A cryptocurrency is a medium of exchange that is , encrypted, decentralized and
digital. There is no central authority to determine the value of
cryptocurrency. Instead, the value of cryptocurrency is determined by its
customers over the Internet. Cryptocurrency functions through the network ,
where a large number of computers are employed, which is why cryptocurrency is
decentralized, and control of the currency is not confined to the hands of a
government authority or a central authority.
Bitcoin was the first cryptocurrency, first outlined in principle by Satoshi
Nakamoto in a 2008 paper titled Bitcoin: A Peer-to-Peer Electronic Cash
Nakamoto described the project as an electronic payment system based
on cryptographic proof instead of trust.
That cryptographic proof comes in the
form of transactions that are verified and recorded in a form of program called
a blockchain. Although released in 2009, Bitcoin is still the most popular
and valuable digital currency.
Bitcoin - A detailed analysis
Bitcoin is what everyone calls BTC for short. One of the characteristics of
crypto currencies is that non physical existence or non physical accessibility.
In a short period of time, cryptocurrencies gained a lot of popularity and thus
hit the digital market under different names. Bitcoins are one among them. It's
always a question as to the issuing authority behind Bitcoin. Like we have RBI
for India We all know the authority or issuing body behind bank currencies of a
particular nation Unlike cryptocurrencies like Bitcoin's and other ones are not
controlled directly by Government, private individual or other body of
individuals. Thus the Anonymity of the issuing body forms another prominent
Bitcoins can be stored as a digital currency as well as used as a medium of
exchange for other goods. Another distinguishing feature is that we can transfer
Bitcoin as easily as sending a message from one electronic device to another
keeping the anonymity of the sender and receiver.
Bitcoin network controls the bitcoin. Bitcoin network comprises the common man
who uses bitcoin, and anybody can become a part of it. To understand this
network, we must understand the Bitcoin Public Ledger. All confirmed
transactions from the start of Bitcoin's creation are stored in the public
ledger. This complete record of the transaction which is a sequence of records
On November 1, 2008, a man named Satoshi Nakamoto (a tentative
name whose existence is questionable) posted a research paper to an obscure
cryptography listserv describing his design for a new digital currency that he
called Bitcoin. One of the core challenges of designing a digital currency
involves something called the double-spending problem. Bitcoin did away with the
third party by publicly distributing the ledger, which Nakamoto called the
'block chain.'Users willing to devote the CPU power to running a special piece
of software would be called miners and would form a network to maintain the
blockchain collectively. In the process, they would generate new currency.
The primary advantage of cryptocurrency is that a third parties and
intermediaries like banks, can be avoided if two people want to transact money
with each other making it possible though the use of public and private keys.
Since there are no third parties or inter-mediaries here, we can save
processing fee and other charges over transactions.
The biggest disadvantage of this is that the identity of the parties involved in
the transaction being unclear , so it is possible to take advantage of this
opportunity and do a lot of illegal activities such as money laundering, tax
evasion , drug peddling, smuggling, and procurement of guns. The reality that a
computer crash can erase one's digital fortune, or an act of a hacker can be
considered as some other drawbacks of using cryptocurrencies.
Experts say people who invest in equities and gold, have started identifying a
new investment portfolio called ‘Digital currencies'. One can never reject the
fact that the value of virtual currencies is increasing day by day. when
Lockdown was announced all over the country in the wake of the corona virus,
people started making use of online networks for new investments, jobs etc .
people began to know about cryptocurrencies and started to invest in.
few Bitcoin's being circulated in the market, the value of Bitcoin's went
increasing day by day as everyone went after it. it also started gaining
worldwide attention. Now it has become a new trend to make an investment by
buying and keeping digital currencies. In a way, the trend of such people has
led to an increase in the value of cryptocurrencies such as Bitcoin.
Therefore rather than investing in gold and equities which are the traditional
investment methods people started switching in to cryptocurrencies such as
Bitcoin hence the value of digital currencies got increased in the midst of
the pandemic .
Bitcoin's however had a very limited quantity of circulation and everyone seemed
to be going crazy behind it, Ordinary investors have come up with the idea of
saving or purchasing Bitcoin's other than choosing regular conventional
techniques of investments, for a while. The fact is that the Bitcoin has
gradually increased its value and is now at a height that no one can dream of.
There are three different ways through which cryptocurrencies can be purchased.
One prominent method of purchasing is Mining. Mining is an activity where an
individual (called the miner) uses his computer prowess to crack
computationally difficult puzzles. The process of cracking such puzzles which
are integral to the blockchain technology, help in maintaining them. As a reward
for this, the miner gets new bitcoins which is nothing but creation of a bitcoin
Secondly, We can purchase Bitcoin's from a Bitcoin exchange by giving back real
currency. As a last option we can receive Bitcoin's in consideration of selling
goods and services.
Legal position of cryptocurrencies in India
India being one of the countries that makes the best use of cryptocurrencies
the future perspective of digital currencies stands as the topic of much
discussion. RBI has often issues press releases about the security concerns of
cryptocurrencies such as Bitcoin. A committee was also constituted in India 2017
under the chairmanship of Shri Subhash Chandra Garg to analyse the legal issues
associated with virtual currencies. The Committee Report stated that all private
cryptocurrencies should not be allowed in India.
RBI issued a circular In April 2018 preventing commercial and co-operative
banks, small finance banks, payment banks and NBFC from not only from dealing in
virtual currencies themselves but also directing them to stop providing services
to all entities which deal with virtual currencies. on My 15 2018, The Internet
and Mobile Association of India (IMAI) filed a writ petition in the Supreme
Court for withdrawing RBI Circular. Supreme court passed a decision, quashing
the earlier ban imposed by the RBI.
As a next step government introduced Digital currency bill 2019. Under the
bill, Mining, holding, selling, issuing, transferring or using cryptocurrency is
punishable with an imprisonment of up to 10 years . The bill paved the way for
the government to introduce its own digital currency, namely ‘Digital Rupee,' by
the Central Bank.
Under the Bill, Cryptocurrency is defined as ‘any information, code, or token
which has a digital representation of value and has utility in a business
activity, or acts as a store of value or a unit of account.
Recently on 29 January 2021, in circular number 2,022, in the ‘E' new bills
section under Legislative business, the Indian government proposed a new
bill. The government has listed the new bill that will prohibit all private cryptocurrencies in India and provide a framework for creation of an official
digital currency to be issued by the Reserve Bank of India. The new bill to be
called as The Cryptocurrency and Regulation of Official Digital Currency Bill
2021, seeks to create a facilitative framework for an official digital
currency that will be issued by the Reserve Bank of India (RBI).
The bill also contains provisions for banning all private cryptocurrencies
such as Bitcoin, Ether, and Ripple but will exempt certain uses and the
promotion of the underlying technology of such tenders. In an RBI booklet on
payment systems, the government also mulled the creation of a digital version of
Cryptocurrencies related legal issues are as follows:
- Anonymity of transacting parties
- Problems related to lack of proper authority
- Absence of well defined Laws
- Problems of Tax Evasion, Money laundering etc
- phishing attacks faced by users
- Loss of Data
- Insecurity of trading & purchase platforms etc
It's a fact that most of the people are not rushing to invest in digital
currencies considering the face of all the pitfalls set out above, but there are
people who are still looking forward to go with digital currencies by accepting
the element of risk.
Safety and security of Virtual currencies always remains as a question because
it does not have any proper regulatory authority as in ordinary currencies.
Cryptocurrencies can be used boldly once if the government sets out proper
legislations to tackle the associated issues. It's always advisable to go
through all the ins and outs of the digital currencies before making an entry to
the digital currency league.
Cryptocurrencies are something that can turn out to
be very useful for common man if used within the legal boundaries. Government
can come up with a permanent legislation removing all the shortfalls and
loopholes roaming around the digital currency world to increase the credibility
of its usage.
- Kate Ashford & John Schmidt ,What is cryptocurrency?,Forbes.com,Dec 18
- Vijay Pal Dalmia and Siddarth Dalmia,Explaining Bitcoin and Legal
Position in India,lexology.com,March 28 2020
- Income tax on Bitcoin & its legality in india,cleartax.in,Jan 21 2021
- Internet and Mobile Association of India v. Reserve Bank of India
- S.2(1)(a), Banning of cryptocurrency & Regulation of official Digital
Currency Bill, 2019