Over the past few decades, technological growth and advancement have exacerbated its reach. Can you imagine a day or even an hour without accessing your social media accounts? That alone answers the question of how important and addicting technological advances have spread out. It’s like a wildfire amongst all generations.
This technology has been not only in the communication sector but also in the banking and finance sectors. Mr. Nandan Nilekani, co-founder of Infosys quoted, “India’s technological revolution, particularly in digital payments and software, is transforming the way the country operates and interacts with the world”. India, which was once enslaved by British colonial rule, became the first country to launch the Unified Payments Interface, commonly referred to as UPI in 2016[1] .
The Rise Of Cryptocurrency
Along with digital and technological advancement, a new and modern method of currency came into being. This new currency is known as Cryptocurrency. It is a decentralized structure that is spread out across a large number of computers. It is a form of digital asset that uses cryptography as a means to maintain a secure network and makes a rugged cover that disables counterfeiting and double-spending. The most distinguished characteristics of Cryptocurrency being that it is not governed or controlled by any central authority or government, thus making it immune to government interference and manipulation.[2]
One of the most popular and common type of Cryptocurrency is Bitcoin, which is often used by traders and investors to maximize their profit graph and for buying and selling goods and services. Cryptocurrency is one of the fastest and cheapest forms of currency, which sets itself apart from paper and plastic money.
Blockchain And Its Role In Secure Transactions
Cryptocurrency is often paired with Blockchain technology. It is a type of record-keeping ledger or system that is distributed among multiple computer network nodes. This system fosters a network of safe, immutable, and transparent system that facilitates accountability and tracking of asset spending within a business network. Information circulated within a business domain is what runs it.
The swift transmission of information enhances the efficiency and quality of the domain. Blockchain network aids this efficiency by sharing and maintaining the transparency of orders, payments, and production within a particular system.[3] Moreover, any transaction made is shared amongst all the members, no one member can change it without the other members knowing. This enhances trust and confidence within a network.
The Evolution Of Cryptocurrency In India
The emergence of Cryptocurrency in India can be traced back to 2009, with the introduction of Bitcoin in the commerce section. Over the past decade, significant interest and inclination among people have been noticed, leading to 41 thousand crores worth of cryptocurrencies in India. Cryptocurrency and Blockchain technology have significantly revolutionized the financial and commerce sectors, leading to immense socio-economic growth in the country.
However, along with these benefits come the demerits and challenges, which poses significant difficulties, including the issue of consumer protection and legal challenges. International trade among different countries through Cryptocurrency are common. But the problem lies in the different regulatory provisions regarding Cryptocurrency among different countries.
Countries such as Japan and Sweden have adopted crypto-friendly regulations, making it easier for trade with the integration of technology in the financial and commerce sectors. However, countries like China have imposed stringent regulatory implementation of crypto-currency restrictions and bans. This lack of uniformity poses a significant challenge for businesses and investments as they have to comply with regulations in every jurisdiction. [4]
The Grey Area Of Crypto Tax Laws
Every commodity or security in India, when bought or sold, is taxed. In India, the taxation guidelines for how Cryptocurrency should be taxed lies in a grey area. It may come under asset or, for some, income. This ambiguity in distinguishing taxes for Cryptocurrency leads to legal disputes and challenges between investors and businesses.
Being a decentralized mechanism where no central or government authority exists to guide or track these transactions, it makes it even more complex for tax authorities to track down the anonymous Cryptocurrency transactions.[5] Even with the proliferation of technology and information dissemination regarding risks and frauds, some consumers of Cryptocurrency are caught in the web of scams, and hacking. This leads to a significant loss of financial gain as well as their trust in cryptocurrency[6].
In 2021, in Kamaal Khan vs. Union of India, a petition was filed before the Delhi High Court seeking a ban associated with misleading advertising of cryptocurrency. The petitioner argued that the advertisement published does not caution the consumers about the financial risk associated with trading of cryptocurrency, thus misleading them. The Delhi High Court acknowledged the petition and issued a notice to the central government to conduct a detailed discussion regarding formulation of regulatory measures to curb this problem. [7]
Need For Crypto Regulation And Consumer Safety
In case of any legal dispute, consumers have access to very limited resources, reflecting a very corrupt and faulty dispute resolution mechanism. Blockchain technology often leads to the development of new business models, innovative software, and algorithms. These need to be protected under intellectual property laws.[8]
However, even after a decade of the emergence of Blockchain technology, the appropriate designation under which laws of intellectual property Blockchain technology should be included is not clear. Patent issues, copyright disputes, and other Blockchain disputes add to this existing problem.
To curtail these significant challenges faced by businesses, investors, and consumers, prominent developments and changes have been observed. In 2018, the Reserve Bank of India imposed a ban on dealing of cryptocurrencies by all banks after observing issues of money laundering, financial stability, and consumer protection. The Union of India vs. Hardayal Singh Mehta case in 2018 highlighted the challenges of preventing illegal activities such as money laundering and fraud through the use of Cryptocurrency platforms. It led to the urgent need for discussion and a definite regulatory framework to oversee this challenge.[9]
The Iamai Vs. Rbi Case: A Turning Point For Crypto
In March 2020, Internet and Mobile Association of India (IAMAI) vs. Reserve Bank of India (RBI) overturned this decision by the RBI. The Supreme Court held that this ban was completely unconstitutional, thus confirming the legality of Cryptocurrency in India. This landmark judgment gave a much-needed boost to consumers and investors for practicing trading and investment through Cryptocurrency without banking restrictions[10]. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was the turning point for the development and legality of Cryptocurrency in India.
Through this bill, apart from certain exceptions to underlying technology and CBDCs (Central Bank Digital Currencies), all other private cryptocurrencies were banned and restricted. Through this bill, cryptocurrencies were banned from being used as legal tenders and transactions, whereas a detailed and stringent framework for the issuance of cryptocurrencies by the RBI was formulated.[11]
Conclusion
Thus, looking forward to the prospects of Cryptocurrency and Blockchain technology in India, it seems to evolve further and flourish. There has been an increasing popularity of benefits aided by Blockchain technology in healthcare, finance, commerce, and other sectors. Although there is still a need for a more stringent regulatory framework to compete with the myriads of challenges faced by consumers, investors, and businesses, the proliferation of this emerging technology and its popularity cannot be denied. For formulating a coherent and effective framework for regulatory framework in India, collaboration between regulatory bodies, stakeholders, and businesses is crucial.
1National Payments Corporation of India. (2016). *NPCI launches Unified Payments Interface (UPI) to revolutionize mobile payments*. Retrieved from https://www.npci.org.in/upi
[2] Investopedia. (n.d.). Cryptocurrency. Retrieved from https://www.investopedia.com/terms/c/cryptocurrency.asp
[3] Investopedia. (n.d.). Blockchain. Retrieved from https://www.investopedia.com/terms/b/Blockchain.asp
[4] Jain, A. (2023, July 1). The evolution of cryptocurrencies in India and what the future looks like. The Times of India. Retrieved from https://timesofindia.indiatimes.com/blogs/voices/the-evolution-of-cryptocurrencies-in-india-and-what-the-future-looks-like/
[5] Das, L. (2023). India’s new Cryptocurrency tax laws: What you need to know. CoinDesk. Retrieved from https://www.coindesk.com/policy/2023/03/31/indias-new-cryptocurrency-tax-laws-what-you-need-to-know/
[6]Mukherjee, S. (2021). Understanding Cryptocurrency taxation in India. Economic Times. Retrieved from https://economictimes.indiatimes.com/news/economy/finance/understanding-cryptocurrency-taxation-in-india/articleshow/80302450.cms
[7] Kamaal Khan vs. Union of India, W.P. (C) No. 8411/2021 (Delhi High Court, 2021).
[8] Lexology. (n.d.). Blockchain and intellectual property rights: Protecting your IP assets. Retrieved July 4, 2024, from https://www.lexology.com/library/detail.aspx?g=512ab4b1-d234-4962-a4ff-0f4836618db9
[9] Harshad S. Mehta vs Union Of India, And Another, 29 July 1992, (1992)94BOMLR789, 1992CRILJ4032.
[10] Internet and Mobile Association of India (IAMAI) v. Reserve Bank of India (RBI), (2020). SCC Online SC 275.
[11] Tambe, N. (2024, June 10). All You Need To Know About India’s Crypto Bill. Forbes Advisor INDIA. Retrieved July 4, 2024, from https://www.forbes.com/advisor/in/investing/cryptocurrency/crypto-bill/
Author: Aastha Tembe is a Third-year BA.LLB Student at DES Shri Navalmal Firodia Law College.
