As the human species steadily moves toward a present and future driven by innovation and technology, payment currencies remain for the most part as paper money in circulation, kept in bank accounts regulated by a centralized banking system or a banking system supervised by multiple regulators. accountable to national states.
Our future was promised to be different: Elon Musk, the richest man in the world and the CEO of Tesla and Space X would live on Mars, we would continue to appear in court using highly stable and refined videoconferencing mechanisms, the election campaign would be done through holograms, and cryptocurrencies and digital currencies would be used to pay for services. Bitcoin, a kind of cryptocurrency, was expected to be more valuable than gold.
If the present is something to go through, most of that future is almost here: Musk is keeping his word, selling his luxurious homes to free his life for interplanetary life, “virtual” courts continue to exist as a means of adjudication, campaigning through holograms. is here to stay. Only Bitcoin has failed to reach its potential. Even Musk and Tesla have refused to accept payments in crypto as it is environmentally disastrous due to the carbon emissions generated by the computer processing necessary to mint new coins. According to The New Yorker, the electric mining of new bitcoins consumes more energy than Argentina annually. Meanwhile, the price of gold has risen, while Bitcoin has fallen in value.
Cryptocurrency continues to be a favorite of lawbreakers, such as those who deliver ransomware to our computers and demand payments to get rid of our valuable data. Greg Ip writes in The Wall Street Journal that illicit entities made an estimated $ 4.9 billion in business, while legitimate traders only made $ 2.8 billion in cryptocurrencies. Ransomware payments alone amounted to $ 348 million in 2020, a four-fold jump from the previous year.
Earlier this year, China banned bitcoin, the most popular digital currency, and soon after introduced its own digital currency.
The bitcoin fears became clear when a few months ago Colonial Pipeline, which operates the main fuel supply line on the East Coast or the entire coastline from Maine to Florida in the United States, agreed to pay hackers $ 4.4 million of dollars as agreed in bitcoin.
Despite all these negatives, The Wall Street Journal estimates that the total market capitalization of all cryptocurrencies is estimated at $ 2 trillion. The indisputable bright spot is that the underlying technology that enables cryptocurrencies, that is, blockchain technology, could be used to replace current global payment systems, which are slow, expensive, and tightly controlled. Cryptocurrencies threaten to create a decentralized market space, which is more efficient, more egalitarian, and thus disrupts the island structures that control banking systems, globally and nationally. In essence, cryptocurrencies threaten to re-imagine the national state as the arbiter of local and international currencies and payment systems. They transport us to a time when gold, spices and other goods (privately tradable commodities) were used for commerce and services.
Meanwhile, in India, we are behind China in terms of trying to crack down on cryptocurrencies. On April 5, 2018, the Reserve Bank of India (RBI) by regulation essentially prohibited the provision of banking services to any entity that trades or uses virtual currencies. Private entities challenged this regulation in the Supreme Court. In 2021, the Court in the Internet and Mobile Association v Reserve Bank of India found that while the RBI had the power to regulate virtual currencies, the ban imposed by it was disproportionate and unconstitutional. The Court held that, absent a legislative prohibition, the business of trading in virtual currencies constituted a protected right of occupation under article 19 (1) (g) of the Constitution.
This ruling has great value, including the recognition of the lack of a valid law that regulates, prohibits or provides for virtual currencies. The Court notes that while the RBI has the power to regulate VC, the ban is disproportionate as no bank of any kind has suffered losses from VC exchanges.
Reports indicate that the legislative vacuum may be remedied soon, as the bill on cryptocurrencies and regulation of the official digital currency, 2021, will be presented in this winter session of Parliament. Unfortunately, the bill itself is not available in the public domain. While it is unclear what the bill will contain, if India goes the Chinese route and bans cryptocurrencies, it would be unfortunate.
While money laundering and ransomware issues can be addressed by modifying existing statutes, what should be used and encouraged is blockchain technology that can make our payment systems more efficient. A ban would also succeed in boosting new underground systems that are here to stay. What would be smarter is a regulatory mechanism that requires the maintenance of customer and transaction records. Eventually, India will have to learn from the mistakes and best practices of countries like Dubai, Singapore, Switzerland, and the United States, which are grappling with legislation to regulate cryptocurrencies. While that’s happening, we can monitor Musk’s move to Mars.
This column first appeared in print on December 11, 2021 with the title ‘Who’s Afraid of Cryptocurrencies’. The writer is a senior advocate practicing law in the Supreme Court.