Open Access Research Article
REGULATORY FRAMEWORK FOR CRYPTOCURRENCIES AND BLOCKCHAIN TECHNOLOGY IN INDIA: A LEGAL PERSPECTIVE
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Article Details
REGULATORY FRAMEWORK FOR
CRYPTOCURRENCIES AND BLOCKCHAIN TECHNOLOGY IN INDIA: A LEGAL PERSPECTIVE
AUTHORED BY - MR. SIDDHARTH SINGH NEGI & DR. REKHA VERMA
ABSTRACT
Blockchain technology is increasingly heralded as the future of
technology, promising decentralized and secure
systems. However, with the rise of cryptocurrencies like Bitcoin, cybercrimes have found new avenues for exploitation. This paper explores
the emergence of privacy-focused cryptocurrencies such as Z-Cash, Dash, and Monero, alongside a discussion on
their implications for the Indian economy.
It delves into the legal framework surrounding cryptocurrency in India,
examining its potential
classification as legal tender, commodity, or security. Furthermore, it
investigates the application of cryptocurrencies in contracts and addresses intellectual property issues and tax implications. Challenges such as data security
breaches, identity theft,
and tax consequences are also analyzed. In conclusion, while cryptocurrencies offer innovative possibilities, their adoption
in India necessitates robust regulation and safeguards to mitigate risks. The paper concludes with a webliography for further reading
and research.
KEYWORDS- Blockchain technology, Cryptocurrency regulation, Privacy-focused cryptocurrencies, Legal status in
India, Cybersecurity challenges
BLOCKCHAINS – THE FUTURE OF TECHNOLOGY
While Blockchains best-known, most used and highest-impact application is
Bitcoin, the potential impact of the
technology is far more significant and broader than virtual currencies. The
popularity of Blockchain technology
may also reflect an emerging social trend to priorities transparency of the system
over the existing
anonymity. Blockchains have a clean reputation as compared to the Bitcoins
and have thus attracted attention of various financial institutions.
Besides, the financial institution a lot of paper transactions are being done away using the digital
platform of Blockchains which is based
on secured environment. Big financial institutions such including J.P
Morgan, State Bank of India, ICICI Bank etc has shown great interest in Blockchain technology by joining an alliance to implement it into banking practices. In addition
to those significant financial players credit card companies insurance forms and stock exchanges and
others are adopting Blockchains into their system. For the banks to have their Blockchains will
enable them to record all transactions made by the client. This will even do away with old technology that
is being used currently. In India, the State Bank of India has already
made first strides to adopt the Blockchain technology into its system.
Since
the Blockchain is distributed ledger available on all nodes, the absence,
connection problem, hardware failure
or failure of any
node does not affect its working like that
of a
Central server, and it
can work 24x7. For every completed transaction on the Blockchain, the
intermediary is done away, For
example in a transfer of money the banks charge account operating charges,
cheque issuance charges for Demand
draft or SWIFT, etc. and this all is saved, In cases of credit cards, the high transaction cost is saved. The technology
is displacing these agents who have thrived off us in the past. Skeptics see this as an end of banks
and financial institution to start with and spreading widespread unemployment in other
social sectors like the Governments.1
However, a positive
aspect of technology-driven jobs waits in the wings. Skeptics also fear the
rise of global warming due to the
heat released by these power guzzling supercomputers acknowledging the transactions on Blockchains. Technical experts are working
on algorithms which
would consume less power and supercomputers which
will produce less heat in days to come. In the social
sector, the growth
of Blockchains is undeniable, and they will do away with the Government officer’s
inefficiency and corruption especially in case of maintenance of Land records,
etc. Most of the banks
are coming up with their private Blockchains, and this may sound an end
to the hacking of bank records,
customer’s passwords or unauthorized access to the same. Cybercrimes may be on
the way down with adoption of Blockchains.
Blockchains
are seen as the future of the worlds banking and business. The future will see
most of the banks and intermediates out
of business due to the introduction of this technology. Blockchains will also ensure that the intermediaries
who are currently earning huge profits by being business auxiliaries will be wiped out such as credit card companies.
Other business verticals such as the Airbnb,
Amazon, Uber, Ola will find it tough to survive in the market unless they
become service providers and not
remain as the aggregators. We thus see a huge rush and activities by these companies
to acquire a business which is providing
services and not stay as an aggregator. Blockchains will be an end of the aggregator services as the
service providers will provide business directly to the customers with assured safety and privacy
by using the Blockchains.
India
being a technological giant cannot remain out of the blockchain race. Many
Indian banks such as the ICICI Bank
have already tied up with some firms to do business using its blockchain. The Government of India’s project such as
"Make in India" and "Digital India" is giving a massive push to the Blockchains project. Recently,
India’s largest government-backed bank, SBI, partnered with BankChain
and Intel to develop blockchain solutions. Indian Banking,
Finance, Insurance, Advertisement and Government agency
documentation can benefits greatly by adopting and growth of this
technology.
As a step toward adopting the blockchain process, the National
Institution for Transforming India, known
as NITI Aayog, has developed a proof-of-concept on trial basis to explore the
application blockchain in critical
sectors which includes
education, health, and agriculture. The State Government of Andhra Pradesh,
in June 2017 has announced that they are in the process of adopting the blockchain applications in land registries
to keep track of who owns which properties.
CYBERCRIMES USING BITCOINS
The use of Cryptocurrencies by Criminals and users of illicit articles
has attracted the attention of the world and given it a bad name.
Investigating, law enforcement, financial regulators, media and the legislative bodies, have been concentrating on news related
to the misuse of Cryptocurrencies. Several Premier investigation agencies have in the past raised a warning about possible abuse of Cryptocurrencies to aid the Criminal
activities and subverting the law. Many forms of research in respect of Bitcoins have been carried out,
and they have pointed that the popularity and growth of Bitcoins have also been due to the payment for illegal
activities and goods using the Bitcoins. A lot
of agencies have concluded that for the terror activities and criminal’s
actions, digital currencies are preferred
means of receipts of funds. The growth of Darknet, which helps in Cybercrimes
to name a few will be important
before we go the types of Cybercrimes as an understanding of these Cryptocurrencies
will help understand the ease with which the Cybercrimes using them can be performed
:
1. Z-Cash:
Z Cash is untraceable Cryptocurrency and started by Zooko Wilcox. The
transactions on this network are
encrypted using ZK-SNARK and metadata within the trade itself is encrypted leading to difficulty tracing
the transactions. This makes it attractive for criminal activities. Z cash payments are transacted on a public blockchain, but users have an option
such as privacy
feature which conceals
the details of the sender,
recipient, and also the amount
being transacted. Z Cash was
started in 2016 and has a total fixed supply of 21 million units like the Bitcoin.
The popularity of Z Cash
can be seen in the price rise from 0
to 799 dollars in 2017.
1. Dash:
also known as Darkcoin uses Darksend to encrypt data by mixing coins and
thereby confusing the transaction.
Dash was initially named as XCoin and released on the 18th January, 2014. It got the name changed to
"Darkcoin" in the same year. Again in 2015, it was rebranded as “Dash."It works on InstantX
protocol and combines transactions from multiple users into single transactions with multiple outputs
making it very confusing for the authorities. Dash offers Direct and Instant transactions without the details of
the sender and recipient. A great demand for them
by exists in the underworld.
3.
Monero: It is the most anonymous Cryptocurrency and currently the darling of the underworld and illegal activities. It uses the CryptoNote technology
which uses stealth address mixer and one-time
ring signature and thus there is
evident absences of any know your customer guidelines. This method is similar
to group signature, and therefore the identity of the individual user remains hidden amongst
the group of users. Monero is the most famous and sought-after currency of the above three It had reached a
lifetime high price of $475 in Jan 2018
and is less volatile as compared to other currencies. However, Edward Snowden,
the noted whistleblower has in
compared to Z Cash found Monero as amateur Cryptocurrency. It thus appears that Z Cash is on the way to
take over the lead in near future for being the most untraceable transacting Cryptocurrency.
The above three Cryptocurrencies are difficult to trace in transactions. They openly declare
themselves being anonymous to the core and thus they are an open
challenge to the law enforcers to crack
them or stop them. The Federal Bureau of Investigation (FBI) has already
sounded an alarm against
the misuse using these three currencies can be done by Criminals. Most of the money collected as Ransomware has been converted
into Monero and have disappeared from the trails.
The cases have come to an end as there is no trail left after the conversion. No single case using these Cryptocurrencies has been booked so far and therefore
shows how much ahead of law their
technologies are based.
Based on the
experiences, the following types of Cybercrimes have been noticed around the
world which involved the use of Cryptocurrencies and especially the Bitcoins in the
past:2
“Position of Cryptocurrency in India”
Cryptocurrency's status
in India is primary, nor is it lawful or unlawful since there is no statutory
text. Recently, India's
finance minister Arun Jaitley declared CC to be an illegal tender in his 2018
Union budget address, but assured
the government that it would pursue Blockchain technology. Though this speech offers
a pinnacle for the new ruling party, the prospect
of CC regularisation in India like many other countries in the near future is not excluded.
Furthermore, on CC classification, expression does not constitute any legal basis.
The Indian government has been discouraged to recognise CC, because the only way it can be seen in the speech
given by the minister of Finance is to fund terrorism and carry out illegal activity. In previous
years, RBI has released notifications requesting customers not to use CC because the government does not
understand or protect the user.
There was/are various exchanges such as Zebpay, UnoCoin, and CoinSecure
in India. Lack of rules and
regulations did not stop India from carrying on CC exchanges. On 5 Apr 2018 RBI
explained that it will not distribute
or provide services in a circular for any individual or entities involving CC to stay outside
of the CC market barred
banks and financial
institutions under it to deal with any form of CC. The association with these
organisations has been dissolved by CC for three months. As a result, the RBI banks most of the banks
cannot facilitate any withdrawal of money or the deposit of money from the CC for the purposes of
selling, purchase or even allow anybody to transferr money from cryptocurrency to the bank or vice versa. It is estimated
that such a decision would
affect almost 50 lakh Indians,
who invested in CC. This is a retrograde move to digitalize India as RBI has already
set up a multidisciplinary panel to research CCs. The report should
address its role in the Indian economy and create a structure. Rather,
RBI chooses to avoid participating in the CC industry, which is confusing
and left several
investors and companies in the dark. RBI's goal is to protect consumers' interest, and a sudden
move towards stopping use of CC was a
major blow to CC users.
It
must “be noted that the Supreme Court of India” declared in 2017 that it
intended to regulate the CC which
would be contrary
to RBI's action.
In the case of Dwaipayan
Bhowmick, the India & Others
Union [3] a PIL was submitted to the Tribunal in accordance with Article
142 of the Indian Constitution to provide guidance clarify
the existence of “CC and set up a special committee to” regulate the CC in India. The absence of any system “left the
market unregulated, which” could exploit all kinds of crime. The PIL stated
that the legal regulation of the CC would be an improvement
in
the game, as it would prevent users from using it for illegal purposes. CC
cannot be prevented or prohibited
because it is all on the internet; the only thing is to create a system to
monitor it. CC is a global
phenomenon. It also will help boost the economy as many investors and
businesses look forward to pooling “India's
IT resources” and developing, for instances, a trade hub; in August 2017, BitBay,
a Polish firm, joined the Indian market.
The SC therefore requested government answers, but no counter affidavit was furnished by all
the respondents. On 2 April 2018, the SC ordered the “respondents to file counter-affidavits within a period of 4
weeks”, giving them their last and final chance.
Such government response demonstrates its intention to categorise and
regularise CCs or to serve the public interest
as such.
Recent
prohibits RBI from carrying on any business
or services in CC through
a ring through financial institutions and banks. Kali Digital has therefore referred
the affected party to the High Court of Delhi
for relief as to the procedural validity of this circular. The Court
agreed with the petition to respond to
the contested circular by the “Ministry of Finance”, the “GST Council and the
RBI”. The request states that the government's circular violates basic
rights as provided
“by the Indian
Constitution” and contends
the following; the petition
states:
1.
“Article 14, which states that, The state shall
not deny to any person
equality before the law or the
equal protection of the laws within the territory of India.”. As any other
corporation, the company that was registered must be covered
and there should
be no discrimination, since RBI discriminates
against businesses operating in CC. The company's membership is a registered company.
2.
“Article 19 (1) (g), which states that, All citizens shall have the right to…. to
practise any profession, or to carry
on any occupation, trade or business”[7]. Therefore, the circular would
not obstruct the civil rights
of the people by stating
that the company of CC
is unlawful.
Furthermore, they were worried about the failure
of government to formulate a CC system that created
confusion and problems for the crypto
industry in India.
Many Crypto companies step away from the jurisdiction of India to conduct
their business through this unsound
move of the government. Then I will try to investigate whether Bitcoins and
other CCs can be adapted to India's current legal
framework.
“Possibilities of CC classification in India”
We must first recognise
India's government system
before examining the need for a legal framework. “India is a democracy and has a federal
government” structure that gives the Center and states the power to legislate
in accordance with the Constitution. The parliament and national legislatures have the authority, under A246 of the Indian
Constitution, to pass legislation in accordance with the issues
mentioned in the Sixth Schedule
of the Constitution. Three lists are provided in Schedule
7; “Union List (List I), State
List (List II) and Competitive List (List III). In the list, only the
Union/Central Government has the power to legislate for CC since Entry 36 of List I mentions”: "Currency, coinage and tender; Devises" and “Entry 46 of List I mentions;" bills of exchange,
cheques, promissory notes
and other like instruments”." These lists provide for the topics to
which the Center, State or both of them
may legislate. CC is most likely to be listed among the items referred to
above. It should “be noted that the
Constitution is the supreme law of the” country “and no law can violate: or
operate against its fundamental
framework. It is important to note in this connection that the CC principle which is based on a “concept of privacy is
a fundamental right” recognised in India but appropriate restrictions should be made to prevent chaos. Simply put, it cannot
clash with the Constitution. Regularization of CCs
will therefore be effective in making
India genuinely digital.
The power conferred on the public in government rests on three separate branches
in which the power has been allocated, namely, that of the
executive branch (which comprises the “Prime Minister, the President and the Council of
Ministers)”, of the legislative branch (the
Parliament which has responsibility for legislative acts and government policy), and finally,
of the “judiciary ( adjudicating body of India, which includes the Supreme Court, High Courts
and its subordinate courts)”. In the course of the discussion, we founded that CC's lawfulness in Germany and the United States does not inherently contain a popular opinion of
the CCs. Likewise, executive policies in India are aimed at curbing the use of CC while the judiciary
seems to be determined to control it. In addition, no legislative bill has been tabled in the Parliament except the
legislative bill from the current CC scenario.
I will attempt to address
the following questions
to understand whether
the CC will adapt to the legal
ecosystem in India :
1. Can CC, within the remit of established
law, “be considered a legal tender in India”?
In no of the current statutes
in India has the word "legal tender" been specified and its characteristics are what can be collected and thus by examining the characteristics of an
item we can see whether
or not the subject is a
legal tender. Legal tender is essentially a bank note and other similar tools
which the Government and the banks use and agree.
The money issued
by RBI is considered legal tender by Section 26 of the RBI Act.
The
“RBI Act of 1934, Coinage Act of 1792 and FEMA of 1999” are the statutes
pertaining to this matter. The currency
definition is not provided for in the RBI Law. The foreign currency definition, however, is referred to in the Act as
FEMA. Section 2(m) of the FEMA provides an inclusive description of currency that includes the currency “all
currency notes[9], postal
notes, postal orders, money orders, cheques,
drafts, travelers cheques,
letters of credit,
bills of exchange
and promissory notes, credit cards
or such other similar instruments, as may be notified by the
Reserve Bank” In accordance with the FEMA, "Indian currency" is the currency
drawn or represented in INR.
“Section 22 of the RBI Act” says that the exclusive “right to issue bank
notes belongs to the RBI”. The law
has been stringent in restricting the area of the legal tendering procedure. Therefore
CCs such as Bitcoins are difficult to
adapt as currency or as a legal tenders into the Indian legal system before they
are notified by the RBI.
RBI does not regard CC as a legal tender
unfortunately. Unfortunately. This statement was questioned and is
pending before the Honorable
Judge, as mentioned above.
4.
What is Indian
Virtual Monetary Status?
In the previous issue the sense of currency was discussed
in the Indian context, now CC is a virtual
currency sub-set whose recognition will be addressed in this question in
India.
"Express
um facit cessare tacitum" is a Latin maxim meaning "When certain
things are expressly stated, nothing
that is not said is omitted." The above reply makes clear that the currency can only be issued
by the RBI. Therefore RBI is exempt from the jurisdiction of the currency of VC
which was not notified as a legal tender
in India. In the cases of “Shankara
Rao Badam & Ors. v. State of Mysore & Anr and Union of India & Anr.
v. Tulsiram Patel”, the maxim that I have used was upheld by the Supreme
Court.
Therefore, “CC cannot be classified as a legal tender
in India”. This is
the reason for the conclusion.
5.
Is it possible
to treat “bitcoins or other CCs as a commodity”?
A commodity
means essentially an item that has a trade purpose,
the term commodity in Indian statues
has not been explicitly specified, and the nearest meaning of a product
can be matched by the definition of 'goods.' The term "goods" is stated in the Sales of goods Act of 1930 that describes goods
as "all manner
of movable property
other than actionable claims or assets.
It includes inventories and shares, crops and herbs and property
attached to or belonging to a property
that has been agreed to be separated before sale or under the sales agreement." This description does not state whether a product should have any physical properties, so
the possibility of classifying Bitcoins as a good is not rule out. Furthermore,
this concept is not exclusive and can be construed
freely as including CC.
“In the case of Tata Consultancy Services
Vs State of Andhra Pradesh”
the Supreme Court classificated computer
software as 'goods;'
while it is debatable that CC qualify
as computer software, it still sheds light on the perception of the immateriality of computer codes for classification purposes. SC claimed
that in the above case;
“computer software is intellectual property, whether it is conveyed in
diskettes, floppy, magnetic tapes or
CD ROMs, whether canned (Shrink-wrapped) or uncanned (customized), whether it
comes as part of computer or independently,
whether it is branded or unbranded, tangible or intangible; is a commodity capable of
being transmitted, transferred, delivered, stored, processed, etc. and
therefore as a ‘good’ liable To
sale tax.”
The clarification requires the transmission of the land. Will Bitcoins
comply with this? It should be noted
that Bitcoins were stored in an e-wallet electronic area that is secured by a
private key (which has been discussed
in Chapter 5). It is used to enable and check transactions with this private
key. Similar analogy can be drawn on
any moving object, where, unlike the e-wallet and private key, the lock and key is tangible. Therefore it is
also possible to store and transferr mobile property as the owner wants (in e-wallet) and to charge
the tax and track the government if CCs are to be counted as products.
6.
“Can CC come under the purview of securities”?
The
term 'securities' refers to the instruments that an investment investor
presents to investors; these instruments
reflect the object of investment without transferring the property of the
object. Section 2(h) of the 1956 SCRA described this: This is the following:
“(i) Shares in or in any incorporated company or other entity corporate;
exchange, scripts, stocks, bonds, debentures and debentures of similar
kind;
[(ia) derivative;
(ib)
Units or any other instrument provided to participants in such schemes by any
collective investment plan;]
[(ic)Security receipt, as described in Article 2(zg) of the Financial
Asset Recovery and Security Interest Act, 2002; Security receipt;]
[(id) Units or such other instruments distributed under any mutual fund scheme
to investors;]
(ii)
Securities of government;
(iia)other instruments which may be considered securities by the Central
Government; and
(iii) securities rights
or interest;
First, since CCs don't depend on underlying assets
their price hinges
on demand and supply, Bitcoins
or any CC lack the very important character of being represented as
'safe,' so it's not a 'security.' Secondly,
it is generated by a machine algorithm, rather than by anyone. It cannot even
be classified as derivatives, as it does not meet the primary
safety requirements. Therefore, CC cannot be classified as anything
other than land in India. It can be understood.
Application of CCs’ in a Contract
Will
an individual be effective if he/she tries to implement a contract using CC?
Two situations may exist, one for
which Bitcoins is the contract consideration and the other for the purpose of
contract. The 1872
"Contract" is a legally binding agreement [15] according to the
Indian Contract Act, and the essential elements in a legally binding agreement include:
1.
The contracting parties
must be qualified i.e., they must be a major,
aged 18.
2.
Free consent should exist, i.e. without intimidation,
misrepresented ness, excessive influence, fraud and error.
3.
A legitimate object
that is not explicitly considered invalid should be taken into consideration. Consideration is defined as, “When, at
the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or promise is called a consideration for the promise”
The term "something"
can be interpreted as meaning the transfer of CCs' from this description.
The
fact that the essence of the consideration is not clearly specified in the Act
except that Bitcoins may not be
illegal in nature as it has been stated in Section 23 of ICA, 1872 may be used
as a consideration. Section
23 notes that the Court
will become an illegitimate object,
if the subject-matter is
considered unethical and opposed to public policy. The word "public
politics" and "morality" are therefore
subjective, and depending on society and on the circumstances, it is not hard
and easy to determine whether or not anything
is immoral. Until now, the judiciary has not shared
anything which can make
a CC unlawful.
CCs
may also be considered because they have not been deemed an illegal object. For
the same purpose, the CC
can also be the object of a contract; there is
no law declaring it unlawful.
“When CC is discussed under the Sales of Goods Act 1930”, the situation
shifts in which money is an important factor for the fulfilment of a contract. Article 2(2)(10) of the Act stipulates that a "price" applies to a selling money[18]
and a tender money that is not CC. In other words,
CCs cannot be used for the purchase
of products pursuant to the “Sale of Goods Act
1930”.
“Intellectual Property
Issues” :
“Intellectual
property” is a product of the human intellect that relates to tangible objects.
Intellectual property rights
are defined as the right to the owner of this tangible
property under the law. Copyright, trademark, patent and concept are included. Ever changing
technology has led to new ways of protecting
various types of intellectual property; it is investigated if virtual
currencies qualify as a tangible
property as an intellectual property. In order to be protected, it must be
remembered “that the property”
must “have an underlying commercial value”.
A
patent can only be registered in India if it consists of an “invention or
process; originality, non- obviousness and utility”; the patent gives the inventor
exclusive rights and power. Bitcoins
are created and authenticated by the mining process
as described in Chapter 4, mining is carried out using a special combination of software and hardware to resolve complex
algorithms and monitor
transactions. While the definition currency is a commercial utility and
a modern process, It is not a publicly accessible and proprietary mechanism (open-source software), and thus no rights can be
attached to the owner, since none exists.
“The Patents Act” of 1970 states that an invention
cannot be considered by a mathematical, commercial procedure, computer
programme or algorithm
per se. [19] It
can also be inferred that no mean
can be patented for Bitcoins
or CCs.
The
Indian Copyright Law of 1957 allows a computer programme to be patented. It is
known as "a collection of instructions, expressed
in words and codes, schemes
or other forms,
including a readable
media, able to lead a computer to perform a specific task or to achieve
a specific outcome." This applies
to the literary work and the computer software. [20] [20]. [20]. The software
that enables Bitcoins to be created
and traded is open-source software,
meaning that the code is available in public and updated as required. The change in
the code has various outcomes, such as the creation of new codes and copyright elements, but
differences are hard to understand and to identify the author. Furthermore, it will not produce a
marketing code until it becomes a new CC such as Ethereum that is distinct
from Bitcoins.
In India, "mark" refers to a symbol that can be graphically
displayed, that can differentiate between one person's
products or services
and those of another and that can include product
shapes, packaging and colour combinations.
[21]
The report was released. A trademark's main
characteristics are its singularity, recognisable characteristics, which enables customers to differentiate between a product.
Bitcoins began
the whole wave of CCs and became
a common term For CCs, proving the uniqueness is not easy is used by various
businesses in different contexts on the basis of the services
they provide in connection with CCs. Thus,
"Bitcoins" is denied the key purpose to mark the word because the term "Bitcoins" has been used
differently by many companies and would not give the public any distinctive characteristics to distinguish its roots. But if the same word has been fusioned with another word or visually changed, it may be
recorded as a trademark. CCs are however a registered label, such as
'Ethereum,' established by an entity.
Tax Implications of CC in
India
The
government almost ignored CCs before Bitcoins' price rose and this year brought
enormous profits to the owners.
Little by little, tax authorities began to issue warnings to Bitcoin
transactions participants. In India,
the only way to tax CC's are not accepted as a legal tender is to regard it as
a capital assets[22]. CCs'
The Income Tax Act 1995 calls "capital assets of any kind owned by
an assessee in connection with his company
or business." "Capital assets"
The concept
is not limited to one property, thus intangible property
such as Bitcoins
may be included. As long as
CCs are used as an investment tool, its benefit as a capital gain can be
taxed[24]. Furthermore, depending on
the time that the property was owned, it may be listed “as long-term or short-term capital asset. The property” is classified as a long-term
asset whether it remains in holding for over 36 months or “it is a
short-term capital asset. The” distinction is significant because in each case
the tax implications are different.
Persons conducting business in CCs will require regular Bitcoin
transactions and these transactions are not considered as capital assets but as "company and occupational profits."
A miner using his machine to aid bitcoins can also be considered as a
business income (including a portion
of the CC) after good testing. But when considering it as a capital asset, the
consequences of the miner's own
output during the mining process will not be taxed, as it spends no expense to
buy the bitcoins. “In the case of the
Commissioner of Income Tax against B.C. Srinivasa
Setty[25], it was noted that the”
calculative process could not be implemented in cases where the purchase cost was not ascertainable. The same may be
true for mining, where a miner cannot determine the acquisition cost.
Challenges
CC
has heavy math, making it the safest form of currency. However, recent case
studies have a different impression.
Mt.Gox lost bitcoins equal to US$620 million in 2014 as a major hack when Japan focused on CC exchange and is said
to have been a result of poor management within the business. [26] The report of the Council of Europe Many cases of
CC thieving/haking have been recorded,
but the CC group has not been greatly discouraged. New security measures were
instead developed and verification
processes were developed to prevent these backgrounds. In such cases, the legal system
of the IT Country and CC acts as guardian
angel; in the case of CC, I.T. rules can be enforced but the CC's multifaceted
characteristics do not suffice. In this section, I will investigate whether
Indian legislation is capable of dealing with CC-related challenges and obstacles. “Under
the Information technology Act, 2000”
,
“computer” means, “any electronic
magnetic, optical or other high-speed data processing device or system which performs logical,
arithmetic, and memory functions by manipulations of electronic, magnetic or optical impulses, and includes
all input, output, processing, storage, computer software, or communication facilities which are
connected or related to the computer in a computer system or computer
network”[27]
Bitcoins
can fall under the responsibility of the computer because: It is a
device that fulfils the definition's functions.
1.
“It is
transacted in a network
of connected computers” through computers.
The
computer-related offences referred to in the Act may also “be used to deal with
CCs. The I.T Act” deals with the following questions:
1.
Hacking —
In accordance with Article 43 of the IT Act, anybody accessing his/her computer device without the permission of the
computer owner. The word "hacking," which gives a broader
significance, was replaced by "computational offences." It can also include
this act:
•
Destruction, removal and misappropriation of device output.
•
Computerized data alternation.
•
Program alternation or violence.
The
“above-mentioned Acts cover everything from the introduction of a virus to the
computer system” to the initiation of
a DSD[29]. The I.T. Act states that such an act shall be declared illegal. It notes that anyone who perpetrates such
actions in a criminal (dishonest and fraudulent) manner is punishable by up to five (5) lakes or the same.
Sections 24 and 25 of the IPC should be interpreted as 'dishonestly'[30] and 'Fraudulently,'[31].
2.
“Identity theft
– Section 66C of the IT Act” considers the use of digital signatures as a criminal
offence unauthorised, fraudulent and dishonest. In this Section, for
instance, if someone mistakes “my
privacy key to access my Bitcoin e-wallet without my permission. Up to 3 years and a
fine”, to be extended to INR One lac, shall penalise the suspect.
In
addition, Section 66D of the Act concerns impersonation as a criminal offence
with respect to an electronic signature. Up to 3 years and a fine may be incarcerated, extending to INR One lake.
7. Cyber-Terrorism– The I.T. Law notes that the purpose
of computer-related crimes is to threaten
India's unity, dignity, stability, sovereignty or terror in the individual population
or any part of it. Section 66F(I)
shall allow for a life sentence of imprisonment. Back to the CCs, the decentralised system and “anonymity
can be misused to” finance terrorist acts that could endanger domestic security
and the economy. CCs are supposedly common and highly
regarded and classified as "security," and a cyber terrorist
could hack into the network and disrupt the system in such a situation. The Indian economy,
the public order and the sovereignty of India could suffer as a result of such
an action.
Bitcoins began the whole wave of CCs and became
a common term for CCs, so it is not easy to prove the uniqueness as it is used by various
businesses in different contexts on the basis of the services they provide in connection with CCs. Thus,
"Bitcoins" is denied the key purpose to mark the word because the term "Bitcoins" has
been used differently by many companies and would not give the public any distinctive characteristics to
distinguish its roots. But if the same word has been fusioned with another word or visually changed,
it may be recorded as a trademark. CCs are however a registered label, such
as 'Ethereum,' established by an
entity.
CC's tax consequences in India
The
government almost ignored CCs before Bitcoins' price rose and this year brought
enormous profits to the owners.
Little by little, tax authorities began to issue warnings to Bitcoin
transactions participants. In India,
the only way to tax CC's are not accepted as a legal tender is to regard it as
a capital asset. CCs' The Income Tax
Act 1995 calls "capital assets of any kind owned by an assessee in connection with his company or
business." "Capital assets" The report The concept is not
limited to one property, thus
intangible property such as Bitcoins may be included. As long as CCs are used as an investment tool, its benefit as a
capital gain can be taxed[24]. Furthermore, depending on the time that the property was owned, it may
be listed “as long-term or short-term capital asset. The property” is classified as a long-term asset whether it remains
in holding for over 36 months or “it is a short-term capital asset”. The distinction is significant because
in each case the tax implications are different.
Persons conducting business in CCs will require regular Bitcoin transactions
and these transactions are not considered as capital assets but as "company and occupational profits."
A miner using his machine to aid bitcoins can also be considered as a
business income (including a portion
of the CC) after good testing. But when considering it as a capital asset, the
consequences of the miner's own
output during the mining process will not be taxed, as it spends no expense to
buy the bitcoins. “In the case of the
Income Tax” Commissioner versus B.C. “Srinivasa Setty[25], it was noted that” the calculative process
could not be implemented in cases where the purchase cost was not ascertainable. The same may be true
for mining, where a miner cannot determine the acquisition cost.
Challenges
CC is encrypted in the most safe type of currencies with heavy mathematical
functions. However, recent case
studies have a different impression. Mt.Gox lost bitcoins equal to US$620 million
in 2014 as a major hack when Japan focused
on CC exchange and is said to have been a result
of poor management within the business. [26] The report
of the Council of Europe
Many cases of CC thieving/haking have been recorded,
but the CC group has not been greatly discouraged. New security measures were instead developed
and verification processes
were developed to prevent these backgrounds. In such cases, the legal system of the IT Country and CC acts as guardian
angel; in the case of CC, I.T. rules can be enforced but the CC's multifaceted characteristics do not suffice.
In this section,
I will investigate whether Indian legislation is capable of dealing with CC-related challenges and obstacles. “computer means all electronic magnetic, optical
or other hi-speed data processing” devices
or systems performing “logical, arithmetical, and memory functions by means of
electronic, magnetic, or optical
pulse manipulation and includes all” connected or related information inputs, outputs,
data processing, processing, software, storage systems or communication facilities.
Bitcoins
are subject to the computer's competence since: it is a device that meets the
functions specified in the specification. “It is transacted in a network of
connected computers” through computers.
“The computer-related offences referred to in the Act may also be used to deal with CCs. The I.T Act deals with the
following” questions:
Hackking — In accordance with Article 43 of the IT Act, anybody accessing
his/her computer device
without the permission of the computer
owner. The word "hacking," which gives a broader significance, was replaced by
"computational offences." “This act may also include: destruction, deletion
and misappropriation of machine output”.
-
Computerized data
alternation.
-
Program alternation or violence.
CONCLUSION
The prone to using bitcoin
in order to disobey national
and international legislation
and to curtail the safety
of sovereign countries is driving action by countries all over the world. Given
the abilities of cryptocurrencies to challenge the ability of sovereign states
to enforce domestic
and international law, each
country should develop its own legislative approach, combining regulatory,
adoption and the prohibition of
specific aspects while participating in an international debate on the
development of a comprehensive cryptocurrency standard.
WEBILOGRAPHY
2.
http://timesofindia.indiatimes.com/city/chennai/LSD-on-stamps-gives-Chennai-youths-a- high/ articleshow/52002896.cms
4. https://www.cryptocoinsnews.com/bitcoin-fraud-becoming-frequent-says-indian-crime-
branch-official/
6. http://www.moneycontrol.com/news/business/markets-business/bjps-kirit-somaiya-terms-
bitcoin-a-pyramid-ponzi-scheme-is-he-right-2245911.html
7. http://profit.ndtv.com/news/currency/article-use-of-bitcoin-illegal-warns-minister-of-state-
for-finance-1674509
8. http://profit.ndtv.com/news/currency/article-use-of-bitcoin-illegal-warns-minister-of-state- for-finance-1674509
9. https://en.bitcoin.it/wiki/Wei_Dai
10. http://www.coindesk.com/documents-offer-clues-to-alleged-bitcoin-creator-craig-wrights-tax- troubles/
Article Information
REGULATORY FRAMEWORK FOR CRYPTOCURRENCIES AND BLOCKCHAIN TECHNOLOGY IN INDIA: A LEGAL PERSPECTIVE
Authors: MR. SIDDHARTH SINGH NEGI, DR. REKHA VERMA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/26
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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