Abstract
The avatar of currency has evolved over time, and 'cryptocurrency' is its latest incarnation. Cryptocurrency is a type of digital currency that allows peer-to-peer online payments without interference of financial institutions. Though experts are impressed with its growth trajectory, its decentralized and unregulated structure has stirred insecurity amongst governments across jurisdictions that has translated into bans and indecisiveness related to its status. While the concerns are not baseless and it is susceptible to cybercrimes, the focus must be to mitigate the issues rather than imposing a blanket prohibition that would be antithetical to the fundamental spirit and purpose of financial digitization, which is to promote the free flow of funds. In this chapter, the authors, firstly, analyze the practicality of cryptocurrency in light of the legal barriers and, secondly, assess the viability of a regulatory framework that ensures minimal control from the authorities but also checks concerns including cybercrime, illegal transactions, tax evasion, and lack of accountability.
TopBackground
To begin, difference must be drawn between two terms: electronic money and digital currency. To put it simply, the digital equivalent of currency is electronic money. Electronic money is essentially fiat or physical money that is stored in electronic form; it is the digital equivalent to fiat money. When the device's owner makes a purchase or sale transaction, the quantity of stored monetary value is reduced or increased accordingly.
Whereas digital currency is a type of payment that exists only in electronic form, that is, there is no physical equivalent of it in the owner’s possession (Ayhan, 2017). Digital currency does not have a physical form, such as coins or currency notes. Instead, transactions of digital currency are made through computer devices, with the help of electronic codes (Reserve Bank of India (RBI, 2017).
Cryptocurrency is digital currency and not electronic money, as discussed above, as they do not have a fiat equivalent to them. Essentially, it is a digital representation of value that follows its own unit of account, and is issued by private developers. (Dong He et al., 2016, pp. 7, 16-17). Unlike the electronic equivalents of fiat money, Cryptocurrency is not governed by any central financial or governmental authority. Instead, it signifies a free flow of funds, unrestricted and unregulated by government norms and policies, in the furtherance of a more democratic setup. Although it operates independently of banks, governments, financial institutions, or brokers, like various currency exchanges that exist for normal currency, Cryptocurrency also requires the use of digital exchange platforms to be operated and traded in.
Key Terms in this Chapter
Transaction: The action of buying, selling, or trading a commodity, product or service,
Binance: A cryptocurrency exchange domiciled in the Cayman Islands, founded in 2017.
Whitepaper: It is a technical manifesto or document outlining complex issues pertaining to a product or subject proposed by the author or the issuing organisation. Its purpose is to provide the reader with detailed knowledge and information about the subject, in order to enhance the reader’s comprehension on the topic. For example, the Bitcoin Whitepaper was released in 2008 by a pseudonymous author Satoshi, which explained the principles of cryptocurrency in detail for the first time.
WazirX: Largest cryptocurrency exchange in India. It was founded in 2018 and it headquartered in the city of Mumbai, Maharashtra.
Coinbase: An American cryptocurrency exchange platform founded in 2012.
Blockchain: It is an elaborate database and a digital ledger of transactions that is disseminated across all devices and systems connected to the network. Blockchain technology consists of various blocks and each of these blocks carries a certain amount of transactions. Each time a new transaction is given effect on a network, the record of the transaction is added to the existing list in the form of a ledger.
Cryptocurrency: A digital currency used and traded by means of cryptography. It functions in a decentralized system.
KYC: Know Your Customer (KYC) is a process used by financial institutions and cryptocurrency exchanges to verifies the users’ identity. It involves steps such as linking mobile number, unique identification number, address etc. to the account of the user.
Fork: A consequence of changes made to existing rules of a blockchain. The changes result in a bifurcation of the blockchain into two parts: one remains the blockchain with the original rules and the new set of rules make a separate version of the blockchain.
Altcoin: It could also be understood as ‘Alternative Coins”. Essentially, it used to mean any coin other than Bitcoin. However, with the advent of mainstream coins like Ethereum (ETC), it may also mean coins other than primary cryptocurrency coins such as Bitcoin and Ethereum.
Miner: The individual who executes mining of cryptocurrency.