GROWTH OF CRYPTOCURRENCY: INDIAN PERSPECTIVE
- Ritik & Meenakshi Sharma*
The transition from the cognate and computerised technology to the digital technology is known as digital reorientation, which is forthwith is at its zenith. Since the society is moving towards the idea of digitalisation, the emergence of virtual and digital currency is logical. As a form of virtual currency, cryptocurrency works by a means of a technique known as cryptography.
Cryptocurrency is a form of currency that only exists digitally, that usually has no central regulating authority but rather uses a decentralised system to record transactions and manage the issuance of new units and that relies on cryptography to prevent counterfeiting and fraudulent transactions.
Cryptography can be deemed as the process of converting legit and clear information into code that’s quite difficult to be cracked. The digital directory which contains the information regarding the transactions of cryptocurrency is managed by blockchain. The blockchain records the ownership of all cryptocurrencies in a single transaction and circulation and the individuals must update all transactions that have occurred and ensure the accuracy of the information. In this way, the security of the transaction is confirmed. This article will explore the theme of cryptocurrencies and their role in economic growth. It will also show their expansion world-wide.
Fiat currency is arguably one of the biggest inventions in human history. It changed the way people used to trade, particularly the barter system in the past. However, there is a risk of theft using cash for purchases. As technology advances, cash usage is declining, and credit/debit card and online banking transactions have begun to attract attention. The concept of digitalisation is increasing day by day and the establishment of the D.L.T (Distributed Ledger Technology) can be termed as the revolution of the transaction scenarios.
The first virtual currency with independence, anonymity and dual spending protection is Bitcoin. Bitcoin was born in 2009 by Satoshi Nakomoto. Almost 60% of the market value of cryptocurrencies belongs to Bitcoin. With the development and application of blockchain technology to modernise the payment infrastructure, the cost-effectiveness and efficiency aspects associated with its use remain key challenges. Price volatility and scalability issues also raise concerns about the applicability of virtual currencies as efficient payment tools, especially in developing countries.. The study concluded that despite the significant limitations of virtual currency in replacing physical currency, the blockchain technology based on its design can be used in fields such as international trade, trade finance, transfers of cross-border remittances, and plugging leaks in the transfer of social benefits in low-income countries. Although it can be used in various economic applications in developing countries, such as creating digital land records, financial inclusion and the transfer of benefits to low-income households, there are still major challenges in terms of Internet connection, higher transaction costs, and power deficits Supply and lower level of financial knowledge.
Law Governing Cryptocurrency
In addition to the concerns and challenges facing the current virtual currency system, the legislative issues that may affect the use of cryptocurrencies are analysed. In addition, analysis also involves several lawsuits and real-world laws that may be triggered by the virtual currency industry.
The exchange of virtual currency and real currency is a hot topic in e-commerce and e-commerce industry. In some countries, it is prohibited to trade cryptocurrencies with cash, while in other countries, it is allowed or not yet regulated. As countries around the world compete for cryptocurrencies and try to determine how to treat them, things have started to heat up. Some people are very enthusiastic, while others are very cautious. Some countries are completely opposites. This is a brief overview of the regulations of some of the powerful countries.
United States: The United States has been taking measures to promote the innovation and development of virtual currency, keeping in view the protection of stockholders from fraudulent transactions. The US Securities and Exchange Commission and the Commodity Futures Trading Commission, stated in 2018, that the response to the virtual currency should include a contemplative and a stabilised reaction rather a demobilised one, as the statistics depicts the enthusiastic response from the new generation. Earlier in 2017, the US government regulated that only the authorised investors can participate in the Initial Coin Offerings , who are registered with the SEC. The SEC's policy is to mitigate stockholders' risks, fraud protection, and hold cryptocurrency projects that may be responsible for selling unregistered securities to US investors. Presently, recognised cryptocurrency transactions are legal in the U.S., and they treat virtual currency as property and all transactions amount to taxable events.
China: For the world’s substantial bitcoin mines, China is deemed to be scandalous. China banned cryptocurrency transactions on Chinese exchanges and made ICO fundraising illegal, thereby reducing market demand and leading to a comprehensive descending trend in the cryptocurrency market. Many Chinese residents have switched to using foreign exchange for trading cryptocurrencies. It is unclear how much further China’s cryptocurrency ban will have an impact, but it may continue to exacerbate negative sentiment in the market. In terms of cryptocurrencies, the People’s Republic of China seems to be the most stringent cryptocurrency regulator in major economies. Despite China's strict stance on private cryptocurrency transactions, the People's Bank of China has been studying the issuance of its own state-owned cryptocurrency.
Japan: Almost, 36% of the Japanese currency accounts for the Bitcoin’s transaction volume, which outranks each country. The US dollar is second only to 31%. Japan’s high demand for cryptocurrencies is supported by a well-regulated legal system that supports the entire industry in a way that builds credibility among investors and is familiar with cryptocurrency-related securities transactions. Japan's "Payment Service Law" is the first national registration system for cryptocurrency transactions. Coincheck is being officially recognized by the Japan Financial Services Agency (FSA). To deal with security issues, Japan’s cryptocurrency exchange will establish a single self-regulatory body for exchanges approved only by the FSA, with a view to regaining public trust. Regulators will strive to formulate fair trade rules and self-regulation to fill legal gaps.
Russia: In 2019, Russian Government imposed a ban on the usage of virtual currency by proposing the draft of the ‘On Digital Financial Assets’. It has been done with the effort to restrain the fraudulent transactions of cryptocurrency. Russia has been synchronously updating its cryptocurrency regulations with the Eurasian Economic Union and the BRICS countries to stop the promotion of cryptocurrency-related financial services, while still exploring ways to develop financial technology strategies to encourage cloud-based platforms and innovative mobile digital payment solutions.
Legal Status of Cryptocurrency in India
The transactions involving cryptocurrency are now legal in India. It means that blockchain technology and the usage of virtual currency is legal, but because of the legislative unpredictability, its future still has been swathed in the clag. With reference to the doctrine of proportionality, the ban on the cryptocurrency has been lifted by the S.C during March, 2020.
In, 2018 Reserve Bank of India imposed a ban on the use of cryptocurrency by issuing a circular and the order of the RBI was challenged in the case of Internet and Mobile Association of India v. RBI. Supreme Court, determining the issue, stated that legislative body can’t evaluate the standards of the virtual currency form the Crypto Token Regulation Bill, 2018 for the purpose of banning of cryptocurrency, because, from one perspective the bill criminalised specific undertaking like transactions and use of it and on the other way government is getting access to introduce their own virtual currency.
The Court acknowledged that the RBI had not upheld or augmented how the functioning of existing establishments could be disorganized with the use of cryptocurrencies. The Court reiterated its judgement in the case State of Maharashtra v. Indian Hotel and Restaurants Association; there should have been at least a few empirical statistics about the diploma of damage suffered by the regulated entities. The Court further reiterated that the executive orders, like the order in query, need to be nicely reasoned and feature a rational and can not be ambiguous and such orders should be quashed in scenario of lack of reasoning.
Japan, recognised cryptocurrency as legal tender and regulate it but not as a currency but as taxable property, likewise Europe and United Kingdom also have a taxation policy for regulating virtual currency and China, the status of virtual currency is quite complicated, because of the legality in some arenas, moreover China is focusing on establishing its own virtual currency, whereas on the other hand, India has no legal framework to regulate the cryptocurrency and only RBI playing its protective objective by warning citizens.
India, currently doesn’t have any legislative framework for regulation of virtual currency but it can adopt some of the regulations of other nations or can establish its own regulation by keeping in view the existing policies.
Moreover, at present many nations does not consider cryptocurrency as a legal tender or a currency , they taxed virtual currency as a property or as a foreign currency.
There has been a persistent growth in the cryptocurrency for past time and with the evolution of technology and digitalisation, there is a need to adapt regulations of cryptocurrency to survive the global market and for safeguards of the stockholders. Through proper control and supervision, the benign use of cryptocurrencies can help stimulate economic growth, promote financial inclusion, enable innovation to flourish, and at the same time protect investors from abuse of the technology.
- Ritik & Meenakshi Sharma are students from University of Petroleum and Energy Studies.