Cryptocurrency is the hot topic for few months. Everyone wants to know the legal implications of cryptocurrencies and whether it should be in their portfolios? While the Budgetspeech of Finance Minister Arun Jaitley on February 1, 2018, caused a lot of jitter in the industry players when he reiterated the government's position that cryptocurrencies are not legal tender and that the government would look to curb any illegal transactions and financing using these digital currencies. Much of the speculation was caused when the Income Tax Department this year sent one lakh notices to people who invested in cryptocurrencies and whose investments didn't match their income profile. And also when earlier in February, Citibank banned the use of its credit and debit cards for the purchase of cryptocurrencies in India.
The Reserve Bank of India had also warned the people, through three notifications pertaining to bitcoin and other virtual currencies (VC). First being on December 24th, 2013, second on February 1st, 2017 and the last notification was released on December 5th, 2017. In all the apex bank has cautioned the users, holders, and traders on the risk of these currencies and clarified that it has not given any license or authorization to any entity or company to operate in such schemes or deals.
Consequently what is the legal position of cryptocurrency in India today, its advantages, disadvantages and how other counties are dealing with such virtual currencies? Read on to equip yourself with some of these topics. So that you can take an informed decision in future before investing in any virtual currency.
Advantages of Cryptocurrency
The two advantages of cryptocurrency are:-
- Lower Transaction fee- Transactions in virtual currency happens through blockchain in which the holder just have to access his computer, connect it to the internet and transfer the money without any cost. As there is no involvement of banks, transfer charges are not required to be paid, and the holder only has to bear the conversion cost, i.e., cost of converting virtual currency into real currency which is very minimal.
- No counterfeiting- This is the most significant advantage of cryptocurrency, that it could not be fabricated or manipulated as it is secured by cryptographic technique.
Disadvantages of Cryptocurrency
The four disadvantages of cryptocurrency are:-
- Highly volatile- Cryptocurrencies are highly volatile. Taking the example of bitcoin, in the year 2017, its value soared from $1000 to around $20,000 before dropping down to around $ 13,000 at the end of the year. Since then, its value has risen and dropped unexpectedly from day to day. Same could be witnessed in other cryptocurrencies like Ether and Ripple.
- Excessive security threats- Cryptocurrencies are excessively vulnerable to security threats. In the recent times, the world is experiencing one threat in every hour, the number of cases are huge, and it has been substantially increasing every day. The biggest problem is that there is no remedy to address the problem of hacking of virtual currency wallets, leaving holders unguarded against security threats.
- No uniformity in law- There is no uniformity of law regarding cryptocurrencies; every country has its own law and method of dealing with these virtual currencies. Like for example, China has recently banned all B2B transactions of bitcoin whereas, Japan has recognized bitcoin as a legal tender. This creates a lot of confusion amongst holders, leading them to make unsound investments.
- Lot of anonymity- One of the greatest disadvantages of cryptocurrency is anonymity. The transactions are recorded and made public, but they are linked with an electronic address. So, whatever transaction is made using bitcoins, it cannot be traced specifically to you. Eminent cybercrime expert Adv. Neeraj Aarora in a seminar on Legal Challenges of Cryptocurrency held on February 9th, 2018 has said that "cryptocurrency is the currency of hackers. On the dark web, a person can avail services like hacking, cybercrime and could also buy drugs and weapons by paying through bitcoins without leaving any trace. This in effect leading to a large number of unauthorized transactions in the country.