Cryptocurrency: Need for regulatory laws.

Anjali Sharma

Bitcoin, the first-ever cryptocurrency, was discovered by the mysterious man Mr. Nakamoto in 2008. And after that, there was no going back into the sector of cryptocurrency. As of now, there are about 16,598 cryptocurrencies in the global market. Talking about India, crypto exchanges came online in the year 2013 including Unocoin, and ZebPay, and the list continues. The year 2015 is considered to be a boom for the crypto market in India. This article talks about the situation and structure of cryptocurrency in India, especially its legality aspect and the scope of defrauding in the global crypto market. It addresses the concerns of cybercrime due to the anonymous nature of the market. The article addresses the take of government on crypto and what measures the government can take to protect its citizen from defrauding.

Words like cryptocurrency, Bitcoin, and blockchain must have been heard by all in recent times but what do they mean?

Cryptocurrency is nothing but a digital asset used as a medium of exchange. Let us understand it through an example, suppose you are selling a phone in exchange for a certain portion of a cryptocurrency and let it be Bitcoin. A person ‘X’ approached you to buy that phone in exchange for Bitcoin. So, here the transaction is completed through cryptocurrency. Another observation in this example is that transaction is free from taxes like GST or any other kind of tax.

Taxation Policy in Indian Budget:

Taking forward the aspect of taxation, before the budget of 2022, there was no taxation on the income earned from the crypto market. The Budget, 2022 introduced two slabs of taxation on crypto income i.e.,

a) 30% Tax on income exclusively earned by the people trading in cryptocurrency.

b) 1% TDS i.e., Tax Deducted at Source.

The underlying idea behind this step is to monitor people trading in cryptocurrency as millions of transactions are taking place in the market.

Legal Aspect:

The confusion regarding the structure of cryptocurrency, and how it is operated? how it can be regulated? still arises. This is because no single body of law is there to regulate the crypto market in India. There are countries where cryptocurrency has been legalized or banned, they had taken at least a stand on one side, but India has taken no steps to formulate a law policy regarding cryptocurrency. It has neither made it a legal tender nor banned it.

There is only a Supreme Court judgment of 2020 of the case Internet And Mobile Association ... vs Reserve Bank Of India. In the case it was held that the previous notice issued by RBI stands cancel as it was unconstitutional. The notice was to ban cryptocurrency. The judgment upheld Art 19(1)(g), that you can carry on any trade or business. Apart from this judgment, there is no other law in India regarding cryptocurrency. RBI has just given warnings concerning cryptocurrency and has said that it is not a safe means of investment. But these warnings don’t have any significant impact on the citizens, crypto is continued for the transactions.

Citizen’s Take:

Almost everyone had at least come across once through advertisements by celebrities promoting cryptocurrency through various applications. And these advertisements have a notable effect on the public. They risk their savings, hard earn income by investing in the crypto market because of these strong influences. As there is no regularity on behalf of the government so these advertisements and apps can’t be banned and this led to continuity of exploitation of the public. There is no doubt on the fact that people earn a good amount of income from investing in it but if any mishappening occurs then there is no authority to redress the grievance pertaining to the trading of cryptocurrency.

Some people find crypto investment as a loophole in the centralized system of government, which is a loophole as cryptocurrency works in a decentralized manner, there is no take of government in it. The transaction digitally takes place and if the person decides not to show it in the records then the government wouldn’t even know about the transactions and thousands of transactions can take place in the same way and the person won’t even have to pay any kind of tax on the income. This is a loophole which needs to be addressed by the government to protect its citizens.

Need for a regulated mechanism:

Crypto is not a legal tender and this can lead to crimes such as money laundering, defrauding, and many others. For instance, if you invest in crypto through an agency or any person and then he escapes away, then whom you will report crypto theft? Or if you directly make a transaction from your side in the market but the next person doesn’t fulfil that transaction then what will you do? You don’t even know that person and this is because of the anonymity maintained by the people in the market. You can’t trace them down and you can’t approach any government-regulated body to file a complaint as there is nobody maintained. Due to these factors, a regulated mechanism is needed to be built to bring uniformity regarding cryptocurrency in the country. It is not only needed to protect the people from crime but also to maintain the integrity of the law as people are using crypto the bypass the original centralized system of the country and which is completely wrong.

Suggestions:

Government firstly needs to decide whether it wants its citizens to trade in the crypto market or not and if yes then it needs to make a separate body to regulate the crypto market.

The institution formed by the government will make laws regarding the regulation of crypto, it will make crypto a legal tender, and will provide a transparent system of transactions which will help in controlling the crimes like money laundering.

Investing in cryptocurrency is not safe, it has certain problems that need to be addressed like the anonymity of people involved in it, and what makes it insecure is that there is no law dealing with it. For instance, for transacting in stocks we have SEBI i.e., Securities and Exchange Board of India which regulates the stock mechanism and it not only provides a platform for redressal but also allows minimal speculation in the market to earn profits and the same can be done with cryptocurrency. A system of checks and balances made by the government will help a lot in making crypto a secure way of investment.

Anjali Sharma is a law student at Bharati Vidyapeeth University. Views expressed are the author's own. The Philox does not endorses it.