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BITCOIN- THE VIRTUAL CURRENCY; CONCEPT, UNDERSTANDING AND POSITION IN INDIA
WHAT IS BITCOIN?
Bitcoin is a cryptography based digital currency first described in a 2008 paper by a single or group of pseudonymous developer(s) by the name of Satoshi Nakamoto, who called it a “peer-to-peer, electronic cash system”. Bitcoin creation and transfer is based on an open source cryptographic protocol and is not managed by any central authority. Each Bitcoin is subdivided down to eight decimal places, forming 100,000,000 smaller units called satoshis. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. The processing of Bitcoin transactions is secured by servers called Bitcoin “miners”. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer file sharing technology, also known as the “block-chain”. The integrity and chronological order of the block-chain is enforced with cryptography. In addition to archiving transactions, each new ledger update creates some newly-minted Bitcoins.
Each user of Bitcoin gets a digital wallet and a Bitcoin address which is the address of that user, from and to which Bitcoins can be transferred once this address is given to anotherparty for the transfer. A transaction or transfer of Bitcoins is simply a transfer of value between Bitcoin addresses that gets included in the blockchain or the system log, which ensures that each transaction is valid and that nobody can use his or her Bitcoins more than once i.e. it avoids double spending. Bitcoin wallets keep a secret piece of data called a “private key”for each Bitcoin address. Private keys are used to sign transactions, providing a mathematical proof that they have come from the owner of the addresses. The“signature” also prevents the transaction from being altered by anybody once it has been issued.
RECENT NEWS AND DEVELOPMENTS IN BITCOIN INDUSTRY IN INDIA AND ABROAD:
· The US Government has just given the green light for people to make political donations using bit coins.
State of Califormia, US has made the use and acceptance of bitcoin legitimate, the government has also passed relevant legislation governing the same.
Apple is finally getting ready to allow apps that deal in Bitcoin and other digital currencies in its app store.
The Co.purse.io is marketing its services at people who would like to buy items at Amazon using Bitcoins.
Xapo a bit coin wallet provider may be launching its much awaited Bitcoin debit card in June 2014.
Bitcoin ATM’s have paved their way in many countries such as Africa, Hong Kong, Singapore, South Korea in Asia; Melbourne and Nimbin in Australia; Czech Republic, England, Finland, Germany, Ireland in Europe; Canada, Mexico and United States in North America and many other countries as well.
Dish is world’s largest company to accept Bitcoin.
Highcart.com an Indian online e-commerce website is also accepting payments in Bitcoins.
The largest company in World to accept Bitcoins is Block chain. info. The CEO of the company is paying its employees in Bitcoins.
India has also got its first real-time Bitcoin Exchange by the name of Millibits. The url is https://millibits.in
FEATURES AND USAGE OF BITCOIN
Ø Features of Bitcoin
· It’s decentralized-: The Bitcoin network isn’t controlled by any central authority. It is a system generated currency which is not regulated by any authority.
· Easy to set up-: One can set up a Bitcoin address in seconds and with no fees payable. The procedure is not that lengthy or difficult as it is for opening up conventional accounts.
· Completely Transparent-: Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours. It is a completely transparent channel.
· Low Transaction Fee-: The conventional banks charge lot of money for International transactions. Bitcoin charges zero or minimal fee.
· Fast-: You can send money anywhere and it will arrive within a time frame of approx ten minutes.
· Non-repudiable-: When the Bitcoins are transacted/sent to the other person, there are no charge back or any way of getting them back, unless the recipient returns them to you. So cancellation of the transaction by the sender is not possible,reducing the worry of the vendor/ merchant that transaction might be cancelled.
Ø Use of Bitcoin
· To Buy Goods: bit coins can be used to buy many types of goods ranging from electronics, jewellery, merchandise, books etc. Amazon.com, e-bay, highcart.com etc are some of the merchant sites which deals in trading of goods in exchange of bitcoins.
· To Avail/Pay for Services: bit coins can be used to avail services ranging from simple food supply to business dealings. Use of bit coins is seen in many sectors from hosting websites to online gaming services which includes Wordpress, X Box live, Play Station Network etc.
· Gift Cards: Many US companies like Gyft, eGIFTER, ITradeBTC and GiftCardZen provides bitcoin gift cards to their customers, which when gifted can be used in turn to deal with major retailers like Wall Mart, Amazon, Nike etc.
· Debit Cards: As mentioned in news section, Xalo is the first company to launch Bitcoin debit card
· Payment of Remuneration in Bitcoins: As mentioned in news section, many companies have started paying their employees remuneration/salary in bitcoins. This can also be taken as a revolutionary step towards emerging utility of bitcoin, all over the World.
· Apps purchases by Bitcoins: As mentioned in news section, Apple has recently announced that it is remodeling its payment structure to accept payment in bitcoins also.
· Replacement of FOREX Card With Bitcoins: As stated in news section, many countries have launched or installed bit coins ATMs. bitcoin users can access their bitcoin wallets to withdraw/transfer their bitcoins, anywhere in the World.Such international transactions by medium of bitcoins will not attract thebanking transaction fee.
BITCOIN PRICE CHART
(Please access the attached document to see the Image)
The author has been following the price index of the Bitcoin for a while. The price chart of the last one year is attached above. The Bitcoin price index has seen sudden upsurge in the month of Oct, 2013 to Dec, 2013 increasing the bitcoin price from $100 to all time high of $1,147 which is a phenomenal increase of more than 1000%. Later, due to Mt. Gox Exchange the price of the bitcoin surged to the level of $360 in the month of April, 2014 and currently as in the month of June, 2014 it stands at a price of $650.
Ergo, the price of the Bitcoin is volatile, however, the rise in the investment and the suddenupsurge of the news in the Bitcoin industry has made Bitcoin price rise from$360 to $650 just in a matter of 2 months.
In view of author, volatility in price of bitcoin is noticed when there is announcement of a news or when a major conference is held to discuss the development and future of bitcoin. The next conference is in London, UK on 10-11 July, 2014.
POSITION OF BITCOIN UNDER INDIAN LAW REGIME
With this very basic and brief understanding of Bitcoin, we have tried to examine whether Bitcoins should be treated under Indian law as (i) currency, (ii) security and various Legislative Acts. The examination of the mentioned terms is required in order to understand the exposure/applicability of the present Indian Law.
(i) IS BITCOIN DEFINABLE AS CURRENCY UNDER INDIAN LAW?
Indian laws do not define digital currency or virtual currency, therefore we have tried to look into the definition of currency as defined under section 2(h) of the Foreign Exchange Management Act, 1999 (“FEMA”) to see if Bitcoin falls in that definition. The term currency is defined as follows:
“currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, creditcards or such other similar instruments, as may be notified by the Reserve Bank;
(ii) ARE BITCOIN DEFINABLE AS SECURITIES?
In order to determine whether the operation of the term “securities” is defined in section 2 (h) of the Securities Contracts (Regulation) Act, 1955 in the following manner: “securities” include —
(i) shares, scrips, stocks, bonds,debentures, debenture stock or other marketable securities of a like nature inor of any incorporated company or other body corporate;
(ia) derivative;
(ib) units or any other instrument issued byany collective investment scheme to the investors in such schemes;
(ic) security receipt as defined in clause(zg) of section 2 of the Securitisation and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002;
(id) units or any other such instrument issued to the investors under any mutual fund scheme;
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to be securities; and
(iii) rights or interest in securities;”
It is clear from a bare reading of this definition that Bitcoin does not come within the definition of Currency as well as it does not fall under the gamut of any of the parts of the definition of securities as well. However, the wording“or such similar instruments, as may be notified by the reserve bank” under the definition of Currency and clause (iia) of the definition of Securities, means that the RBI has the power to include any such instrument within the definition of the term Currency and Securities.
Further, the author has tried to look into various Legislation Acts i.e. SEBI, IPC, Information Technology Act, Prevention of Money Laundering Act and has observed that the operations of Bitcoin in India are neither barred nor consented tounder any of these Acts.
However, Section3 of the PMLA includes a person who is even involved in any process or activity connected with the proceeds of the crime and projecting it as untainted property. Therefore, the prosecution under the PMLA lies in a very grey area and a very thin line lies between the prosecution and exoneration under PMLA.Therefore, any exchange or trader dealing into buying or selling of Bitcoins needs to comply with all the regulations, procedures and requirement asenshrined under various Legislative Acts.
POSITION OF BITCOIN IN INDIA
As discussed above the operation, use, trading of Bitcoin in India is still unknown.Recently RBI has issued a press release bearing number 2013-2014/1261 vide circular dated 24.12.2013 wherein RBI has cautioned the consumer in general that Bitcoin is not regulated or controlled by RBI and poses certain difficulties in implementation. RBI also stated that it is presently examining the whole issue however, no news has been heard from RBI since December, 2013.
As per the view of author RBI has issued the said circular to wash off their hands from any risks arising out of use of Bitcoins by the consumers however, they are still looking into the issue stringing the investors in doubtful mind.
CONCLUSION:
As per the research and understanding of the author trading, acceptance, dealing in exchanges or any other activity related to Bitcoins are not illegal in India however, there no certain provisions governing the regulation or activities related to Bitcoins as well. Therefore, the legality of Bitcoins in India remains in grey area. Also, in view of the author and the tremendous upsurge inthe acceptance of the Bitcoin, by many vendors/merchants i.e. from Fortune 500 companies to local vendors, is greatly appreciated and is on the rise. Also,the volatility in the price of the Bitcoins may attract or caution many people into entering into the Bitcoin market.
Ergo,the volatility, acceptance and adaptation shown by the people around the world cannot be ignored and in view of the author the Bitcoin industry will pave its path by gaining the trust of people over the period of time and being regulated/accepted by the government authorities as well however, till date itremains as a silent q in the minds of people.
WHAT IS BITCOIN?
Bitcoin is a cryptography based digital currency first described in a 2008 paper by a single or group of pseudonymous developer(s) by the name of Satoshi Nakamoto, who called it a “peer-to-peer, electronic cash system”. Bitcoin creation and transfer is based on an open source cryptographic protocol and is not managed by any central authority. Each Bitcoin is subdivided down to eight decimal places, forming 100,000,000 smaller units called satoshis. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. The processing of Bitcoin transactions is secured by servers called Bitcoin “miners”. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer file sharing technology, also known as the “block-chain”. The integrity and chronological order of the block-chain is enforced with cryptography. In addition to archiving transactions, each new ledger update creates some newly-minted Bitcoins.
Each user of Bitcoin gets a digital wallet and a Bitcoin address which is the address of that user, from and to which Bitcoins can be transferred once this address is given to anotherparty for the transfer. A transaction or transfer of Bitcoins is simply a transfer of value between Bitcoin addresses that gets included in the blockchain or the system log, which ensures that each transaction is valid and that nobody can use his or her Bitcoins more than once i.e. it avoids double spending. Bitcoin wallets keep a secret piece of data called a “private key”for each Bitcoin address. Private keys are used to sign transactions, providing a mathematical proof that they have come from the owner of the addresses. The“signature” also prevents the transaction from being altered by anybody once it has been issued.
RECENT NEWS AND DEVELOPMENTS IN BITCOIN INDUSTRY IN INDIA AND ABROAD:
· The US Government has just given the green light for people to make political donations using bit coins.
State of Califormia, US has made the use and acceptance of bitcoin legitimate, the government has also passed relevant legislation governing the same.
Apple is finally getting ready to allow apps that deal in Bitcoin and other digital currencies in its app store.
The Co.purse.io is marketing its services at people who would like to buy items at Amazon using Bitcoins.
Xapo a bit coin wallet provider may be launching its much awaited Bitcoin debit card in June 2014.
Bitcoin ATM’s have paved their way in many countries such as Africa, Hong Kong, Singapore, South Korea in Asia; Melbourne and Nimbin in Australia; Czech Republic, England, Finland, Germany, Ireland in Europe; Canada, Mexico and United States in North America and many other countries as well.
Dish is world’s largest company to accept Bitcoin.
Highcart.com an Indian online e-commerce website is also accepting payments in Bitcoins.
The largest company in World to accept Bitcoins is Block chain. info. The CEO of the company is paying its employees in Bitcoins.
India has also got its first real-time Bitcoin Exchange by the name of Millibits. The url is https://millibits.in
FEATURES AND USAGE OF BITCOIN
Ø Features of Bitcoin
· It’s decentralized-: The Bitcoin network isn’t controlled by any central authority. It is a system generated currency which is not regulated by any authority.
· Easy to set up-: One can set up a Bitcoin address in seconds and with no fees payable. The procedure is not that lengthy or difficult as it is for opening up conventional accounts.
· Completely Transparent-: Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours. It is a completely transparent channel.
· Low Transaction Fee-: The conventional banks charge lot of money for International transactions. Bitcoin charges zero or minimal fee.
· Fast-: You can send money anywhere and it will arrive within a time frame of approx ten minutes.
· Non-repudiable-: When the Bitcoins are transacted/sent to the other person, there are no charge back or any way of getting them back, unless the recipient returns them to you. So cancellation of the transaction by the sender is not possible,reducing the worry of the vendor/ merchant that transaction might be cancelled.
Ø Use of Bitcoin
· To Buy Goods: bit coins can be used to buy many types of goods ranging from electronics, jewellery, merchandise, books etc. Amazon.com, e-bay, highcart.com etc are some of the merchant sites which deals in trading of goods in exchange of bitcoins.
· To Avail/Pay for Services: bit coins can be used to avail services ranging from simple food supply to business dealings. Use of bit coins is seen in many sectors from hosting websites to online gaming services which includes Wordpress, X Box live, Play Station Network etc.
· Gift Cards: Many US companies like Gyft, eGIFTER, ITradeBTC and GiftCardZen provides bitcoin gift cards to their customers, which when gifted can be used in turn to deal with major retailers like Wall Mart, Amazon, Nike etc.
· Debit Cards: As mentioned in news section, Xalo is the first company to launch Bitcoin debit card
· Payment of Remuneration in Bitcoins: As mentioned in news section, many companies have started paying their employees remuneration/salary in bitcoins. This can also be taken as a revolutionary step towards emerging utility of bitcoin, all over the World.
· Apps purchases by Bitcoins: As mentioned in news section, Apple has recently announced that it is remodeling its payment structure to accept payment in bitcoins also.
· Replacement of FOREX Card With Bitcoins: As stated in news section, many countries have launched or installed bit coins ATMs. bitcoin users can access their bitcoin wallets to withdraw/transfer their bitcoins, anywhere in the World.Such international transactions by medium of bitcoins will not attract thebanking transaction fee.
BITCOIN PRICE CHART
(Please access the attached document to see the Image)
The author has been following the price index of the Bitcoin for a while. The price chart of the last one year is attached above. The Bitcoin price index has seen sudden upsurge in the month of Oct, 2013 to Dec, 2013 increasing the bitcoin price from $100 to all time high of $1,147 which is a phenomenal increase of more than 1000%. Later, due to Mt. Gox Exchange the price of the bitcoin surged to the level of $360 in the month of April, 2014 and currently as in the month of June, 2014 it stands at a price of $650.
Ergo, the price of the Bitcoin is volatile, however, the rise in the investment and the suddenupsurge of the news in the Bitcoin industry has made Bitcoin price rise from$360 to $650 just in a matter of 2 months.
In view of author, volatility in price of bitcoin is noticed when there is announcement of a news or when a major conference is held to discuss the development and future of bitcoin. The next conference is in London, UK on 10-11 July, 2014.
POSITION OF BITCOIN UNDER INDIAN LAW REGIME
With this very basic and brief understanding of Bitcoin, we have tried to examine whether Bitcoins should be treated under Indian law as (i) currency, (ii) security and various Legislative Acts. The examination of the mentioned terms is required in order to understand the exposure/applicability of the present Indian Law.
(i) IS BITCOIN DEFINABLE AS CURRENCY UNDER INDIAN LAW?
Indian laws do not define digital currency or virtual currency, therefore we have tried to look into the definition of currency as defined under section 2(h) of the Foreign Exchange Management Act, 1999 (“FEMA”) to see if Bitcoin falls in that definition. The term currency is defined as follows:
“currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, creditcards or such other similar instruments, as may be notified by the Reserve Bank;
(ii) ARE BITCOIN DEFINABLE AS SECURITIES?
In order to determine whether the operation of the term “securities” is defined in section 2 (h) of the Securities Contracts (Regulation) Act, 1955 in the following manner: “securities” include —
(i) shares, scrips, stocks, bonds,debentures, debenture stock or other marketable securities of a like nature inor of any incorporated company or other body corporate;
(ia) derivative;
(ib) units or any other instrument issued byany collective investment scheme to the investors in such schemes;
(ic) security receipt as defined in clause(zg) of section 2 of the Securitisation and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002;
(id) units or any other such instrument issued to the investors under any mutual fund scheme;
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to be securities; and
(iii) rights or interest in securities;”
It is clear from a bare reading of this definition that Bitcoin does not come within the definition of Currency as well as it does not fall under the gamut of any of the parts of the definition of securities as well. However, the wording“or such similar instruments, as may be notified by the reserve bank” under the definition of Currency and clause (iia) of the definition of Securities, means that the RBI has the power to include any such instrument within the definition of the term Currency and Securities.
Further, the author has tried to look into various Legislation Acts i.e. SEBI, IPC, Information Technology Act, Prevention of Money Laundering Act and has observed that the operations of Bitcoin in India are neither barred nor consented tounder any of these Acts.
However, Section3 of the PMLA includes a person who is even involved in any process or activity connected with the proceeds of the crime and projecting it as untainted property. Therefore, the prosecution under the PMLA lies in a very grey area and a very thin line lies between the prosecution and exoneration under PMLA.Therefore, any exchange or trader dealing into buying or selling of Bitcoins needs to comply with all the regulations, procedures and requirement asenshrined under various Legislative Acts.
POSITION OF BITCOIN IN INDIA
As discussed above the operation, use, trading of Bitcoin in India is still unknown.Recently RBI has issued a press release bearing number 2013-2014/1261 vide circular dated 24.12.2013 wherein RBI has cautioned the consumer in general that Bitcoin is not regulated or controlled by RBI and poses certain difficulties in implementation. RBI also stated that it is presently examining the whole issue however, no news has been heard from RBI since December, 2013.
As per the view of author RBI has issued the said circular to wash off their hands from any risks arising out of use of Bitcoins by the consumers however, they are still looking into the issue stringing the investors in doubtful mind.
CONCLUSION:
As per the research and understanding of the author trading, acceptance, dealing in exchanges or any other activity related to Bitcoins are not illegal in India however, there no certain provisions governing the regulation or activities related to Bitcoins as well. Therefore, the legality of Bitcoins in India remains in grey area. Also, in view of the author and the tremendous upsurge inthe acceptance of the Bitcoin, by many vendors/merchants i.e. from Fortune 500 companies to local vendors, is greatly appreciated and is on the rise. Also,the volatility in the price of the Bitcoins may attract or caution many people into entering into the Bitcoin market.
Ergo,the volatility, acceptance and adaptation shown by the people around the world cannot be ignored and in view of the author the Bitcoin industry will pave its path by gaining the trust of people over the period of time and being regulated/accepted by the government authorities as well however, till date itremains as a silent q in the minds of people.
By - Kanishk Agarwal
