India: Bitcoin: An Opportunity Or A Challenge?

INTRODUCTION

Arrival of bitcoin in India has led to various issues that are required to be addressed. The bitcoin currency has come forth with a great amount of opportunity for the investors. However on the other hand, it has raised a number of regulatory concerns as far as the question of its misuse is concerned. The absence of any regulation governing bitcoin currency has left many questions unanswered. With the growth of usage in internet and digital transactions, growth of bitcoin and other crypto currencies is inevitable.

The imperative question that needs to be answered is - what will the consequences be if bitcoins are awarded a legal status in India? The status as of now is that various governmental communications indicate that the central Bank i.e. Reserve Bank of India has constantly been advising the citizens is keeping a vigil while venturing out in the transactions pertaining to bitcoin in India. It is also pertinent to mention that bitcoins have been awarded legal recognition in several developed states such as United States.

LEGALITY OF BITCOINS IN INDIA

Reserve Bank of India via its' press release dated December 24, 2013 clarified that creation, trade and usage of virtual currencies is neither recommended nor authorised by the Reserve Bank of India. The relevance of this press release is that it brings forward two points regarding bitcoins and its' legal status in India. First, the status of bitcoins in India is that of an unauthorised currency as far as the central bank is concerned and secondly, the bitcoins have still not been accorded the status of being illegal in India.

The usage of bitcoins in India has led to the fears that it might lead to increase in money laundering in India especially after the demonetisation drive that occurred in India in 2016. For the same reason, the use of bitcoin currency has constantly been on the radar of law enforcement agencies.

TAXABILITY OF BITCOINS IN INDIA

There is also a question of taxability of bitcoins in India. Very recently a controversy surfaced when Income Tax department slapped notices on around five lakh citizens who traded in bitcoin. The reason for the same was that these customers were classified as High Net Worth Individuals (HNIs).

"Just after conducting a survey across Indian Bitcoin exchanges, the Income Tax (IT) department is said to have issued notices to 4-5 lacs high net worth individuals (HNIs) trading on the Bitcoin exchanges, according to PTI."1

LEGALITY OF BITCOINS IN OTHER JURISDICTIONS AND ITS' SUCCESS RATE

"Bitcoin can be transferred from one country to another without limitation. However, the exchange rate against other currencies can be very volatile. This is partly because the price is often driven by speculation, and also because it is a fairly small market compared with other currencies. Some countries explicitly permit the use of bitcoins, including Canada and Australia. It is prohibited in Iceland, which has had strict capital controls since the collapse of its banks during the 2008 financial crisis."2

As mentioned before, bitcoin have been awarded a valid and legal status in select jurisdictions such as the European Union, United States and Canada. In United States, bitcoin have been duly recognised and have been made taxable under the law.

In China, the use of bitcoin is restricted. China has specifically prohibited financial institutions and payment companies from entering into transactions involving bitcoin. "There are currently no laws, rulings, or announcements from regulatory bodies such as the People's Bank of China (PBoC) or the Ministry of Industry and Information Technology (MIIT) on the legality of bitcoin and its trading."3

It is also important to mention in this regard that the European Union has not adopted any overall position in this regard. However, several restrictions were imposed on the use of bitcoin currency in the aftermath of the paris attacks.

Reference to foreign jurisdictions is to assess what India should do as far as the dealings pertaining to bitcoin is concerned. It is reported that due to the element of anonymity with the usage of bitcoin, it has been used very commonly for terrorism financing and drug financing. There have also been concerns regarding bitcoin being used for the purposes of money laundering. With these challenges in mind, India needs to take a call as whether bitcoin should be declared as illegal currency, per se or if it has to be considered to be legal, and under which regulations it can be allowed to be used. Reserve Bank of India has clarified via press release that it does not authenticate the use of bitcoin as a currency. The effect of the same has been that bitcoin is neither legal nor illegal and still it has still not been conferred the status of a valid currency under the Indian Legal System.

BITCOINS: WHAT ARE THE OPPORTUNITIES AHEAD?

A. Real Estate and Government Services

In the field of real estate, processes consume a lot of time and are bound by red tapism. Due to the decentralized nature of the system of blockchain, there could be an absolute disruption of the existing structure of middlemen and other processes including verification and other aspects of compliance requirements such as regulatory compliance.4 Governments in Sweden, USA and Georgia have already decided on exploring for options in this regard.5

B. Legal Services

In the legal services sector, there is a varied applicability of this currency – it can be used for systemising specific obligations such as contractual duties of payment. These can be automated for self-execution on the fulfilment of contractual obligations. This by itself will result in reduction of monitoring resources and other compliance directives. Thus, decentralization in itself would result in the loss of requirement for execution of contracts based on trust. It can be utilised for automation of processes involved in various documentation and other aspects.6

C. Intellectual Property

In a similar mechanism to the one conceptualized in real estate, this form of technology can be used for the storage of records pertaining to intellectual property. Any transaction with regard to transfer and licensing can be established without hassle through the distributed ledger in a transparent manner, with the accompanying rights and other terms.7

It would provide solutions with regard to revenue sharing and rights management amongst various media enterprises. In fact, it is already used for trading amongst gaming companies with regard to gaming content.8

D. Insurance Sector

In the insurance sector, the applications of block chain are especially useful for providers of wholesale insurance wherein all aspects such KYC regulatory compliances and processing of claims can be streamlined and thereby, provide a lean and effective mechanism for the insurance industry.9

Moreover, smart contracts, as projected by Deloitte, can be extremely effective in dealing with faulting error checking and smooth workflow.10

It can also enhance the reach for micro-insurance, as it would facilitate micro-payments based on availability of data from other connected mechanisms.

E. Healthcare

Blockchain as a mechanism can help in streamlining healthcare processes for patients and therein, contain all electronic records of medical profiles and other health monitoring reports of the patient.11 This can be utilised for small payments and automatic disbursal of health related payments under health plans.

RECENT DEVELOPMENTS W.R.T USE OF CRYPTO CURRENCIES SUCH AS BITCOIN IN INDIA

In India, the RBI, SBI and NITI Aayog along with the Secretary of Department of Economic Affairs at the helm, formed an inter-disciplinary committee at the behest of the Government and submitted a report on the regulation of cryptocurrency.12 The Government has encouraged utilisation of the technological benefits of the mechanism as well as cautioned against the likely legal complications due to a number potential grey areas. The Government has to foresee potential fallout occurring due to non-linear aspect of jurisdictional problems which may arise, as payments are international in nature and outside the purview of basic transactional terms. The representatives of the Reserve Bank of India have asserted that the Government is more inclined towards utilisation of fiat currency rather than bitcoins, reflecting the concern of the nodal authorities.13

CONCLUSION

Bitcoin, in itself, is a mechanism borne out of antipathy towards central authority and regulation. It became popular due to its anonymous nature of transaction and is immensely popular among elements at odds with the law. Thus, such a system, most synchronically, draws concern and caution from central financial regulators and the governing authorities.

Bitcoin and its underlying technology boasts of an immense amount of positives against legal or operational challenges, similar to any new form of technology. There are a number of legal grey areas for applicability of this technology. Most essentially, there should not be any regulation put forth in haste as it may only result in hampering innovation. It would be better to read into the various complexities and realise its implications.

However, if it is left unregulated, it might result in widespread confusion amongst the various elements of the system such as the government, courts, commercial entities, etc. It would be best to approach the issues in a measured sense along with representatives of all stakeholders in order to develop best standards and establish maximum benefit.

Footnotes

1. Income tax department to issue notice to 5 lakh high net worth Bitcoin investors: reports (December 18, 2017) (https://yourstory.com/2017/12/now-income-tax-department-issue-notice-5-lakh-high-net-worth-bitcoin-investors-reports/ )

2. Is Bitcoin Legal in the US ( December 15, 2015 ), (https://www.investopedia.com/ask/answers/121515/bitcoin-legal-us.asp )

3. Leonhard Weese, Bitcoin Regulation In China Still Unclear, But Chinese Exchanges Thrive Overseas ( November 29, 2017 ), (https://www.forbes.com/sites/leonhardweese/2017/11/29/bitcoin-regulation-in-china-still-unclear-but-chinese-exchanges-thrive-overseas/#75403ec96487 )

4 .Don Oparah, Blockchain Will Change Real Estate,( TechCrunch, 19 February2016) https://techcrunch.com/2016/02/06/3-ways-that-blockchain-will-change-the-real-estate-market

5. Anthony Couse, ' Disruptive Technology and its Use for Improvement in Real Estate'(Weforum, 16 August 2016) https://www.weforum.org/agenda/2016/08/how-disruptive-technology-could-solve-real-estate-s-transparency-problem

6. CFO Insights, ' Getting Smart about Smart Contracts' (Deloitte Journal,23 June 2016) http://deloitte.wsj.com/cfo/2016/06/23/getting-smart-about-smart-contracts/

7. https://monegraph.com/

8. http://ownage.io/

9. BI Intelligence, 'How Blockchain can help Wholesale Insurance Industry'(Business Insider, 3 August 2016) http://www.businessinsider.com/heres-how-blockchain-can-help-the-wholesale-insurance-industry-2016-8?r=UK&IR=T; see also 9. BI Intelligence, 'How Blockchain can help Wholesale Insurance Industry'(Business Insider, 3 August 2016) http://www.businessinsider.com/heres-how-blockchain-can-help-the-wholesale-insurance-industry-2016-8?r=UK&IR=T; see also https://proofofphysicaladdress.com/

10. John Ream, Yang Chu, David Schatsky, 'Upgrading Blockchains' (Deloitte Dupress, 08 June 2016) http://dupress.deloitte.com/dup-us-en/focus/signals-for-strategists/using-blockchain-for-smart-contracts.html?top=4

11. Id.

12. Sukanya Mukherjee, ' RBI Looking for Cryptocurrency Policy' (Inc42,14 October 2017) https://inc42.com/buzz/rbi-cryptocurrency-policy-bitcoin/ (last visited November 26,2017)

13. Beena Parmar, 'RBI wary of Bitcoins' (Money Control, 13 September 2017) http://www.moneycontrol.com/news/business/economy/rbi-looking-at-cryptocurrency-but-wary-of-bitcoins-reserve-bank-executive-director-2386489.html

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions