The evolution of currency- the medium of exchange, has gone from barter exchange to paper currency and now to virtual currencies which includes bitcoins, ether, etc. The accelerated use of these cryptocurrencies has the sky as its limit. As of 2018, there are more than 1600 Cryptocurrencies available in use and many more in the coming future.
The mechanism used in Cryptocurrency is Cryptography. It is mathematics used to encrypt and decrypt data. Today, the algorithm used is SHA256. It helps one to transmit data over insecure networks that encrypts and decrypts data only for the intended sender and the recipient. A Cryptographic algorithm or cypher is used for the process. The cryptography works by relying on the public key and private key to transfer the data from one person to another and is signed cryptographically every time it is transferred. The networks are faster and independent of a central regulator, unlike the modern paper currency. The transaction costs involved are minimal or negligent. A unique feature about these currencies is that there is a limit on the number of units of each of them that exist, for example, the maximum amount of bitcoins that can exist is 21 million beyond which they cannot be produced. On the contrary, the use of these currencies on the dark web has only resulted in huge frauds. The frequency of such transactions has attracted the attention of numerous powerful regulatory and other government agencies such as Financial Crimes Enforcement Networks (FinCEN), the SEC, the FBI and the Department of Homeland Security (DHS).
In India, the support for using these currencies has not been up to the mark. The Reserve Bank of India in its circular dated April 6, 2018 talks about the Prohibition on dealing in Virtual Currencies (VCs). It primarily cautioned the traders, users and holders of the virtual currencies such as bitcoins about the associated risks that come along with its use. The risks mentioned included funding of terrorist organizations, purchasing and sale of illegal arms, products, money laundering etc. The circular barred financial entities that were regulated by the Reserve Bank of India from entering into any transactions involving Cryptocurrencies. In 2015, in case of the United States of America v. Ali Shukri Amin, the arrest of a seventeen-year-old boy – Ali Shukri Amin from Virginia, USA, tweeted about the use of bitcoins, to mask the provisions of funds of the Islamic State in Iraq and the Levant (ISIL), a designated foreign terrorist organization.
In February 2019, the Government Of India passed a Bill called – Draft Banning of Crypto Currency & Regulation of Official Digital Currency Bill, 2019. The bill mainly mentioned about the basic meaning of certain terms, the prohibited transactions, the regulation of foreign digital currency and the Indian digital rupee, the prohibition on using Crypto Currency for certain transactions and how it cannot be used as a legal tender or currency in the country, the investigating authority and other miscellaneous provisions. The Bill is yet to be implemented.
On March 4, 2020, the Supreme Court of India in the case of Internet and Mobile Association of India v. Reserve Bank of India – the Apex Court lifted the functional ban on operating transactions involving CyrptoAsset exchanges, thereby striking down the Reserve Bank of India circular dated April 6, 2018, titled ‘Prohibition on Dealing in Virtual Currencies (VCs). Several Cryptocurrency platforms had shifted their base from India to Singapore after 2018 circular and post the judgement they were looking back to move to India and expand the base. After the judgment, all the banks could legally open bank accounts for individuals and link them to the Crypto Currency platform to facilitate trading.
Further, on March 6, 2020, the Reserve Bank of India filed the review against the Supreme Court order on March 4, 2020 as they the Central Bank were worried about the banking system being at risk due to the trading in these currencies.
In May 2020, the Crypto exchanges wrote to the Reserve Bank of India enquiring about roles as lenders post the March 2020 judgement due to the lack of clarity from the regulator. The queries included whether they would get taxed under the Goods and Services Tax (GST) framework, whether they are to continue denying banking services, etc. In the past, the indirect tax department had launched an investigation into the Bitcoin Exchanges to ascertain the rate of GST to be levied on them.
Later in June 2020, a note to ban Crypto Currencies in India was circulated for internal ministry consultations which would later be presented in front of the cabinet after various consultations and then in front of the Parliament. It is uncertain whether the ban on Crypto Currencies laws will formulate into an Act and be further implemented.
Recently, in Manhattan, the founder of a Crypto Currency firm admitted to duping investors for an amount of $25 million. The founders were misleading investors by claiming to have made a debit card to use the digital currency at any place that accepted Visa or Master card. The trial for the same is scheduled to be held in November. They lied about having educated CEO from a reputed institution. Lately, Wirecard a German digital Company used for digital payments has filed for insolvency due to a hole of $2.1 Million in their finances. The debit cards of Crypto.com and TenX customers have been frozen for their use in Europe and the UK due to the application. Cryptocurrency is the future, a thriving economy, an evolving technology. The ease to use and transfer funds through these payment methods have made transactions possible in a very fast and easier way. Various countries around the world are exploring the possibility to launch their own national digital currency. This kind of currencies will always be volatile i.e., they will always be very vulnerable to the changing market around.
There are speculations that the use of bitcoins is going to increase with the increase in its awareness and it being accepted by the consumers. People do not have enough knowledge about the concept of Crypto Currencies. As it is very correctly said, “Half knowledge is dangerous than no knowledge.” They only know about the risk that these currencies carry but with high risks come high profits. While the number of merchants or traders who accept CryptoCurrencies are increasing day by day, but still they are very much in minority. It will be easier for the technologically savvy consumers to adjust to the change.
For these currencies to be widely accepted and be a part of the mainstream financial system they have to meet with every checkbox for the customers to understand it easily and safely with adequate customer safeguards and without it being a conduit for tax evasion, money laundering, etc. There is a remote possibility for all of these checkboxes to be met which is why the leading Crypto Currency Bitcoin’s failure or success determines the future of other currencies. The mindset while investing in the virtual currencies should be the same as the mindset while investing in any other highly speculative investment. At the time of investing one should know that there are high chances of losing most of the investment if not all. A Cryptocurrency has no intrinsic value other than the value that the buyer is willing to pay at that time which makes it very susceptible to the huge price swings. It is a gamble one
will take when they invest in these currencies.
In the future, there are going to be various laws and regulations that will decide the legal requirements for the regulation of these currencies. The growth from the beginning till date has been tremendous and according to the experts, it shall continue growing in the same manner. Due to the Coronavirus Pandemic, there has been a great impact on the Crypto Currency Industry. Governments all over the world should take bold measures for its regulation and trade. Till these currencies are institutionalized, legalized and regulated, this industry will struggle to survive in this economic crisis where the economy of the entire world has been on the ventilator. Hopefully, over the years this currency revolution will be more positive and with a better standing in the market
being in circulation and demand.