The Bitcoin Boom: In Code We Trust

By- Amit Kumar

LL.M (2nd Year)
Kurukshetra University

INTRODUCTION
“Bitcoin is the beginning of something great : a currency without a government, something necessary
and imperative.”
-Nassim Taleb, author of The Black Swam

In the Contemporary world majority of the nation uses two major forms of currency namely bill of
exchange(fiat currency) and reserve currency .The fiat currencies are issued by a central regulatory
authorities for example in India by Reserve Bank of India and thus these are also known as
‘centralized currency’. If needed, the government promises to pay the holder of such currencies an
equivalent amount in gold.

With the revolution of internet a new form of currency known as cryptocurrency have evolved .A
cryptocurrency uses cryptography as medium for the creation of new units and cater the passage for
secure transactions. A peculiar trait of this modern currency is that there is no need for centralized banks
, or other trusted secondary party. Many efforts have been made to formulate cryptocurrency but most
successful attempt has been Bitcoins . The cryptocurrency software en masse create the units of
currency. The software produces the pre-decided number of units unlike the conventional system where
the currency units are increased or decreased at will. The major issue with conventional system is that it
requires trust to work , and past experiences have shown the regular breach of trusts. Cryptocurrency
software allow the user to transfer money without any intermediaries and saving the expenses of
transaction and role of centralized authorities.Under the conventional currency the value of the money is
derived from the principles established by the government of the state while in cryptocurrency the value
is determined by the simple principle of demand and supply.

WHAT IS BITCOIN ?
Bitcoin is a form of cryptocurrencies which uses cryptography as a mode for creation, control and
regulation. The bitcoin software was introduced by Satoshi Nakamoto whose identity is unknown in year
2009 .1 It is a peer to peer cash transferring system. The smallest units of bitcoins is known as
satoshis.Bitcoins could be transferred through computer or mobile phones. How does bitcoin economy
works? Bitcoin client software is required to create a virtual wallet , private key and public key for
authenticating and securing each transaction. A user generates request to transfer a bitcoin value from
their account to another using any device be it up for processing . During mining process, transactions
are packed into into data blocks and are randomly assigned with a header.Miners compete to match the
block’s header with a nonce – an arbitrary number used only once , to get a short alphanumeric code
called a hash.The miners that successfully generates the hash accepted by bitcoin network is rewarded
with bitcoins , but this will decrease, halving roughly every 4 years until nearly 21 million bitcoins are
releases into network by year 2140. It takes about 10 minutes to process a transaction and once it’s done
, it is irreversible.2
It can be said that there are three prime ways of getting bitcoins namely –
1. Mining new ones
2. Buying or getting them in exchange
3. Accepting them in return of goods and services.

IMPACT OF BITCOIN IN INDIA

Indian masses have started understanding the concept ,power and advantages that bitcoin can offer. If
we consider Bitcoin in India as currency then all the rules and regulations which are presently
applicable to Indian currency will become applicable to Bitcoin also. The rules and regulations for
Indian currencies are controlled by RBI.

Indian constitution under Article 246 provide the list of subject that can legislated by central and state
government. Entry 36 and 46 of List I of the Seventh Schedule of the Constitution provides that the
Central Government is allowed to legislate in respect of currency, coinage, legal tender, foreign
exchange and bills of exchange, cheques, promissory notes and other like instruments respectively. If
Bitcoin falls under any of this categories the central government would have exclusive power to
legislate.
The principal legislation concerning Indian currency are:
I. The Constitution of India, 1950;
II. The Foreign Exchange Management Act, 1999 (“FEMA”);
III. The Reserve Bank of India Act, 1934 (“RBI Act”);
IV. The Coinage Act, 1906 (“Coinage Act”);
V. The Securities Contracts (Regulation) Act, 1956 (“SCRA”);
VI. The Sale of Goods Act, 1930 (“Sale of Goods Act”);
VII. The Payment and Settlement Systems Act, 2007(“Payment Act”).
VIII. Indian Contract Act, 1872 (“Contract Act”)
While China has blocked crypto exchanges, U.S. banks are steadily declining cryptocurrency purchases.
Meanwhile, Indian finance minister Arun Jaitley, during the national finance budget 2018, stated that the
country does not recognize Bitcoin as legal tender, sending cryptocurrency enthusiasts and investors in a
tizzy.3 But there are no penal provison rearding transaction and so there is a ray of hope for the future of
bitcoins in the country .
Legalising Bitcoins in India may create following issues:
1. Bitcoins are stored in digital wallets thereby making them prone to hacking , loss of password ,
malware attack etc. and loss of bitcoins is non-recoverable.
2. There is no system for dispute resolution etc.
3. No one is responsible for any misdoings
4. Its creates a safe heaven for money laundereres and terrorists outfits.

LEGAL ASPECTS OF BITCOINS

1) R.B.I. Customer norms
RBI has setup KYC (Know Your Customer) norms are to keep check on customers transactions
and up-to-date record of their identity but Bitcoins transactions are anonymous in nature. Thus
bringing Bitcoin under the current Indian laws can be difficult.
2) FEMA regulation for cross border transactions
FEMA in India regulates all foreign transactions whether they are inbound or outbound. Section
3 of Foreign Exchange Management Act, 1999 states that no person shall:
‘deal in or transfer any foreign exchange or foreign security to any person not being
an authorized person ;
a) make any payment to or for the credit of any person resident outside India in any
manner;
b) receive otherwise through an authorized person, any payment by order or on behalf
of any person resident outside India in any manner; and
c) enter into any financial transaction in India as consideration for or in association
with acquisition or creation or transfer of a right to acquire, any asset outside
India by any person.4
From the above, it could be argued that purchasing of Bitcoin by a resident Indian from a
person resident outside India (where money for purchase of Bitcoin is transmitted through
legitimate banking channels) will not be in violation of FEMA. Further, Bitcoin transaction
between two residents should also not trigger FEMA and should not therefore be in violation of
the same. However, the sale of Bitcoin to a non-resident person (i.e. to a person outside India)
by a resident Indian will be in violation of the provisions of FEMA. Further, it can also be
regulated by RBI in this condition.
3) Income Tax
Calculation of tax is the most difficult thing of masses in India.Tax may be applicable to
income or expenditure. If we apply tax to Bitcoin then the most difficult thing would be
calculate the actual income from Bitcoins. It would also be difficult to ascertain whether
Bitcoins are capital or income in cases of mining.
PLATFORM FOR BUYING OR SELLING OF BITCOIN IN INDIA
We can buy or sell Bitcoins from various Bitcoins Exchanges which even provide facility for
storing them.Unocoin, Buycoin, Zebpay, Coinsecure, LocalBitcoins, Bitxoxo are some of
them. Most popular Bitcoin Exchanges in India are as follows:
1. Unocoin[5]:
Unocoin is India’s leading Bitcoin company. It enables Indians to buy, sell, store, use and
accepts Bitcoin. Here one
can buy Bitcoins with any bank account through RTGS,
NEFT or online banking. But this exchange requires ID verifications and thus not private.

2. Zebpay[6]:
Zebpay is a Bitcoin platform and broker based in India. It has Android and iPhone apps that
make it easy to buy Bitcoins with a connected Indian bank account. It offers additional
services, such as purchase of mobile airtime and gift vouchers for Bitcoin. Also Zebpay has
multiple security features. But similar to Unocoin it also requires ID verification.

3. Coinsecure[7]:
Coinsecure is an Indian Bitcoin exchange and trading platform. It offers very low fees at just
0.3% per buy and a number of deposit options; including NEFT, RTGS, IMPS and cash
deposit. Is is also not private.

4. LocalBitcoins[8]:
It is an escrow service which also helps to match Bitcoin buyers and sellers. The most
common method of payment for purchase is cash deposit. However, users may advertise
trades for whichever payment method they prefer.
LocalBitcoin is a most private and one of the fast and easy exchange for buying Bitcoins.

5. CoinMama[9]:
CoinMama allows customers in almost every country to buy Bitcoin with a credit or debit
card. They charge an ~8% fee on each purchase. If buying less than $150 worth of Bitcoins,
you won't need to verify your identity. This convenience makes small purchases quick and
easy

FUTURE OF BITCOIN IN INDIA

Demonitization has triggered the bitcoins trading in India which in result has elevated the value
of this currency in India. Around the world , India seems to be the leading country for the
proving wider avenues to Bitcoins. Even after the launch of Jan Dhan Yojana which aimed at
providing banking services to every citizen , there are still about 167 million people in the
country which don’t have a bank account . If the these unbanked people could get bitcoins
account they can avail the benefit of banking sector.Bitcoins can be further developed by
merging them with BHIM, PAYTM and PAYPAL. They can also provide investment options for
better returns as compared to investments in shares.

CONCLUSION
Bitcoin can do to the banking industry what email did to the postal service. The email did
not make postal service irrelevant however forced the post office to concentrate on their
strengths like their reach to remote rural areas, providing banking to low income population
etc. and less on their weaknesses. That’s the technology part of it, as per economics, perfect
currency should have limited supply, easily recognizable, durable, as well as portable and
that’s exactly what Bitcoin is.

The problem that we can foresee is the pace of change in regulations; change in regulation
usually takes a route of develop, propose and adopt which generally takes a period.
Regulations or regulatory changes typically evolve at a slower pace than innovation thereby
killing it by declaring it illegitimate. Also as its not been governed by a central authority
Bitcoin tends to fluctuate widely and to be used globally its volatility needs to settle
down.[10]

REFERENCES
[1] S.Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System”, available at
https://Bitcoin.org/Bitcoin.pdf,2008.
[2] Nishith Desai , “Bitcoins- A Global Perspective Indian Legal and Tax
Considerations”March 2015, availableathttp://www.indiabitcoin.com/wp-
content/uploads/2015/03/NDA- IndianLegalConsiderations-Bitcoins.pdf.
[3] https://www.forbes.com/sites/sindhujabalaji/2018/02/06/india-is-not-banning-
cryptocurrency-heres-what-it-is-doing-instead/#5e9aa5cb7c6f
[4] https://www.advocatekhoj.com/library/bareacts/foreignexchange/index.php/Title=Foreign
%20Exchange%20Act,%201999
[5] https://www.unocoin.com/
[6] https://www.zebpay.com/
[7] http://www.coinsecure.com/
[8] https://localBitcoins.com/
[9] https://www.coinmama.com/
[10] Shree Sule, “Bitcoin - Growth and Future of the Industry in India”, 17th May 2 017,
available at http://bwdisrupt.businessworld.in/article/Bitcoin-Growth-and- Future-of-the-
Industry-in-India/17-05-2017-117932/