2019 – Posted in: Daily News – Tags: bitcoin, blockchain technology, distributed ledger technology

REPORT ON THE LEGALITY OF CRYPTOCURRENCIES AND BLOCKCHAIN

For: Mains

Topics covered: Findings of the committee, What is a cryptocurrency, Blockchain Technology, Distributed ledger technology

The committee was set up to look into the legality of cryptocurrencies and blockchain. It submitted its report to the Finance Ministry.

The committee recommended that private cryptocurrencies be banned completely in India.
The committee also drafts a law, the ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’.
Which mandates a fine and imprisonment of up to 10 years for offences.
The committee said the government can open mind on the potential issuance of cryptocurrencies by the Reserve Bank of India.

The government had constituted an Inter-Ministerial Committee on November 2017.
It is under the Chairmanship of Economic Affairs Secretary Subhash Chandra Garg.
Committee also comprising senior officials of the Ministry of Electronics and Information Technology, SEBI and the RBI.

The cryptocurrencies do not have any intrinsic value of their own and lack any of the attributes of a currency.
They neither act as a store of value nor are they a medium of exchange in themselves.
These cryptocurrencies cannot serve the purpose of currency.
The private cryptocurrencies are inconsistent with the essential functions of money/currency.
Private cryptocurrencies cannot replace fiat currencies.
The Committee leaves the door open for the central bank-issued cryptocurrencies.
The draft law says that anybody who mines, generates, holds, sells, deals in, transfers, disposes of or issues cryptocurrencies with will face a fine and/or jail term.
The term of jail is between 1 and 10 years.
The fine has been set at either three times the loss or harm caused by a person, or three times the gain made by the person, whichever is higher.

The committee report highlighted the benefits of the underlying technology— the distributed ledger technology (DLT) and blockchain.
RBI to examine the utility of using DLT based systems for enabling faster and more secure payment infrastructure, especially for cross-border payments.
Blockchain-based systems may be considered by the Ministry of Electronics and Information Technology (MEITY) for building a low-cost KYC system.
It will reduce the need for duplication of KYC requirements for individuals.
DLT-based systems can be used by banks and other financial firms.
They can use for loan tracking, collateral management, fraud detection, claims management in insurance, and reconciliation systems in securities markets.
DLT can be beneficial for removing errors and frauds in land markets if the technology is implemented for maintaining land records.
The Committee recommends that various state governments may examine the feasibility of using DLT for land-records management.

A cryptocurrency is a digital asset.
It is designed to work as a medium of exchange.
It uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.
The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.
Bitcoin, first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency.
Since the release of bitcoin, over 4,000 altcoins (alternative variants of bitcoin, or other cryptocurrencies) have been created.

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