What is Cryptocurrency?

Cryptocurrency as an idea emerged in the 1990s when the internet was on the rise. But it was
only in 2008 when cryptocurrency really caught steam with the mysterious Satoshi Nakamoto
publishing a paper on the technology and then making the first transaction in early 2009.
Since then, the world has come to know of Bitcoin as the primary form of cryptocurrency,
with the value of a single bitcoin now in thousands of dollars. Numerous other
cryptocurrency exchange systems have emerged in recent years over the globe, including
India. Cryptocurrency has not been welcomed with open arms in India, and has seen its share
of scrutiny.

What is a Blockchain?
A blockchain is a time-stamped series of immutable records of data that is managed by a
cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block)
is secured and bound to each other using cryptographic principles (i.e. chain). The goal of
blockchain is to allow digital information to be recorded and distributed, but not edited.
The blockchain technology first emerged with the Bitcoin whitepaper, which was the first
successful proposal to implement a decentralized digital currency with ability to execute
completely non-reversible transactions without a trusted and centralized third party. It was
used to solve the double spending problem of cryptocurrency.

Who controls the blockchain?

An open blockchain network has no central authority - it is the very definition of a
democratized system. Since it is a shared and immutable ledger, the information in it is open
for anyone and everyone to see. It is a shared and immutable ledger, the information in it is
open for anyone and everyone to see. Information once added to the blockchain will never be
removed, it will be permanently stored. Hence, anything that is built on the blockchain is by
its very nature transparent and everyone involved is accountable for their actions. The whole
database is stored on a network of thousands of computers called nodes. New information can
only be added to the blockchain if more than half of the nodes agree that it is valid and
correct. This is called consensus. The idea of consensus is one of the big differences between
cryptocurrency and normal banking.

Is blockhain secure?

Blockchain technology accounts for the issues of security and trust in several ways. First,
new blocks are always stored linearly and chronologically. That is, they are always added to
the “end” of the blockchain. After a block has been added to the end of the blockchain, it is
very difficult to go back and alter the contents of the block. That’s because each block
contains its own hash, along with the hash of the block before it.

The Supreme Court on Cryptocurrency

In April 2018, the RBI issued a circular banning regulated financial institutions from
providing services to businesses dealing in exchange/trading of cryptocurrencies, which put
the entire Indian cryptocurrency trading industry in turmoil. The validity of the circular was
challenged before the Supreme Court in various writ petitions lead by crypto-trading entities.
In its decision in Internet and Mobile Association of India v. Reserve Bank of India, the
Supreme Court deliberated on cryptocurrency and struck down the circular. he Supreme
Court held that the RBI was within its rights to issue the circular in fulfillment of its objective
under law to safeguard the "public interest, interests of depositors and interests of the
banking policy". The Supreme Court stated that "Therefore, anything that may pose a threat
to or have an impact on the financial system of the country, can be regulated or prohibited by
RBI, despite the said activity not forming part of the credit system or payment system." As the
circular was found to be issued in the interest of banking policy, the depositors and of the
public at large, the Supreme Court rejected the contention that there had been excessive use
of power by RBI.

The circular was also challenged on the grounds that denial of access to those who trade in
cryptocurrency would tantamount to a denial of their constitutional right to carry on any trade
or profession and thus would be violative of Article 19(1)(g). The Supreme Court upheld this
contention by stating that "There can also be no quarrel with the proposition that banking
channels provide the lifeline of any business, trade or profession." Though the RBI was held
to be within its rights to issue the circular, the factor that led to the striking down of the
circular was the lack of proof of the "proportional damage" suffered by RBI regulated entities
in dealing with businesses operating in cryptocurrencies. The Supreme Court observed that
the circular disconnected the banking sector from cryptocurrency exchanges despite the RBI
not having found anything wrong with the functioning of these exchanges. It was also noted
that before issuing the circular, the RBI did not explore the availability of alternative and less
intrusive measures such as regulating cryptocurrency trading and cryptocurrency exchanges.

Legislations vis-à-vis cryptocurrency

News reports suggest that the government is planning on creating a lasting ban on the usage
of cryptocurrency in India. The previous attempt at such a ban was made in 2019, which
failed. The 2019 bill criminalized the possession and usage of cryptocurrency in India, with a
jail term of 10 years. This new bill would, however, be a rather curious attempt by the
government. This is because in the aforementioned judgment delivered by the Supreme
Court, the RBI was asked to produce evidence to substantiate its claims of damage to RBI
regulated entities by showing malpractices or wrongdoings in these exchanges in India. Since
the RBI wasn’t able to produce any such evidence and with no new reports emerging on any
governmental investigations into the cryptocurrency market in India, the chances of a new
bill are rather slim. However, there may be an increasing need to regulate the cryptocurrency
market in India, with experts estimating that there are close to 60 lakh residents of India that
have in some form engaged with cryptocurrency.

Suggested links for further readings:

 https://www.bloombergquint.com/opinion/decoding-the-supreme-courts-
cryptocurrency-judgment
 https://www.bitdegree.org/tutorials/what-is-
cryptocurrency/#The_Origin_of_Cryptocurrency
 https://www.investopedia.com/terms/c/cryptocurrency.asp#:~:text=A
%20cryptocurrency%20is%20a%20digital,a%20disparate%20network%20of
%20computers.
 https://www.prsindia.org/billtrack/draft-banning-cryptocurrency-regulation-official-
digital-currency-bill-2019