Author: Deb Zyoti Das (HPNLU), Priya Shah (GLS Law College)
Cryptocurrency is a digital currency which is secured by cryptography which makes it very difficult for a person to counterfeit or double spend. A cryptocurrency is a digital asset designed for the purpose to work as a medium of exchange, where the individual stores them in a digital ledger or a computerized database using cryptography to secure transaction entries, to control creation of additional digital records and for the verification of transfer of coin ownership. Such a secure cryptography makes it impossible to counterfeit this currency. It works on the blockchain technology; Bitcoin is the first decentralized cryptocurrency. Such currency has always been at the public sight but the legality of the same being a mystery which is yet not solved. Such form of currency is invalid in terms of legal tender and thus, hold no validity in this scenario. These currencies can be an alternative to the current form of currency, but the lack of government resources and legislations may lead to create a safe haven for the black money deposits or illegal funding.
Since 2013, various warnings were issued by the Reserve Bank of India through its press releases regarding the potential risks attached to the use of cryptocurrencies on the financial system of the country. The Inter-ministerial Committee on 28th February, 2019 had also released a report suggesting certain measures in relation to cryptocurrencies, which included a complete ban on private cryptocurrencies. This committee had also prepared a draft bill known as “Crypto Token and Crypto Asset (Banning, Control and Regulation) Bill, 2018”. The wide scale use of cryptocurrency also seems to be questionable, as the "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019" has been proposed with the aim to ban all forms and types of private cryptocurrencies.
Need of Exclusive legal regulation:
The Reserve Bank of India’s ban on cryptocurrencies had a harmful effect on the economy as the country lost its initial hold on the digital medium of exchange. Cryptocurrencies are emerging as a strong medium of exchange in the future, as bitcoin is already the most preferred on the internet as many people are investing in it and frequently using it in transactions.
When on March, 4 the supreme court lifted the ban on cryptocurrencies, even though the ban is lifted, there is no regulatory safeguards that financial institutions and markets have which deals and talks about all the dimensions that act as a risks to the investor.
While many experts having knowledge of this new form of transaction medium argue that cryptocurrencies should not be regulated, as the technology is decentralize, many dimensions such as exchanges, governance around issuance of new tokens, and marketing are highly centralized in nature, requiring standardized examination to prevent and punish wrongdoings and wrongdoers. If not checked properly, their volatility can create a risk to the health and stability of the economy, especially for smaller and developing countries. Further, various concerns for misuse of the technology to fund terrorism, trafficking, drugs and cybercrimes makes it imperative for regulators to step in and enforce controls.
The need to urgently regulate the technology comes from the worry about scams, terrorism, anti-money laundering laws, know your customer and so on, and there is also the concern about investor protection.
It is about balance between risk and innovation
The benefits to cryptocurrency regulation are clear in the certainty of use and value, good consumer protection, excluding bad players, and ensuring cryptocurrency is used for legitimate and good economic reasons. Understanding how regulation will evolve requires viewing the challenge in three dimensions: economic, technological and legal.
The main benefit of crypto-regulations will be certainity.
The evolution of cryptocurrency will continue in a process of trial and error as the user experience and understanding improves, which brings in the legal aspects. Mr Salmon, partner at law firm Hogan Lovells in London, explains: “The priority is dealing with the uncertainty and to achieve this the industry needs a consistent taxonomy to deal with the problem of different terms being used.” Mr Zagone, director of regulatory relations at Ripple, agrees: “Regulatory certainty is needed and greater co-ordination. Self-regulation works where you have a mature industry and strong governance. This technology is at an early stage, so it is too early to be an option, but could be in the future.”
With legal certainty comes the benefit of confidence. Humans fear things that they don’t tend to understand and thus strive to regulate them to keep it under their control. The same scenario was seen with any other major technological developments , for example, when Internet was introduced or when online grocery shopping was introduced. It is a trial and error process. To perfectly regulate a new technological aspect, is a matter of time and incremental steps. Safeguards and regulations will induce confidence in the innovation.
Cryptocurrency is an innovative, disruptive technology that has the power to revamp the financial and transactional sectors of India and can also help the growing economy setup a powerful vigil on high-end transactions. But without proper cyber & cryptocurrency laws in place it will be very difficult to control the technologies, and without control or oversight from the authorities, fraudulent purveyors of cryptocurrencies can wreak havoc with black money transactions and drive out the good that could come from the innovation.
Although India is in between a process to decide if to regulate the technology or ban it at all, but being a democratic country, it will take into account the views and opinions of the stakeholders of the technology and it is only a matter of time. For the time, the Apex Court of the country have allowed the use of the technology.