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:

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.

Apple is finally getting ready to allow apps that deal in Bitcoin and other digital
currencies in its app store.

The Co.purse.io is marketing its services at people who would like to buy items
at Amazon using Bitcoins.



Xapo a bit coin wallet provider may be launching its much awaited Bitcoin debit
card in June 2014.

Bitcoin ATMs 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.

Dish is worlds largest company to accept Bitcoin.

Highcart.com an Indian online e-commerce website is also accepting payments
in Bitcoins.

The largest company in World to accept Bitcoins is Block chain. info. The CEO
of the company is paying its employees in Bitcoins.

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

Its decentralized-: The Bitcoin network isnt controlled by any central
authority. It is a system generated currency which is not regulated by any
authority.
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.
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 dont know that its yours. It is a completely transparent channel.
Low Transaction Fee-: The conventional banks charge lot of money for
International transactions. Bitcoin charges zero or minimal fee.
Fast-: You can send money anywhere and it will arrive within a time frame
of approx ten minutes.
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
To Buy Goods: bit coins can be used to buy many types of goods ranging
from electronics, jewellery, merchandise, books etc. Amazon.com, e-bay,
highcart.com etc are some of the merchant sites which deals in trading of
goods in exchange of bitcoins.
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.
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.
Debit Cards: As mentioned in news section, Xalo is the first company to
launch Bitcoin debit card
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.
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.
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;


(ia) derivative;
(ib) units or any other instrument issued by any collective investment scheme
to the investors in such schemes;
(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002;
(id) units or any other such instrument issued to the investors under any
mutual fund scheme;
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to
be securities; and
(iii) rights or interest in securities;
It is clear from a bare reading of this definition that Bitcoin does not come within
the definition of Currency as well as it does not fall under the gamut of any of the
parts of the definition of securities as well. However, the wording or such similar
instruments, as may be notified by the reserve bank under the definition of
Currency and clause (iia) of the definition of Securities, means that the RBI has
the power to include any such instrument within the definition of the term
Currency and Securities.

Further, the author has tried to look into various Legislation Acts i.e. SEBI, IPC,
Information Technology Act, Prevention of Money Laundering Act and has observed that
the operations of Bitcoin in India are neither barred nor consented to under any of these
Acts.

However, Section 3 of the PMLA includes a person who is even involved in any process
or activity connected with the proceeds of the crime and projecting it as untainted
property. Therefore, the prosecution under the PMLA lies in a very grey area and a very
thin line lies between the prosecution and exoneration under PMLA. Therefore, any
exchange or trader dealing into buying or selling of Bitcoins needs to comply with all the
regulations, procedures and requirement as enshrined under various Legislative Acts.

POSITION OF BITCOINS IN INDIA

As discussed above the operation, use, trading of Bitcoin in India is still unknown.
Recently RBI has issued a press release bearing number 2013-2014/1261 vide circular
dated 24.12.2013 wherein RBI has cautioned the consumer in general that Bitcoin is not
regulated or controlled by RBI and poses certain difficulties in implementation. RBI also


stated that it is presently examining the whole issue however, no news has been heard
from RBI since December, 2013.

As per the view of author RBI has issued the said circular to wash off their hands from
any risks arising out of use of Bitcoins by the consumers however, they are still looking
into the issue stringing the investors in doubtful mind.

CONCLUSION:

As per the research and understanding of the author trading, acceptance, dealing in
exchanges or any other activity related to Bitcoins are not illegal in India however, there
no certain provisions governing the regulation or activities related to Bitcoins as well.
Therefore, the legality of Bitcoins in India remains in grey area. Also, in view of the
author and the tremendous upsurge in the acceptance of the Bitcoin, by many
vendors/merchants i.e. from Fortune 500 companies to local vendors, is greatly
appreciated and is on the rise. Also, the volatility in the price of the Bitcoins may attract
or caution many people into entering into the Bitcoin market.

Ergo, the volatility, acceptance and adaptation shown by the people around the world
cannot be ignored and in view of the author the Bitcoin industry will pave its path by
gaining the trust of people over the period of time and being regulated/accepted by the
government authorities as well however, till date it remains as a silent q in the minds of
people.

FOR FURTHER INFORMATION CONTACT:

CriTaxCorp
Criminal-Taxation-Corporate
23/26, 1
st
Floor, East Patel Nagar,
New Delhi 110008

Telephone: +91 11 45061451
Mobile:
Kanishk Agarwal: +91 9999966252
+91 9971666252
Disclaimer: The information contained herein has been acquired by the author from various news sources
and various websites who deals and publishes news related to Bitcoin and the author is not liable for any
incomplete, unauthenticated or wrong information given here in, if any. This article is for the informative
and knowledge purpose and the author or the Firm is not liable for any loss, action, claim etc. arising due
to use of such information by any person. The information provided herein is of general nature and is not
intended to address the circumstances of any particular individual or entity. Although we endeavor to
provide accurate and timely information, there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular case.