INTRODUCTION

Crypto currency was first introduced in 2007, a sort of an experimental digital platform to transfer money using the digital medium in a format of its own. A decade later, given the multitude of developments which have been brought about by technology in recent times, the significance of crypto currency has grown.

The major reason for the growth in significance of the digital form of currency lies in its nature since it can be used with ease and without any geographical or political boundaries. While the changing times have witnessed a mammoth rise in the manner of use of the crypto-currency, we still need to ascertain the feasibility this currency and what kind of stability it can offer? Various leading national banks of several countries including the Reserve Bank of India (RBI) have raised their concern over similar factors like stability and regulation of the currency. While, no clear guidelines are available on the use of Bitcoins or any other digital or Crypto Currency it is also difficult to ascertain legal implications and accountability of the same.

WHAT IS BITCOIN?

Technically, Bitcoin is a set of computer codes based on an algorithm which was designed by a mysterious person Satoshi Nakamoto (no clear information or whereabouts have been able to ascertain the correctness of this information). The creation, transfer and trade of Bitcoins are based on an open source cryptographic protocol managed in a decentralized manner.

The network of bitcoin shares a public account book called the "block chain" which contains information about the transactions which are carried out thereby allowing other users to verify the authenticity of the same. Every transaction is trailed using a digital cryptic signature which contains all the crucial information about the person initiating the sequence of trade. The level of security is essential to people and the process is completed using a specifically designed computer hardware, the process known as "mining".

INTERNATIONAL USE OF BITCOIN

Bitcoins are traded in several countries even where their exchange is banned. However, some countries where bitcoin usage is allowed are:

  1. China
  2. Japan
  3. United States
  4. Poland

In India, although notices have been issued by the RBI regarding the trade of Bitcoins, it is noteworthy to see that people in India are using the currency. Though India doesn't have a bitcoin exchange of its own but people have around 25000 wallets which they use for trading Bitcoins online.

LEGAL POSITION IN INDIA

At present, there are no regulations governing virtual currencies like Bitcoins in India. RBI, on December 24 2013, issued a press release on virtual currencies like Bitcoins, litecoins, bbqcoins, dogecoins - stating that creation, trade and usage of virtual currencies as a medium for payment is not authorized by any central bank or monetary authority.

Further, the RBI has started to monitor the use and trade of virtual currency traders and users as they pose various security risks such as hacking, malware attack etc.

In India, Bitcoins are neither legalized nor are they authorized to be used via official channels.

THREATS

As per the information available, the use of such currencies poses the following threats and risks:

  1. Unregulated currencies in any format shall be taken down for irrationally affecting the trade sector.
  2. Crypto-currencies are viable threats from insurgence which could directly/indirectly inflate or deflate the value of currency leading to severe impact over the economy of any nation.
  3. The lack of geographical boundaries make the crypto currency a safe haven for money launders as no trails of the transaction can be found after it has been completed.

SPAN OF USE

As the Bitcoins are not authorized for use, as a source of currency, there are certain provisions regarding the legalization of their use. Under the Foreign Exchange Management Act, 1999, currency is defined as "all currency notes, 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." According to the definition, RBI has the power to include Bitcoins within the definition of currency.

Currency other than "Indian currency" is termed as "foreign currency", and regulated by foreign exchange laws. Most likely Bitcoins can be governed by foreign exchange laws. Further, Bitcoins can also be included within the definition of "security" which states that "such other instruments as may be declared by the Central Government to be securities".

Further, the Indian Copyright Act, 1957, defines the term "computer programme" as "a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result".

Having gone through the various definitions, it can be concluded that there is enough scope for legalizing Bitcoins. We need to watch out for the approach the Indian government takes.

CONCLUSION

As Bitcoins continue to gain importance and recognition; certain issues need to be answered:

  1. Is bitcoin an investment?
  2. Can it become a viable currency?
  3. Can other "crypto currencies" compete with or supplant bitcoin?

As the Bitcoins involve a high level of ambiguity, the usage cannot be deemed to be fool proof.

Although the Bitcoins are available for use in the digital sector, the peer to peer payment mechanism seems way too volatile to incorporate the essence needed for the existence of the currency.

India will need to upgrade the technical infrastructure in order to commence the use of such currencies in the country.

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