The Growth of Cryptocurrency its Challenges and Impact on Legislation in India

INTRODUCTION:

There is no doubt that the era of information and communication technologies has created many golden opportunities in several aspects. A growing number of online users have activated virtual world concepts and created a new business phenomenon. Thus, new types of trading, transactions, and currencies have been arising. One of the remarkable financial forms that have been emerged in the past few years is Cryptocurrency. A cryptocurrency (CC) can be defined as any medium of exchange, apart from real-world money, that can be used in many financial transactions whether they are virtual or real transactions.[1]

THE CRYPTOCURRENCY MARKET: Its Rise in India

Indian investors are back in the cryptocurrency game and how. There has been a sharp increase in trading volumes on cryptocurrency exchanges in India since March 5, when India’s supreme court quashed a Reserve Bank of India’s (RBI) circular that barred banks and other financial entities from providing services to virtual currency dealings. Trading volume on Mumbai-based WazirX, one of India’s leading crypto exchanges, rose 400% and 270% month-on-month in March and April, respectively. Now, the exchange is facilitating around 60 million trades per day as compared to 20 million before March[2]. The past two years were a nightmare for crypto exchanges in India. After the RBI’s decision in April 2018, the virtual currency ecosystem in the country nearly choked, leading to several exchanges, including prominent ones like Koinex and Zebpay, shutting shop. Another hurdle for crypto exchanges to operate smoothly in India is the central government’s hesitancy, including the draft “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill” (2019), which was floated on July 22, 2019, and suggests a ban on all virtual currencies in India. Until the RBI and the government have a change of heart, the path for the cryptocurrency ecosystem in India will remain difficult[3].

STATUS OF GOVERNMENTS ON CRYPTOCURRENCY AROUND THE WORLD:

United States (Friendly): The U.S. has been taking an approach to foster innovation and growth of blockchain and cryptocurrency while protecting investors from high risks and fraud. A couple of months earlier, in December 2017, the SEC took the position that Initial Coin Offerings (ICOs) are subject to U.S. Securities regulations, meaning only accredited investors may participate in ICOs that are not (and almost never are) registered with the SEC. The SEC’s policy is intended to mitigate risk to investors, protect investors from fraud, and hold cryptocurrency projects potentially liable for selling non-registered securities to U.S. investors. Also in February 2018, the Arizona Senate passed a bill that would allow residents to pay income taxes with Bitcoin and other state-recognized cryptocurrencies. Currently, The Internal Revenue Service (IRS) treats cryptocurrency as property, which subjects it to many taxable trading events[4].

China (Hostile): China is notorious for some of the world’s largest bitcoin mines. In 2017, China banned cryptocurrency trading on Chinese exchanges and made ICO fundraising illegal, curving market demand, and causing a large overall downtrend in the cryptocurrency markets. Many Chinese residents turned to use foreign exchanges to trade cryptocurrency instead. The People’s Republic of China appears to be the most stringent cryptocurrency regulator of the major economies regarding cryptocurrencies. Despite China’s harsh stance towards private cryptocurrency trading, the PBC has been conducting research into issuing its own state-run cryptocurrency[5].

France (Neutral): In January 2018, Bruno Le Maire, the French Minister of the Economy, announced the creation of a group to develop cryptocurrency regulations. The group will be responsible for proposing guidelines and drafting regulations to prevent tax evasion, money laundering, financial crimes, and terrorist activities. Le Maire’s stated, “We want a stable economy. We reject the risks of speculation and the possible financial diversions linked to Bitcoin.[6]”

SOME OF THE REAL WORLD LAWS AFFECTING VIRTUAL CURRENCY:

Gift card laws: Some virtual currency providers offer virtual currency on a pre-paid basis. Users and customers can buy pre-paid cards to fund their accounts with virtual currency such as Facebook game cards. This kind of CC is very similar to plastic gift cards since both are used for later redemption and use. Thus, gift card laws are most likely to be applied to cryptocurrency sold as a pre-paid card[7].

CICRA Act: There is some speculation indicate that The Credit Information Companies Regulation (CICRA) Act, which is s into law in India in 2005, is likely to be applied to cryptocurrency due to its huge growth. As per this Act, the credit information of individuals of India has to be collected in consonance with certain regulations as laid down by this Act. Also under the Act, the bodies that collect the financial information can be held liable in case of unauthorized leak of the Data[8].

Taxation: Taxation law in the virtual currency industry varies from country to country. Some countries impose taxes on incomes that are generated from virtual currency transactions and some others have just considered taxation law. In India, if any such instrument is notified by RBI, any trading in it will be subject to The Foreign Exchange Management (FEMA) Act, 1999. The Crypto like bitcoins is deemed a capital asset if they are purchased for investment. Any gain arising on the transfer of a bitcoin shall be taxable as a capital gain. However, if the transactions in bitcoins are substantial and frequent, it could be held that the taxpayer is trading in bitcoins, and the income would be taxable as business income as per the Income Tax (IT) Act, 1961[9].

CONCLUSION:

Cryptocurrency affords a new, high quality, and attractive mannequin of charge methods that can raise companies' and operators' revenues. It additionally provides an alternative approach of payment, aside from actual money, that enables users to make economic things to do such as buying, selling, transferring, and changing easily.

The Cryptocurrency area creates a lot of research opportunities and much research needs to be achieved in order to provide scientific content. The correlation between the actual monetary legal guidelines and the legislative fame of implementing the cryptocurrency platform needs to be studied further from various different prospectives. Moreover, the adoption and acceptance degree also wants extra consideration and greater analysis with large samples. Trust and self-assurance are vital elements that need to be investigated further in terms of the use of and trading the Cryptocurrency forms[10].

This article is authored by Tanzim Surani, a 4th-year student pursuing a 5-year law course [BA LLB (Hons.)] at the GLS Law College, Gujarat University.

Disclaimer: The article is an original submission of the Author. Niti Manthan does not hold any liability arising out of this article. Kindly refer to our terms of use or write to us in case of any concerns.

[1]International Journal Of Business and Globalisation, https://www.inderscience.com/info/ingeneral/forthcoming.php?jcode=ijbg, last accessed on 05/07/2020

[2] https://qz.com/india/1853847/indias-wazirx-coinswitch-see-rise-in-cryptocurrency-investors/, last accessed on, 06/07/2020

[3] Cryptocurrencies make a solid comeback in India: India to significantly increase his crypto market share this year, https://www.publish0x.com/faucets-and-cryptos/cryptocurrencies-make-a-solid-comeback-in-india-india-to-sig-xqokrpj, last accessed on, 06/07/2020

[4]https://districtcourts.lexroll.com/commodity-futures-trading-commission-v-mcdonnell-287-f-supp-3d-213-e-d-n-y-2018/, Last accessed on, 07/07/2020

[5]https://www.researchgate.net/publication/324770908_The_Growth_of_Cryptocurrency_in_India_, last accessed on, 07/07/2020

[6] Ibid.

[7]WORLD CRYPTOCURRENCIES REGULATIONS, https://fintechzoom.com/fintech-news/cryptocurrency-news/cryptocurrency-regulation/, last accessed on, 07/07/2020

[8] Ibid.

[9]REGULATION OF CRYPTO CURRENCY AROUND THE WORLD, http://loc.gov/law/help/cryptocurrency/world-survey.php, last accessed on, 07/07/2020

[10] Ibid.