The cryptocurrency start-up and enthusiasts dreaded about the ban in India. The fear has nearly come true. The Inter-ministerial committee (IMC) has submitted its report which recommends a ban on cryptocurrencies. The IMC even went to the extent of declaring the activities related to cryptocurrencies as a criminal act.
Cryptocurrency is a form of digital currency (such as Paytm Cash or Airtel Money) which is developed based on blockchain technology. For safety of the transactions that take place with cryptocurrency it is done in encrypted mode through cryptography. Blockchain is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. Bitcoin, Litecoin, Ripple, Ethereum etc are dedicated exchanges through which a person can place an order for cryptocurrency by paying regular money in any currencies. There are more than 500 cryptocurrencies to choose from. Bitcoin is the most popular and accepted cryptocurrency. These cryptocurrencies are saved in specific wallets by which the owner can make payments for commodities/products/vendors.
The essential power of blockchain technology is its ability to distribute information. Information is distributed across all the nodes, or individual computers, that make up the system, the term ‘blockchain technology’ is often swapped with ‘distributed ledger technology’. A blockchain’s database isn’t held in a single location, which could be infiltrated or controlled by a single party, but rather it is hosted by numerous computers all at the same time. It automatically verifies itself at certain intervals, as a self-auditing system. Thus, this self-audit guarantees the accuracy of the data it holds. Groups of this data are known as ‘blocks’. These blocks are cryptographically chained together. The pieces of data get buried and it is tough to breach and manipulate it. However, blockchain comes with its own disadvantage. It requires constant computing power from several different sources to keep it running.
It is or rather was earlier said that cryptocurrency is the future of money transactions. Bitcoin, which came into existence in the year 2009 at a mere $0.39 rose to a peak of $21,000 in early 2018. The price of Bitcoin fell to $8,500 in February 2018. Safety concerns, more specifically the recent ransom-ware attacks on digital information, brought down its popularity to a large extent. The government regulations developed further apprehension amongst the general population causing the massive fluctuation in its price leading to losses for people who had invested in such cryptocurrency.
In our own India, the finance minister in his Union Budget 2018 speech said, “The government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.” However, the government has recognised blockchain and said that a “distributed ledger system or the blockchain technology allows organisation of any chain of records or transactions, without the need of intermediaries. The government will explore use of blockchain technology proactively for ushering in digital economy.” The government discourages using it as a legal tender. The corporates are not allowed to use it as a payment system. The government feels that cryptocurrencies are the source of a number of illegitimate and untraceable payments for activities that do not work in the nation's interest and hence it is not treated as a legal tender for any transactions across the country.
However, the government also feels that block-chain technology is useful for development and maintenance of a chain of records and ledgers for transactions without the need of intermediaries, in order to further develop the Digital India initiatives in India and promote the use of online payment applications such as Bharat Interaface for Money (BHIM).
It should be noted that cryptocurrency is not termed illegal as of now in India. Holding such cryptocurrencies such as bitcoin is not illegal. The legal status of cryptocurrencies varies substantially from country to country and the rules are changing everyday. Many countries have allowed its use and trade whereas a few others have completely banned the usage of cryptocurrencies.
In European Union it is neutral. It has not passed any specific legislation with regard to bitcoin as a currency. It has however stated that VAT/GST is not applicable to the conversion between traditional currency and bitcoin.
In 2016 the European Parliament's proposal to set up a taskforce to monitor virtual currencies to combat money laundering and terrorism, passed by 542 votes to 51, with 11 abstentions, has been sent to the European Commission for consideration. The European Commission also notably presented a ‘parallel’ proposal aimed at preventing tax evasion techniques as revealed in the Panama Papers. In 2017, it was revealed that the proposal will require cryptocurrency exchanges and cryptocurrency wallets to identify suspicious activity.
The US Treasury classified bitcoin as a convertible decentralised virtual currency in 2013. The Commodity Futures Trading Commission, classified bitcoin as a commodity in September 2015. Bitcoin is taxed as a property. In September 2016, a federal judge ruled that ‘bitcoins are funds within the plain meaning of that term’.
In countries such as Algeria, Bolivia, Ecuador, Bangladesh and Nepal, it is termed illegal. In Indonesia, it is legal to trade and hold the cryptocurrency but it is illegal to do transactions in cryptocurrency.
Investing in cryptocurrencies are not recommended. With the tremendous price fluctuation, it is always a risk to invest in it. If one is holding cryptocurrency it is safe to sell it and reinvest in more sane investment avenues. However, if one has made profits in the cryptocurrency it is better to show the profit in the income tax return. The world requires more digital safeguards to accept cryptocurrency.
K Satish Kumar, is a keynote speaker, author, the Global Head of Legal and Chief Data Protection Officer of Ramco Systems. Among the many awards he has received, the coveted are 'Top 50 Legal Leaders 2019' by Legal IP Gorilla in Singapore, 'GC PowerList India 2018' by London-based Legal 500 and 'Legal Counsel of the Year -2018' by INBA. He is actively involved in many pro bono activities through Chennai Lawyers. The author can be reached at email@example.com.