Introduction
The revolution in technology has caused a paradigm shift in every area and has affected every single circle of life. The advancement has been on a rise, because of the quick pace of creative thoughts and research organizations. Digital currency is one of the emerging ideas of the 21st century, created in the course of recent years. The idea has been for a significant time currently yet made strides by means of the ubiquity of Bitcoins. Currency is generally acknowledged as a mode of trade of exchanges. Virtual cash or digital currency includes the use of cryptography for its design to empower exchanges. Bitcoin is a sort of cryptocurrency and a novel virtual payment system.
Meaning and working of bitcoins
The development works on the peer to peer technology, empowering the clients to execute with no mediator. In the course of recent years, online transactions have changed the meaning of money essentially. The virtual money works without assistance of the central administrator or servers and is the primary decentralized cryptocurrency. Bitcoin isn’t restricted to territorial limits since it doesn’t require any signatory for its generation. The historical backdrop of Bitcoins goes back to 2009, under the name of Satoshi Nakamoto, wherein it was propelled. Bitcoin works upon the blockchain innovation.
A blockchain is a public ledger containing transactions taking place and hence, is transparent. Bitcoin is formulated through mining and transaction that takes place only when the user is able to comprehend the series of codes. The whole system runs simultaneously with the clients, corresponding to the legitimacy of their transaction and record balance. The framework has been designed in such a way, that the most extreme number of Bitcoins never surpass 21 million, in this manner forestalling the depreciation of the currency.
Legality of bitcoins
With regard to the legal standards, the use of such cryptocurrency falls under the grey area in many countries across the globe. However, the legal position varies in different regions of the world, but most importantly its usage has not been defined anywhere. The status of such bitcoins is unclear in India. RBI in June 2013 has affirmed the use of such currencies and discussed in length regarding the challenges and viability of the same.[1] Consequentially, in December 2013, RBI through a press note discussed the non- authorization of such digital currencies by any kind of financial authority.[2]
Since it lacks recognition, hence, it does not fall within the ambit of coins under Section 2(a) of Coinage Act, 2011 which sheds light on the governance of coins in the country.[3] Currency has been covered under Section 2(h) of the Foreign Exchange Management Act, 1999.[4] Again, bitcoins are not considered as currency. But there lies a power with RBI to include any instrument under the definition of currency by issuing the notice. However, there lies a need to regulate the same as the present status does not treat it as a legal tender but this does not render it illegal.[5]
International legality
The most common action identified by various jurisdictions refers to the government-issued notices about the unsuspected danger of investing in such cryptocurrency markets. These warnings are largely issued by the central banks in order to educate its people about the difference between the actual currency issued by the state and cryptocurrencies that on the other hand are not issued by the state. The governments also warn for the highlight associated risk resulting from the high volatility of cryptocurrency and the fact that the organizations that tackle such cryptocurrencies do at their personal risk and are unregulated in nature. Also that the citizens who invest in such currencies do not have legal recourse in case of loss.
The countries on the other hand, also assert that the opportunities created by cryptocurrencies are illegal in nature like money laundering and terrorism. In order to cater to the growing concerns of the illegal activities, many countries have extended their laws on money laundering, counter-terrorism, other crimes to include cryptocurrency. Countries like Australia, Canada, Isle of Man has recently enacted laws to bring cryptocurrency transactions under its ambit to tackle and facilitate money laundering and terrorism.
Some countries have moved a step further and have imposed restrictions on investments in such cryptocurrencies. Countries like Algeria, Bolivia, Nepal, Pakistan, Morocco and Vietnam have banned all the activities pertaining to the cryptocurrencies. However, Qatar and Bahrain have followed altogether a different approach which bars their citizen from engaging in such activities within the jurisdiction of its nation but allows them to transact outside the borders of their nation. Countries like Bangladesh, Thailand, China, Iran, Colombia, Lesotho do not ban on investing in such cryptocurrency but imposes indirect restrictions within the borders of the nation.[6]
Cyber Governance
The growing use and misuse of cryptocurrency have raised serious concerns over its usage. Just like developers of cryptocurrency are anonymous, so are the criminals who enjoy anonymity. Bitcoins have made the process of money laundering easier as compared to other transactions. With the increased use, there has been a rise in the hacking cases who uses ransomware attack as the developers of such ransomware desire for a ransom to be paid in form of Bitcoins in order to release the hacked files of the computer.
The blockchain which is required for bitcoin formation has also vulnerabilities as they are easy to be located and give the hackers multiple choice. Also, the bitcoin wallet can be targeted easily and increases the chance of theft. The blockchain is decentralized and offline, hence, cannot be controlled by just one entity. This gives rise to major security breaches as personalized data consisting of account details of bitcoin owners, addresses etc. have been leaked to the malicious hackers. The codes of the user’s bitcoin wallet can be identified easily when a hacker installs ‘keylogger software’.
Therefore, the members should be aware of all the risks associated with it and take all the necessary steps. One must also be aware of the fake wallet applications that are circulating in the market as google had recently deleted three fake wallet applications from google play store.[7] Hence, people should be aware of such scams and invest wisely if they wish to.
[1] Chapter III: Financial sector regulation and infrastructure, Reserve Bank of India, https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=709.
[2] RBI cautions users of Virtual Currencies against Risks, Reserve Bank of India, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247#.
[3] Section 2(a), Coinage Act, 2011, https://www.rbi.org.in/Scripts/OccasionalPublications.aspx?head=Indian%20Coinage%20Act.
[4] Section 2(h), Foreign Exchange Management Act, 1999, http://femaindia.in/femaact/section-2-definitions##showsection.
[5] Regulating bitcoin in India, The Centre for Internet and Society, https://cis-india.org/internet-governance/blog/regulating-bitcoin-in-india.
[6] Regulation of cryptocurrency around the world, The Library of Congress, https://www.loc.gov/law/help/cryptocurrency/cryptocurrency-world-survey.pdf.
[7] Google play boots 3 fake bitcoin wallet apps, Threat Post, https://threatpost.com/google-play-boots-3-fake-bitcoin-wallet-apps/129216/.
This Article is Authored by Naina Agarwal, Second Year, B.A. LL.B (Hons.) Student at Rajiv Gandhi National University of Law, Patiala.
Also Read – Is Crypto Mining Legal In India?
