Virtual to Supreme Court’s admission of petition calling

Virtual
Currencies (VC) and cryptocurrency is a new-fangled digital addition to the
cyber world and global financial system that is yet to be regulated by legal
structures globally. The umbrella term Virtual Currency is often used to denote
bitcoins and other cryptocurrencies. VCs have of recent attracted a lot of
furore in India. This year Indian Government looks forward to regulate the
cryptocurrency market and has formed a committee
to fast track the process. This act comes subsequent to Supreme Court’s admission
of petition calling for authorities to regulate the flow of Indian Bitcoin
industry. The regulatory environment and acceptance of such currencies in India
is still a highly debatable subject matter. Cryptocurrency in plain terms is
digital money which is completely decentralized and not issued by any central
authority and thus the value of the same depends upon wide adoption of it as a
means of exchange.

The reasons for growing demand of such can be attributable to
its decentralized nature which gives it a huge advantage over fiat currency. However
its decentralised nature is itself one of the legal hurdles to its regulation
as the government cannot put it arms around such intangible currency. Apart
from being volatile in terms of market value they are managed by private
corporations who due to lack of an international framework and owing to the
well connected world easily manage to escape liability in
case of customer’s loss as well as any type of financial crime committed by and
through the use of e-wallets holding cryptocurrencies. Leaving behind all this
the most alarming concern is that of online route of bringing and storing of
cryptocurrencies which makes it easier to evade cross border taxes owing to the
lacunae in tax statutes of the countries. While some countries have explicitly denied
it legal value and discourages its use and trade for example, in India, U.K.,
Brazil etc. cryptocurrencies are unregulated due to absence of legal framework.
While in countries such as France, Finland and Germany these are regulated and legally
used.

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RBI in 2013 had shed concerns over uses and risks that
cryptocurrencies are exposed to. The circular stated that use or trading of cryptocurrencies hasn’t been
authorized by the RBI or any monetary organization indicating lack of central
authority(peer-to-peer basis payment), framework for dispute resolution,
consumer problems, lack of underlying asset backing cryptocurrency and use of
cryptocurrencies for illegal activities. In April 2017, the Government constituted an Inter-Disciplinary Committee comprising
representatives of RBI, SEBI, NITI Aayog and Department of Financial Services
and designated the task of examining the existing framework on digital/crypto
currencies both in India and globally and suggest measures for dealing with threats
it posed. The Finance Minister in November categorically stated that India does not recognize cryptocurrency as legal
tender as of now.  As the legality and
legitimacy of cryptocurrencies hangs by the thin rope even after online
cryptocurrency exchanges have flourished in India. Although
ability of masking identities while performing transactions in cryptocurrencies
(use of hash cryptography) has led to suspicion, the only reassurance is the
underlying blockchain technology. The public-private key pair assures that the
transaction leaves traces on every system which stores the blockchain, and can
be linked to real-world identities using transaction-graph analysis thus
ensuring the transacting parties to prevent its misuse for illegitimate purposes

In the Indian scenario before regulating such currency the
nature and working of the same must be taken into account. If it is used to
make purchases from Microsoft or Expedia, then it is currency.  However, where
a start-up company issues tokens in lieu of cryptocurrency in an initial coin
offering, then the token issued is security and the whole enterprise will come
under the radar of the securities regulators. Here, the token is more or less
similar to a share of a company on which one will receive profits and can also
trade the same in the secondary market.  Arguably, it is the token which
is the ‘security’ and not the cryptocurrency. Wherein cryptocurrency is held as
an investment, then it takes the form of a commodity where a person holding
such commodity wants to profit from a future favourable movement in the price
of the same, much like a person who trades in gold. If authorised as an electronic payment system or designated a legal
instrument, cryptocurrencies will fall under the purview of the RBI; capital
gains and business transactions will be liable to tax, and foreign payments will
come under purview of Foreign Exchange Management Act.

Cryptocurrencies could be an enormous
value proposition for India, but the prominent security threats, might bring in
some hesitation in the early phase of adoption of this technology with the existing
financial system. With the growing user base and recent
upsurge in Bitcoins value which is one of the most famous virtual currencies
available, there are more hurdles like need of a international legal framework
and regulating authority, awareness about the use of wallets, transaction processing
etc. Needless to say that cryptocurrencies have a massive potential to become a
global currency but only and only when these issues are addressed on a global
scale at large.

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