Dr. D. Mukhopadhyay The digital currency called Bitcoin, first appeared in January, 2009, the brain child of pseudonym, Satoshi Nakamoto. Bitcoin is devoid of any intrinsic value as it is not redeemable for some amount of another commodity. It has neither physical form nor it is legal tender nor attributed with any statutory feature of a legal entity and the central bank of the country has no control over the supply of this digital currency. The circulatory system of Bitcoin is completely privately individualistic since no financial institutions nor any regulatory authority is associated in financial transactions held though Bitcoin. Bitcoin is based on the foundation of cryptography meaning thereby that no third party view is able to view the communication. Each Bitcoin and each user is encrypted with a unique identity, each transaction is virtually recorded on decentralized public ledger technically known as block-chain aka distributed ledger and it is visible to all computers in place on the network . It never reveals any personal information in respect of the parties involved in a virtual transaction through Bitcoin. Bitcoin based transaction is becoming popular day by day since it involves low transaction cost, secures privacy and is devoid of inflationary influence consequence of which is no erosion in purchasing power. The purchasing power of Bitcoin is not determined by demand-supply apparatus but is purely based on speculation and market is volatile in nature. Under the given operational backdrop, each country is observed to be of serious concern of its legality , cross border movement and its misuse in creating undesired geopolitical instability and threat to internal peace of a country as it is capable of fomenting delivery of financial crimes at both the domestic and international levels, as an outcome, controlling domestic and cross-border crimes in one hand and restoring peace at other end becomes very dear for any country including India. Law at domestic as well as international arena is the pivotal force to deal with any crime. It may sound to be factual that Law is hardly observed to be proactive but it is born mostly out of reactive and breakdown maintenance philosophy and History is witness to signify that Laws are always far behind the speed of technological advancement that is being the order of the day in the 21st Century. Almost Governments of all the countries have been observed to have initiated their reactions against the unprecedented challenges the cryptocurrency has thrown open. Cryptocurrency has compelled the Government and other allied establishments to contemplate and architect certain Laws and Regulations in order to supervise and keep the Bitcoin use as an alternative of existing legal tender in disciplined, controlled and transparent manner so that government exchequer is properly endowed with tax as usual on the profit arising out of Bitcoin transactions and pseudonym transactions are within the reach of administrative control. The immediate issues relating to the Licensing Law, Taxation Law, Financial Criminal Controlling Laws such as Money Laundering, Foreign Exchange Management, Cyber Laws , Indian Penal Code, Indian Penal Code Procedures, Civil Laws and Civil Code procedures concerning Ecommerce, Benami Transaction , cross-border transactions , underworld transactions are of high relevance. Under the given spectrum, the Government has to take into understanding that banning bitcoin or cryptocurrency transactions is not going to serve the purpose as Cryptocurrency has emerged to stay for long signifying thereby evolutionary advancement in science and technology , management process for obviating time consuming and cost prone economic transactions are dominant forces that make the society used to adopt Bitcoin. Out of emergence of this new digital currency, legal issues relating to legal tenderness, definition of Bitcoin in terms ‘commodity’, ‘assets’ ‘revenue’ ‘capital’ legal identity, regulatory and monitoring transactions through Bitcoins are of prime headache for any establishment. The U. S. Congress mandated by the Federal Constitution directed the Government Accountability Office(GAO) through the Senate Finance Committee to review the tax implications requirements and compliance risks. In SEC v. Shavers, a Federal District Court defined Bitcoin as ‘an electronic form of currency unbacked by any real asset and without specie, such as ‘coin or precious metal’ which is formally recognized that supply of Bitcoin is not regulated by any governmental authority nor by a central bank but it is based on an algorithm which aids in structuring a decentralized peer-to-peer financial transaction system. In order to curb any fraud and financial crimes , the Ratio of SEC v. W. J. Howey was adopted by the SEC signifying that financing instruments using ‘Bitcoin’ comes within the formal meaning and definition of security in the U.S. Both the Shavers Court and the SEC observed that the transactions through Bitcoin had met the ‘Three Factors Howey Tests’ since the transactions were found to have been involved in investment in the form of money or investment of money, secondly , transactions have been taken place in common enterprise and finally the transactions had been observed to have aimed at deriving profits in order to meet the motive of the promoters or a third party and these characteristic features of the transaction made Cryptocurrency get legal umbrella under the U. S. Securities Act which requires the token issuers either to comply with registration requirements provisions as provided by the SEC or obtain formal exemption from the same. Further, the Commodity Futures Trading Commission (CFTC) determined that Bitcoin and other virtual currencies are ‘commodities’ under the U.S. Commodity Exchange Act. CFTC is found to have taken action against ‘Bitfinex’ , the company , who was operating an online exchange and trading platform to deal in Cryptocurrencies without having been registration and failing to meet the ‘actual delivery’ norms . In the beginning of 2021, China completely banned Bitcoins and instead introduced its own digital currency. Indian scenario in dealing with the issues relating to Bitcoin transactions is quite different from that of the discussed. In April 2018, the RBI, the Money and Currency Market Regulator, being the central bank of the country, framed a Regulation to prohibit banks and financial institutions to provide their services to any entity dealing in or using virtual currencies. A case questioning the validity of this Regulation was challenged by a group of private entities in the Apex Court, Supreme Court of India. The Supreme Court heard the case, Internet and Mobile Association v. Reserve Bank of India and it delivered its judgment based on the Article 19 (1) (g) of the Constitution that business of dealing in virtual currencies is a right protected by the Constitution as long as there is no legislative prohibition. In simplicity, the RBI is empowered to regulate virtual currency transactions but imposition of prohibition by it is disproportionate and unconstitutional. Therefore, currently, there is no legal backing to the referred prohibition and the action of the RBI though the said Regulation is null and void. Government of India had slated ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ in the Winter Session of Parliament . A complete ban of Cryptocurrency is not at all advisable as it is quite likely to assist underground payment system which is essentially decentralized and almost beyond the catchhold of Regulator. The Cryptocurrency banning countries include Qatar, Tunisia, Egypt, Iraq, Morocco, Algeria, Bangladesh, Bolivia, Turkey, Indonesia, China and the countries where Bitcoins can be used anonymously in conducting transactions include besides the USA, the European Union, Canada, Australia, El Salvador, Denmark, France, Germany, Iceland, Japan, United Kingdom , Switzerland, Singapore, UAE and so on. In a nut shell, it can be observed that there are , so far, three kinds of approaches to handle Cryptocurrency such as the countries banning completely, implicitly and countries legalizing Cryptocurrency transactions through regulatory measures. From overall analysis, U.S. approach in dealing with Cryptocurrency transactions is of much clarity in the procedure procedure as it does not question the legal validity of underlying Cryptocurrency transactions as long as the underlying securities are registered or obtained through exemption route. However, SEC established a Cyber Unit for handling cyber-related misconducts, frauds and market abuses in inclusive manner. On the contrary, CSRC being the regulatory arm of China for combating Cryptocurrency evils since it considers Cryptocurrency transactions is nothing but an evil Pandora’s Box. The legal approach and procedures adopted by the U.S. may be be followed as a guide to curb Cryptocurrency transactions as it is like to foment illegal or terrorist activities . India should comprehensively take into cognizance the experiences of the those countries banning Cryptocurrency, implicitly banning and legalizing the virtual transactions through Bitcoins as this can be of immense assistance in legislation process and enacting a piece of legislation with adequate teeth for curbing the menace arising out of Cryptocurrency transactions injurious to the economy at large and finally protect the parties involved in Cryptocurrency augmented transactions legally and financially otherwise this is likely to be a serious internal and external threats to the country keeping in view the maxim, ‘a stitch in time saves nine’ . (The author is a Practising Advocate, Calcutta High Court
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