only he
can access the respective wallet. Now, the Reserve bank of India is very particular in banning
the use of cryptocurrencies because it is used for fraudulent activity, money laundering, tax
evasion etc. The anonymity in the decentralised system makes it difficult for the officers to
trace the offenders as well.
Also when it comes to taxation on cryptocurrencies, there is always a huge debate on whether
the currency should be taxed or the commodity, there is also a grey area based on border
taxes as well. These problems would be resolved only when there is a better regulation of
cryptocurrencies. This leads us to the next question , what were the regulations present in the
cryptocurrencies and what do the present regulations suggest?
Regulations with respect to Cryptocurrencies
Currently, the demand for cryptocurrencies has grown rapidly in India . The Crypto Asset
Council and the Internet and Mobile association of India states that Indians hold more than
Rs.6 Lakh Crores as crypto assets. Since the popularity of the crypto assets has been
increasing rapidly all over the world , most of the countries have been working on the
regulation of the cryptocurrencies. Now, let’s understand what is the stand of India as far as
the regulation of cryptos is considered.
India being home to 1.3 billion people , states that around 625 million people use the
cryptocurrencies as per statistics of the year 2020. The increase in use of the internet is one
of the reasons for the rise in the use of cryptocurrencies. Until 2018, there was no proper
policy for the regulation of the cryptocurrency. However, the Quartz reported that 1 in 10
Bitcoin transactions was between the Indian Subcontinent. After realising the need for the
policy in regulation of crypto currencies, the Indian government in the year of 2018-2019 in
the budgetary speech delivered by Late , Arun Jaitely he said that, the cryptocurrencies will
not be considered as the legal tender and the all actions would be taken to prevent such
transactions and the members involved in same would be penalised. On the basis of the same,
The RBI issues notice to the banks stating that, no services shall be provided to the person
dealing with the virtual currencies and to exit from such service if the same is already being
provided.
Following this, in the year of 2019 , The Internet and then Mobile Association of India filed
then petition before the Supreme Court to test the legality of the cryptocurrencies or to order
limiting their exchange, after this case the Apex court had rejected the plea of RBI and stated
that , regulation of the cryptocurrencies can be bought but the exchange of the same cannot
be banned.
Based on the same , in the last budget after several discussions, what can be allowed and
what cannot be allowed has been stated by the Hon’ble Finance minister. Moving forward ,
the following can be allowed as per the cryptocurrency regulation.
● Crypto trade will continue.
● India’s approach towards cryptocurrencies is protective , hence the public need not
panic regarding the money invested in the same.
● Crypto may be classified into asset class rather than a currency.
● Soon, the government might start leaving tax on the cryptocurrencies.
Let’s also know about what are all restricted under the cryptocurrency regulation in India.
● Now, the creation of crypto would become difficult, because there are certain criteria
to be fulfilled for doing the same.
● Crypto will never become a legal tender.
The question of who will be regulating cryptocurrencies remains a riddle; as of now the RBI
and SEBI are the most logical options or the government may also come with a new body
only for the purpose of crypto regulation. Now we will have to wait patiently to know the
answer for the same.
Conclusion
The regulation of cryptocurrencies in India will take place only if the government works on
the same in a speedy manner, currently the market area in India dealing with cryptos is rising
highly, it’s high time for the government to release the policy regulating the same. The
present market condition calls for the updated policy for the same, the blueprint to regulate
the crypto assets should be discussed soon and the same must be enforced , that is the only
way the whole process of crypto transaction will be regulated the negative hype around the
same will be vanishing slowly.
About the Author
Dhaaranee Karunagaran is a legal intern working in Adhiraj Devraj Surana & Associates firm
is A One Stop Solution for all your Legal Concerns. It brings to the table expertise &
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