“Bitcoin and crypto currency have as much of a future as the internet itself.”
– Christine Lagarde
Cryptocurrencies are now emerging as hotbeds of speculation. India is a nation with more than a billion people who had lately experienced demonetization. This was the time when Indians in large number started capitalizing their cash in Bitcoin and proceed to owe them now. This spike made some tech-savvy citizens to purchase Bitcoins as well as accomplish something with the blockchain protocol itself. The crypto network is growing at a rapid pace but until today there is no clear policy or regulation to regulate the same. The stand taken by government, banks, and courts have been unclear.
In a country like India, where we value everything by its monetary worth, the sure-shot way to beat cash is to make currency that is more valuable than cash. A crypto exchange and a wallet that would allow hundreds of millions of citizens to become part of the crypto economy will be a great leap for the entire blockchain community.
What is Cryptocurrency?
- A cryptocurrency is a digital or virtual currency that uses cryptography for security, which is created and stored electronically in blockchains.
- It uses encryption techniques to control the formation of monetary units and to authenticate the transfer of funds.
- It has no physical form and is not redeemable for another commodity like gold.
- Its supply is not determined by any central bank or authority and the network is completely decentralized, rendering it theoretically immune to government interference or manipulation.
What are the most common cryptocurrencies?
Bitcoin: Bitcoin was the first and is the most commonly traded cryptocurrency to date. The currency was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed its blockchain. It has a market capitalization of around $230 billion as of December 2017.
Ethereum: Developed in 2015, ether is the currency token used in the ethereum blockchain, the second most popular and valuable cryptocurrency. Ethereum is a decentralized software platform that enables, smart contracts and Distributed Applications to be built and run without any downtime, fraud, control or interference from a third party.
Litecoin: This currency is most akin in form to bitcoin, but has moved very quickly to develop new innovations, including faster payments and processes to allow many more transactions. The total value of all Litecoin is around $5 billion.
Dash (Digital Cash): Dash Currency is another secure way to transact. It uses anonymization technology. Dash Cryptocurrency is more secure and fast. It was earlier known as DarkCoin, but now they have changed the name to prevent people from assuming its connection with the Dark Web.
Ripple: Ripple is actually an RTGS (Real Time Gross Settlement System), a Currency Exchange and Remittance Network. It is also used by many banks to reduce costs. It’s not very secure if you don’t want to get traced. is another distributed ledger system that was founded in 2012
Dogecoin: This cryptocurrency is widely used to give charity or collect the donation. It was initially made as “Joke Currency”, but now has gained much popularity.
MaidSafeCoin: You can exchange Safecoin for providing resources, like your Storage Space, CPU, Bandwidth etc.. The Process of getting Safecoin and providing resources is called Farming.
Why would you use a cryptocurrency?
We can use Crypto Currency as the real currency since it’s another medium of exchanging things, but the real money is printed on paper and we can keep it with us physically. Crypto Currency is generated and stored electronically which we can save only on our computers or websites. With Crypto Currencies, can we not only just shop online and purchase virtual things like domain, hosting, or some internet service, but also buy physical goods and services too.
Cryptocurrencies are known for being safe and providing a level of anonymity. Transactions in them cannot be forged or reversed and there tend to be low fees, making it more reliable than conventional currency. Their decentralized nature means they are available to everyone, where banks can be exclusive about who they allow to let open accounts. As a new form of cash, the cryptocurrency markets have been known to boom suddenly, meaning a small investment can become a large sum overnight.
How to obtain cryptocurrencies?
The two main way of obtaining cryptocurrency is either by mining or trading. To be miner it requires specialized computer systems and the easiest way to obtain cryptocurrency is through the hundreds of exchanges where they allow trade with cryptocurrencies and fiat currencies. Whichever method of payment is used it is a straight transaction at the current value market. Cryptocurrencies can also be bought person to person and these transactions are normally through the exchange platforms.
The cryptocurrency that is chosen to trade with is kept in a wallet. This wallet is available to the trader wherever they are and on any device either computer or mobile. The trader can use the cryptocurrency in the wallet to exchange for fiat currency or cryptocurrency.
In India, bitcoin trade is carried by unregulated digital exchanges that amount to 11 in number according to Tax Department estimates. People are investing in money expecting huge returns as Bitcoin recorded an increase in price from just $1000 in January 2017 to $15000 at the end of 2017.
But anytime a burst can happen. In that case, investors will lose their money. As Bitcoin has entered a bubble phase and speculators have shown a big interest in several other crypto variants, the RBI and Finance Ministry have come with timely warnings against dealing with cryptocurrencies.
RBI, as the central Bank, issues money/payment related warnings on VCs. Regarding the asset/trading security side, the government and SEBI are giving their own attention. Similarly, the tax Department is inspecting the actions by investors to check the tax implications.
Tax Department on VC investment
The Tax Department warned that it is scrutinizing the activities of High Net-worth individuals and purportedly issued tax notices to them. What materials for the Tax Department is the tax impact of the gain made by investors while they invest in VCs? Income Tax Department has launched surveys in the cities of Delhi, Mumbai, Pune, Bengaluru, and Hyderabad. Investment and gain in cryptocurrency gain are subjected to capital gains tax as in the case of other assets. In the next budget, the government is likely to bring a controlling approach in this regard.
Crypto Currencies vs Digital Currencies
- MEANING: Cryptocurrencies are digital currencies that have been created through cryptography and the main attraction of using cryptocurrencies is the anonymity and lower fees.
A digital currency is a currency that represents any fiat currency is used to transfer between banks but generally draws high fees from the banks and it is completely traceable.
- TRANSFER OF FUNDS: When funds are transferred using the normal banking procedures not only can it takes days but it is normally associated with high fees. It is controlled by the banks and there is also the discrepancy of exchange rates which change on a daily basis. For personal amounts, most countries will have a daily limit and if the amount requires more than one transaction to pay for a certain item it attracts fees each time.
With cryptocurrencies, none of the above is applicable except for the fees however the fees that are associated with the transfer of cryptocurrencies are much less than what the banks charge. There is also no limit on the amount that you can transfer, no exchange differences and they are almost instantaneous.
- ANONYMITY: Whether you are doing a payment from a credit card, debit card or a wire transfer over the internet all the details of the sender and receiver are disclosed.
With cryptocurrencies, this is not the case because the transactions cannot be traced to the sender or the receiver which is the main attraction for people to use cryptocurrencies. This feature of using cryptocurrencies allows privacy, unlike digital transfers where both the sender and receivers personal details need to be declared.
- NO LIMITATIONS: Cryptocurrencies are not limited to any country, unlike credit cards whereby some countries do not admit transactions from several countries and the same applies to the banks. Most countries in the world permit cryptocurrency exchange platforms; therefore, a person is able to do transactions globally without worrying about the government regulations.
- VALUE: The value of cryptocurrencies is not regulated at all by banks but by supply and demand alone. As cryptocurrencies have a limited amount that will be created such as Bitcoin which will be limited to 21 million it is predicted that the value will increase for the foreseeable future.
Digital currencies are controlled by governments and are interrelated to the value of the Fiat currencies of a country. The value of these currencies is structured by a number of notes in circulation and the central banks. Therefore the value depends on how well the central bank controls the amount that is in circulation and inflation.
- TOTAL CONTROL: With cryptocurrency, a person acquires it through an online exchange or mining and then deposited into a digital wallet. This wallet is available to the user as long as they have an internet connection and can be used to pay for goods no matter where they live. Basically, the person is their own banker and has complete control over their funds and how to use them. Digital currencies do not allow people to do this as it is regulated by the government and the banks.
What does the future hold?
Acquiring cryptocurrency is only the first step towards building a blockchain enabled India. There is scope for more applications than there are actual blockchain use cases.
It’s been nearly five years since its India debut, bitcoins are now coming of age here, with traders gearing up for a giant leap. Indian exchanges of the digital money are gearing up to launch bitcoin futures early next year; but first, they want to integrate other cryptocurrencies such as Ethereum, Ripple, and Bitcoin Cash (BCH) on their platform.
There are about 1,000 alternative coins in the global market out of which Ethereum being the most popular one. Many Indians are trading in cryptocurrency due to their higher volatility. Right now, people buy bitcoins from Indian exchanges and then convert them into other cryptocurrencies from international exchanges.
Legality of cryptocurrency
The status of cryptocurrency is in a curious limbo—they’re neither legal nor illegal in India.
On Nov 30, 2017, when investor frenzy was at a high with growing bitcoin prices, finance minister Arun Jaitley held that the country doesn’t recognize cryptocurrencies as legal tender.
The fundamental stand of the RBI about bitcoin and other cryptocurrencies is that they are not legal tender currencies. They can’t be used for payments as usual currencies. Rather, they have huge risks without any directives and care. The RBI has issued warning three times – first in December 2013, followed by February 2017 and last on December 5, 2017. The initial caution by the RBI in 2013 describes why investment in virtual currencies like Bitcoin is risky.
However, this doesn’t immediately render these currencies illegal.
“Not being legal tender is not the same as it being illegal,” explained Rishabh Sinha, a counsel at law firm TRA. “The difference is that if it’s a legal tender that means it is recognized in the country as a currency and can be freely accepted for payments and settlements. On the other hand, if it is not a legal tender that means that it may not be accepted for making a financial transaction. For instance, gold or a share certificate, these are not legal tenders but some people may accept it as they see value in it.”
Currently, there are no regulations on these virtual currencies. So, by emphasizing that they are not legal, but without declaring them illegal, the government has put them in the grey zone.
Future of crypto?
Since crypto is acquiring so much attention worldwide, I think that the blockchain will have a prosperous future, this is because its importance goes far beyond bitcoin and payment transactions.
Bitcoin might not be necessarily used as a method of payment (as it depends on many factors), but primarily it will be used as a store of value. However, it will face much more competition as a payment method because some banks could issue their own cryptocurrency, while the current ones will remain a trickle.
Bitcoin has sparked a debate about its future and that of other cryptocurrencies too. Despite Bitcoin’s recent issues, its success since its 2009 launch has inspired the conception of alternative cryptocurrencies such as Litecoin, MintChip, and Ripple.
The future of blockchain based cryptocurrencies is vivid and people do see that blockchain is the way ahead as the decentralized and hybrid apps will take over the market in the coming years. Considering the present debate, it won’t be at all difficult to even imagine companies paying salaries in bitcoin or other cryptocurrencies in the coming years.
- Fast and Global
- There are no chargebacks
- High degree of privacy
- Easy and Fast Payment
- Low or No Fees
- No Fraud
- Irreversible Payment
- Not Widely Accepted
- Losing Your Wallet
The emergence of Bitcoin has sparked a debate about its future and that of other cryptocurrencies as well. The future of this market has its roots in complete uncertainty. Cryptocurrency has the power to change the entire globe and hence I think it’s rightly said that the future of cryptocurrency is as much as the internet. Bitcoin’s success or failure in dealing with the challenges will surely affect the fortunes of other cryptocurrencies in the coming years.
The revolution is already happening and thus cryptocurrency can be expected to do to banks what e-mail did to the postal industry and therefore the cryptocurrency can be expected to be a dawn of new economy.
– Sonika Choudhary
Content Writer@ Legal Bites