Bitcoins are not illegal even if it is a highly volatile and risky in nature but it may be misused for illegal trading activities, says Bitcoin Alliance
The Bitcoin Alliance India (BAI), a community of Bitcoin entrepreneurs, has agreed that Bitcoins is risky and speculative but has urged the government to clarify its legality. BAI also agreed with the Reserve Bank of India (RBI)’s notification regarding risk associated with virtual currencies. In order to examine the legality of Bitcoins, the Alliance appointed Nishith Desai Associates.
Speaking with reporters in Mumbai, Nishith Desai said, “A transaction in relation to Bitcoins must be for lawful consideration and should not be opposed to the public policy. However, exporting goods from India against Bitcoins would not be permissible as the proceeds of exports must be repatriated to India in terms of foreign exchange through normal banking channels. Thus, Bitcoins per se are not regulated by any authority as it is an Internet product.”
Last month, RBI’s warning on using virtual currency, including Bitcoin raised many question about legality and safety of virtual currencies, including Bitcoins. There have been serious legal issues regarding usage of Bitcoins in commercial transactions and doubts whether Bitcoins is a currency, a security, a commodity or something else.
Desai clarified that, “Our Bitcoins Practice Group examined the issue from techno-legal perspective and have found that Bitcoins are not illegal in India. This is in consonance with international approach. United States (US) considers Bitcoins as a legitimate payment alternative. US Senate Home Land Security and Government Affairs Committee and the Senate Banking Committee consider that virtual currency has legitimate uses.”
Nishith Desai talked on Bitcoins’ legal aspects in India and said, “If the Bitcoins are sold for a price in terms of money, Sale of Goods Act would apply but accepting Bitcoins against good should not attract the provisions of Sale of Goods Act. Provisions of Foreign Exchange Management Act (FEMA) would not be triggered especially when the transactions are intra-India. Even importation of Bitcoins would be legitimate if the transactions are carried out through proper banking channels. In any event as a commercial transaction the provisions of the Indian Contract Act would have to be complied with.”
Bitcoin is also highly speculative and has seen scores of users recently. Today, a single Bitcoin in India is valued around Rs51,053 which was just equal to rupee while it started in 2008, single Bitcoin’s value in US Dollars is $818.07. According BAI there are total 30,000 Bitcoin users in India.
BAI agreed that it is highly volatile and speculative and said that, some hedge funds in US have made more than 4,000% returns from Bitcoins. One should not deal in Bitcoins unless they have proper knowledge of technology and mechanism of Bitcoins. Bitcoins can be misused to do illegal trade activities and money laundering just like cash is being misused but it is more traceable than money especially when traded through Bitcoin traders.
Recently, Bitcoin providers saw their services hacked. Replying to a Moneylife question online security risks for Bitcoins, the Alliance said “It is difficult (to hack). But Bitcoin system can be hacked while doing transactions. Owing to these risks Bitcoin users have to be careful while operating and protect password of their e-wallets.”
What is Bitcoin?
Earlier, Moneylife had covered Bitcoin in detail in a primer which can be accessed here, in which we argued that Bitcoins have taken the world by storm because of its peculiar nature in being unregulated and hence subverting rules and regulations world over, to which RBI had issued a notice. We had also written about its highly speculative nature.
While explaining Bitcoin mechanism BAI said that, after every four years production of new Bitcoins will be half of its production. During 2009, about 50 Bitcoins were generated in every 10 minutes, which came down to 25 Bitcoins per 10 minutes in 2013. They said that, Bitcoin mechanism gets more and more difficult as it creates new Bitcoins it can create maximum 21 million Bitcoins in next 126 years. After 126 years there will be no new production of Bitcoins. Hence, price discovery in Bitcoins is fair, supply is limited and demand is increasing which creates the appreciation in value of Bitcoins, BAI claimed.
BAI said that, Bitcoin is a cryptographic digital product which provides digital transaction system. The Bitcoins look like a currency or money but it is not. It sounds similar to security, derivative, negotiable instrument or pre-paid instrument but its not. However, worldwide it is known as virtual currency, even the official website of Bitcoin clearly states that it is digital money and pretty much like cash for the Internet.
BAI said trading of Bitcoins should be done through organised channels they are also willing to share all the information with regulators and government and they committed to develop further standard of openness and transparency in collaboration with the regulators.
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