In recent times we have been across the term cryptocurrency leaving many of us befuddled and amazed at the same time. For many, it came out as a revolution of this century a probable medium of earning a fortune but for many, it was an alarming sign of an economic recession. For an insightful understanding of this cryptic currency let’s track down its origin.
Satoshi Nakamoto, a man whose name is known to many but remains only claimed as a mystery man. He is the man behind investing in bitcoin and officiating blockchain technology. It all began on October 21, 2008, when Satoshi Nakamoto published the white paper titled: Bitcoin – A Peer to Peer Electronic Cash System, encompassing the functioning of blockchain technology. And within a few months on January 3, 2009, the first block of Bitcoin was mined. He mined the first 50 blocks of bitcoin referred to as Genesis Block. Even though the innovation was novel and exciting it didn’t attract the attention of the world. Its true potential was yet to be explored. In April 2010, the value of one bitcoin was even less than 14 cents and as heard of was put to use by many for buying pizzas. Unaware, those coins which seem penniless now within a few years are going to explode to a value that no one could have imagined.
The aura and essence of this technology have been evolving, volatile and proactive in its eternity of legality, its regulation, and the people’s response making people at the edge all the time. This currency has witnessed responses from countries across the world making a ying-yang situation. The United States has been by far the biggest trader /user of this technology with thousands of users trading in this currency. It has imposed a tax on the exchange, use, and holding of cryptocurrencies. Tendering a non-official legal medium of exchange. Meanwhile, the United kingdom labelled them as capital assets imposing capital taxation laws concerning services availed through them. In south-east Asia, China banned Crypto from its financial institution and any engagement in this currency was barred making a strict NO. Meanwhile, the powerhouse was in walking on ice in regards to the legal status of crypto, El Salvador the smallest country in Central America took a drastic step forward and declared cryptocurrency as a legal tender.
Through the initiation of this digital currency, India has been a keen observer and adamant about taking any extreme decision and witnessing the unfolding of this technology. The first recognition by the government was in the year 2017 through the circular issued by the Reserve Bank of India (RBI), warning about the potential financial, legal, and operational risks related to the users, holders, and traders of the cryptocurrency.
Following in 2018, the Finance Minister, during the Union Budget Speech cleared the government’s stance, stating that “ the government does not recognize cryptocurrencies as legal tender and will take measure restricting the use of such assets as a part of the financial system in the country”. Fast forward to 2022 when through the Finance Bill 2022 Virtual Digital Assets (VDAs) including crypto, non-fungible token (NFT), etc. are brought under the tax slab of 30%. Even though with this taxation rule we can’t make out whether the government is affirmative or dissenting.
The legal position of cryptocurrencies in India is still ambiguous; neither are they outlawed, nor are they subject to government regulation. Without any legal protection from the government, individuals and businesses are free to own, invest in, and deal with cryptocurrencies as long as they abide by the applicable laws. And in the recent speech by the Finance Minister in 2022 budget levied a 30% tax on income from crypto and other digital asset and 1% TDS. In one of the landmark Judgement by the Constitutional Bench of the Supreme Court, Tata Consultancy Services outlined a three-part test to determine if software should be considered a “good,” including (a) its usefulness, (b) the capacity to be purchased and sold, and (c) the ability to be sent, transferred, supplied, saved, and owned. Cryptocurrencies are immaterial, have a purpose, and are created, advertised, and kept on real servers. They can be acquired by purchase and sale, transmission, transfer, delivery, storage, and possession.
Even though the country does not explicitly puts a blanket ban on the exchange of cryptocurrency there is a lack of relevant laws governing them. Even though laws are available on relevant topics dealing with securities, trade-in commodities, and acquisition of assets outside the country circumscribing the various facets of this digital currency. However, the government levies taxes on profits/gains arising out of the sale or trade of cryptocurrencies. The Indian government charges Income tax as well as GST on these currencies.
The major reason for such precautionary measures undertaken is the very nature of these currencies. Printing and regulation of currency are one of the biggest power of any sovereign while digital currency comes a step forward cutting short the geographical barrier, the government and various financial institutions jeopardizing the system of exchange across the globe, and the power of the governments. Bank notes, gold, and real estate due to their tangible nature are deemed as secure ways of assets while cryptocurrency works in the opposite direction. When people can’t feel or see anything they develop a sense of insecurity and alertness. The country does not provide for any regulation in regards to the management of crypto assets and is done in a personal capacity, not by licensed managers or advisers.
The cryptocurrency due to its capricious nature has undergone many ups and down making it unstable for secured investors. Since it is still in its inception stage where the world is eyeing it with numerous speculations, the governments are reluctant to put for any definite opinion and formulate legislation making their position ambiguous at the moment. But in the coming time and with its evolving temperament we will have our queries answered and it might be the revolution of this decade.
Author’s Name: Somya Dwivedi (Symbiosis Law School, Pune)