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Bitcoin- The Virtual Currency; Concept, Understanding and Position in India

This article is about the growing development of bitcoins all over the world and its impact, acceptability, governing law in India.
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    BITCOIN- THE VIRTUAL CURRENCY; ITS CONCEPT, UNDERSTANDING AND POSITION IN INDIA WHAT IS BITCOIN? Bitcoin is a cryptography based digital currency first described in a 2008 paper by a single or group of pseudonymous developer(s) by the name of Satoshi Nakamoto, who called it a “peer-to-peer, electronic cash system”. Bitcoin creation and transfer is based on an open source cryptographic protocol and is not managed by any central authority. Each Bitcoin is subdivided down to eight decimal places, forming 100,000,000 smaller units called satoshis. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. The processing of Bitcoin transactions is secured by servers called Bitcoin “miners”. These servers communicate over an internet- based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer file sharing technology, also known as the “block-chain”. The integrity and chronological order of the block-chain is enforced with cryptography. In addition to archiving transactions, each new ledger update creates some newly-minted Bitcoins. Each user of Bitcoin gets a digital wallet and a Bitcoin address which is the address of that user, from and to which Bitcoins can be transferred once this address is given to another party for the transfer. A transaction or transfer of Bitcoins is simply a transfer of value between Bitcoin addresses that gets included in the block chain or the system log, which ensures that each transaction is valid and that nobody can use his or her Bitcoins more than once i.e. it avoids double spending. Bitcoin wallets keep a secret piece of data called a “private key” for each Bitcoin address. Private keys are used to sign transactions,  providing a mathematical proof that they have come from the owner of the addresses. The “signature” also prevents the transaction from being altered by anybody once it has  been issued. RECENT NEWS AND DEVELOPMENTS IN BITCOIN INDUSTRY IN INDIA AND ABROAD: ã   USA  is making lot of efforts to make citizens aware of Bitcoins. The recent study clearly shows that more Fortune 500 companies are entering and initiating the remittance and receipt through Bitcoins. The US Government  has just given the green light for people to make political donations using bit coins. ã   Apple  is finally getting ready to allow apps that deal in Bitcoin and other digital currencies in its app store. ã   The  is marketing its services at people who would like to buy items at Amazon using Bitcoins.    ã   Xapo  a bit coin wallet provider may be launching its much awaited Bitcoin debit card in June 2014. ã   Bitcoin ATM’s  have paved their way in many countries such as Africa, Hong Kong, Singapore, South Korea in Asia; Melbourne and Nimbin in Australia; Czech Republic, England, Finland, Germany, Ireland in Europe; Canada, Mexico and United States in North America and many other countries as well. ã   Dish  is world’s largest company to accept Bitcoin. ã  an Indian online e-commerce website is also accepting payments in Bitcoins. ã   The largest company in World to accept Bitcoins is Block chain. info . The CEO of the company is paying its employees in Bitcoins. ã   India has also got its first Bitcoin Exchange which was launched on 05.05.2014 by a Hyderabad based Company which is funded by a UK Firm. FEATURES AND USAGE OF BITCOIN    Features of Bitcoin ã   It’s decentralized -: The Bitcoin network isn’t controlled by any central authority. It is a system generated currency which is not regulated by any authority. ã   Easy to set up-:  One can set up a Bitcoin address in seconds and with no fees  payable. The procedure is not that lengthy or difficult as it is for opening up conventional accounts. ã   Completely Transparent-:  Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the block chain . The block chain tells all. If you have a publicly used  bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours. It is a completely transparent channel. ã   Low Transaction Fee-:  The conventional banks charge lot of money for International transactions. Bitcoin charges zero or minimal fee. ã   Fast-:  You can send money anywhere and it will arrive within a time frame of approx ten minutes. ã   Non-repudiable-:  When the Bitcoins are transacted/sent to the other person, there are no chargeback or any way of getting them back, unless the recipient returns them to you. So cancellation of the transaction by the sender is not  possible, reducing the worry of the vendor/ merchant that transaction might  be cancelled.       Use of Bitcoin ã   To Buy Goods : bit coins can be used to buy many types of goods ranging from electronics, jewellery, merchandise, books etc., e-bay, etc are some of the merchant sites which deals in trading of goods in exchange of bitcoins. ã   To Avail/Pay for Services : bit coins can be used to avail services ranging from simple food supply to business dealings. Use of bit coins is seen in many sectors from hosting websites to online gaming services which includes Wordpress, X Box live, Play Station Network etc. ã   Gift Cards : Many US companies like Gyft, eGIFTER, ITradeBTC and GiftCardZen provides bitcoin gift cards to their customers, which when gifted can be used in turn to deal with major retailers like Wall Mart, Amazon, Nike etc. ã   Debit Cards : As mentioned in news section, Xalo is the first company to launch Bitcoin debit card ã   Payment of Remuneration in Bitcoins : As mentioned in news section, many companies have started paying their employees remuneration/salary in  bitcoins. This can also be taken as a revolutionary step towards emerging utility of bitcoin, all over the World. ã   Apps purchases by Bitcoins : As mentioned in news section, Apple has recently announced that it is remodeling its payment structure to accept  payment in bitcoins also. ã   Replacement of FOREX Card With Bitcoins : As stated in news section, many countries have launched or installed bit coins ATMs. bitcoin users can access their bitcoin wallets to withdraw/transfer their bitcoins, anywhere in the World. Such international transactions by medium of bitcoins will not attract the banking transaction fee. BITCOIN PRICE CHART   The author has been following the price index of the Bitcoin for a while. The price chart of the last one year is attached above. The Bitcoin price index has seen sudden upsurge in the month of Oct, 2013 to Dec, 2013 increasing the bitcoin price from $100 to all time high of $1,147 which is a phenomenal increase of more than 1000%. Later, due to Mt. Gox Exchange the price of the bitcoin surged to the level of $360 in the month of April, 2014 and currently as in the month of June, 2014 it stands at a price of $650. Ergo, the price of the Bitcoin is volatile, however, the rise in the investment and the sudden upsurge of the news in the Bitcoin industry has made Bitcoin price rise from $360 to $650 just in a matter of 2 months. In view of author, volatility in price of bitcoin is noticed when there is announcement of a news or when a major conference is held to discuss the development and future of  bitcoin. The next conference is in London, UK on 10-11 July, 2014. POSITION OF BITCOIN UNDER INDIAN LAW REGIME With this very basic and brief understanding of Bitcoin, we have tried to examine whether Bitcoins should be treated under Indian law as (i) currency, (ii) security and various Legislative Acts. The examination of the mentioned terms is required in order to understand the exposure/applicability of the present Indian Law. (i)   IS BITCOIN DEFINABLE AS CURRENCY UNDER INDIAN LAW? Indian laws do not define digital currency or virtual currency, therefore we have tried to look into the definition of currency as defined under section 2(h) of the Foreign Exchange Management Act, 1999 (“FEMA”) to see if Bitcoin falls in that definition. The term currency is defined as follows: “currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank; (ii)   ARE BITCOIN DEFINABLE AS SECURITIES? In order to determine whether the operation of the term “securities” is defined in section 2 (h) of the Securities Contracts (Regulation) Act, 1955 in the following manner: “securities” include — (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;


Jul 31, 2017
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