The Legal Status and A Regulatory Framework on Crypto-Currencies in India

Abstract

“A virtual currency is a digital representation of value that can be digitally traded and functions as (a) a medium of exchange, and/ or (b) a unit of account, and/ or (c) a store of value, but does not have legal tender status.1 A virtual currency therefore may be a private medium of exchange, but does not in any way reflect a sovereign guarantee of the value or legal tender status. Crypto-currencies have certain characteristics that make regulation necessary”. They provide a degree of pseudo-anonymity, although not completely inconspicuousness, to contributors in an operation. The crypto currencies and bit-coins are now the order of topic inn various discussions and its primary which is largely anticipated now. The awakening of the 2008 financial crisis brought about a suspicion amongst administrative holders and private banks. This crisis rose in a proximate comprehensive breakdown of the investment systems and led to rescue of insolvent banks, thereby realising a highpoint in lack of economic stimuli including the lowest interest rates. The need of the hour at that point in time was that “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”2 . It therefore has a rational nexus that crypto-currencies and their proposed Peer-To-Peer financial system gained vast acceptance by the investors and consumers at large. Crypto currencies are defined in Merriam Webster dictionary as: “any digital currency that does not have a central issuing or regulating authority and instead employs a decentralised system to record transactions and oversee the issuance of new units, and that relies on encryption to prevent counterfeiting and fraudulent transactions”. Bit-coin was born during this unrestrained period and provided an opportunity to the investors such as traders or businesses to perform their dealings and transactions without the depending upon the banks. Crypto currencies have become the alternate to the regular fiat coins. It is not only the technology or the software that is unique but the entire coin as such is completely new and novel to the entire world for the concept of money. Technically speaking they are not the regular paper/fiat money that we use in traditional methods but are emerging in higher trends due to various important aspects involved in it and that the value is tied up together similar to the gold and silver in this traditional era. At present there are over 10,000 different crypto currencies which are considered as alternate coins or ALT-COINS. However, the question whether the policy-makers and the law making body lags behind the technological developments and stands still when it comes to the regulation of such unique phenomenon in their early stages i.e. whether the law making body and the policy makers lack knowledge in framing laws and regulations is a million-dollar question. The absence of harmonious decision on regulations is reflected on the classification of crypto currencies where one state accords crypto currencies as assets and other states treating it as transfers of payment or computer-generated goods and services. Additionally, the disparity is reflected within the different legal systems followed around the globe as some nation states classify as legal, partially legal by restricting its usage and another sector which says completely illegal, and banned their usage. My prime focus is upon constructing a framework for regulations through the traditional monetary systems as these coins have a skyrocketing growth as their minimal protocol, limitless transactions in limitless time etc. As the saying goes every coin has two sides and so is a crypto currency which carried within itself the threats, security issues and concerns, protocol changes, the rate of speed with which it grows, security breech, cyber thefts and cyber-crimes on the whole largely are more pruned to etc.