Author: Mohan Kumar K P, a student at Sathyabama Institute of Science and Technology
Headline of the Article
Blockchain technology is primarily conceived and built as the foundation for cryptocurrencies such as Bitcoin, currently a revolutionary digital platform that goes beyond the purview of finance. In this paper, blockchain engineering and various sub- topics are discussed, which are Decentralized networks, Cryptography, Consensus algorithms and smart contracts. Because of the decentralized and continuous ledger characteristic of blockchain, the solution finds application in finance, supply chain management, healthcare, and governance among other industries. Furthermore, the paper elucidates on the shortcoming and practical problems that come with the use of blockchain including; scalability, power consumption and legal issues. From this research, it becomes evident that blockchain holds promise in transforming different industries, but at the same time emerging challenges with mass implementation. In this paper, a historic background of blockchain and major components including decentralized ledgers, cryptographic algorithm, consensus mechanism, and smart contracts are discussed. These features allow only safe, purely transparent and resistant to forgery transactions while using blockchain as a powerful tool in various areas of business such as finance, supply chains, healthcare, and governance. It also looks at some of the new applications of blockchain such as decentralized finance (DeFi) and non-fungible tokens (NFTs), alongside some of the major issues including scalability, regulatory issues and energy consumption. The author deals about the fundamental understanding of the current state of blockchain, the future direction for its development as well as challenges towards its mainstream adoption.
To the Point
Current legal systems strongly undermine the possibility to utilize blockchain technology across different countries. Legislations such as the GDPR present inherent compliance issues to blockchain since data recorded on the blockchain cannot be erased or amended. Although blockchain forms a foundational and key layer of many emerging technologies, its main characteristic is decentralization, it poses questions regarding compliance most notably in the area of data protection where fundamental laws like the GDPR count against some of the features beloved of blockchain enthusiasts, namely, the right to erasure or right to Financial regulations present other challenges; securities laws present special obstacle that blockchain platforms have to overcome due to the complexity of registration and reporting. Another question that accompanies blockchain-based systems is the inability of current intellectual property laws to protect decentralized ownership mechanisms. Legal issues arise due to the platform’s non-domestic nature; the existing legal framework lacks proper preparation for a platform, such as blockchain technology, that ignores borders. Therefore, the number of specialized legislations is rising to balance protection of the blockchain innovation and consumer protection as well as to address the distinctive technological attributes of blockchain.
Use of legal jargon
The utilization of blockchain technology in India still lacks proper regulations and is therefore considered a safe place for its operation. The legal recognition of the technology comes only indirectly through the existing laws. Smart contracts may be considered as contracts in force under the Indian Contract Act, 1872, if they meet all the necessary conditions seriously breach of Sections 2(h), 10, and 11.
Further, the Information Technology Act, 2000, in Section 4, grants the same legal force as paper records to electronic records. The Supreme Court reiterated that Article 19(1)(g) of the Constitution protects the freedom to carry out business in cryptocurrencies, unless such activities are prohibited by a law. But currently, there is no official blockchain regulation in place. The technology is thus being interpreted under the existing laws while its developers and users are still at risk that new regulations could be passed in the future, which might affect them without their knowledge.
The Proof
The current legal situation of blockchain technology in India is exceptionally convoluted due to the dynamic structure of the legal environment. Although the Indian government is approachable to cryptocurrencies and their promotion, in 2022, it launched taxation on crypto assets through the Finance Act. The Reserve Bank of India (RBI) has adopted cautious approach where previous attempts at banned cryptocurrency transactions were later quashed by the supreme court in 2020. There are legal challenges in data protection since the block chain framework goes against the principle that is given out by the Personal Data Protection Act. This means that at its core smart contracts have unclear legal enforcement, which needs the analysis of legal systems. Financial regulatory agencies such as SEBI are also keen on adopting use of blockchain thereby pointing to the likelihood of a changing world with more transparency and technology embedded financial systems. However, India still evolves an approach toward regulation of blockchain innovations and interests’ protection based on national legislation.
Presently, there are increasing legal structures regulating the global blockchain technology as different governments around the world continue to establish a complex set of frameworks to address the issues off technological advances and the associated financial risks. The United States Securities and Exchange Commission (SEC) has been especially active, recognizing a great many crypto assets as securities and applying strict regulatory measures. Instead, the European Union has been going further and creating a more extensive regulation called Markets in Crypto-Assets (MiCA) which outlines legal guidelines of crypto in the EU members. The emerging markets are characterized with varied regulations where for instance India admit separate taxation measures on cryptocurrencies transfer of 30% while China banned all cryptocurrencies entirely.
Abstract
The article surveys the changed potential of blockchain technology and thoroughly reviews the extent of its legality in the Indian situation. It follows the blockchain development from a decentralized ledger system to an innovative force in the financial sector, public administration, and digital agreements. The role of judiciary in landmark cases have been relied upon to establish the extent to which the courts in India have interpreted the regulatory landscape. It also indicates problems of smart contracts’ compliance, the possibility of accepting the blockchain as evidence, and the necessity of having a sufficient legal system. The article thus, through a fair viewpoint, presents a better understanding of the future of blockchain rules in India.
Case Laws
Internet and Mobile Association of India (IAMAI) V. Reserve Bank of India (RBI) (2020)
The Supreme Court, in its landmark judgment of March 2020, has capitalized on the RBI’s unconstitutional circular by the Court ruling that the ban was disproportionate and violated Article 19(1)(g) of the Indian Constitution. Although the Court accepted the RBI’s concerns for the financial stability, it did not find the RBI to be supported with any testimonies showing that the regulated entities were harmed because of crypto activities. This judgment, thus, brought back the banking services for the cryptocurrency businesses, rekindling the Indian crypto ecosystem and signifying a turning point in the legal recognition of the digital assets.
Nirod Kumar Das V. State of Odisha (2023)
In a recent order, the Orissa High Court has on one hand confirmed murder charges against a person, while on another hand they gave him bail, stating that the cryptocurrencies do not exactly fit into the categories of “money” or “deposits” in the existing laws. Although the judgment represents a decision on a bail application, it throws light on the ambiguity in the law about the place of digital assets in the legal system. Without directly stating it, the court still went along with the idea that the mere fact of trading in a cryptocurrency would not constitute an offence, thus it restates the need for the enactment of the laws, which would take into account the peculiarities of the assets on a blockchain and the frauds that can be occurring.
Shailesh Babulal Bhatt V. State of Gujarat & Another
The Supreme Court has become a forum for forceful questioning of the government’s persistent inertia in the regulation of crypto by the judiciary. The Court has pointed out the contradiction of taxing Virtual Digital Assets (VDAs) while there is no legal framework and has compared unregulated Bitcoin trading to “Hawala.” The avid judicial statements not only speak the same language but also are indicative of the government’s being pressured and thus the necessity of a crypto law.
Vijay Madanlal Choudhury V. Union of India
The apex court gave a vivid example of how international regulatory frameworks are being blended with India’s domestic legal structure. The VASP Notification confirms that organisations that carry out certain functions on behalf of third parties in their commercial operations, are thus considered ‘persons carrying on the designated business or profession’, and therefore, they fall under the definition of Reporting Entities (REs) in the PMLA provisions. Among these specified functions is the ‘custody or management of Virtual Digital Assets or financial instruments that enable control over such assets’. However, the VASP Notification, among other categories of activities, still does not fully cover the part of the Virtual Digital Asset industry that is the most significant, and, hence, necessarily the most essential one, in the broadest sense of the term.
Conclusion
Opportunities and risks of blockchain technology in India: a case of an impending clash between the technical characteristics of distributed ledgers and the legal provisions of personal data protection. The principles of data minimization and purpose limitation established by the Act are at odds with the fundamental attribute of blockchain, which is the creation of an immutable ledger record. While blockchain provides for the innovation in ensuring data integrity by cryptographic mechanisms, it fails to address the basic issues on individual right to privacy especially the right to be forgotten guiding data protection regulation in India. Legal experts posit that decentralised blockchain brings substantial compliance issues since data on blockchain cannot be altered or erased, which may infringe on the right to privacy. Blockchain and data protection in India regulation is a still-blank area that needs the work of legal and technological experts to harmonize the use of the technology while ensuring proper protection of data.
FAQs
Q1. Is using blockchain technology legal in India?
Blockchain is just fine in the Indian market with the law. At the moment, there are no particular regulations regarding blockchain, still, multiple state areas have already launched pilot use of blockchain technology in work with land records, education, and logistics. Even though legal status is not a problem, there is still a need for policy in this area at the national level.
Q2. Can I legally buy or trade cryptocurrencies in India?
The answer is yes; it is completely legal to hold and trade cryptos in the Indian market. The apex court, in the case of IAMAI V. RBI (2020), revoked the RBI’s ban on banking services for crypto transactions. Even though crypto is not money, it is considered a digital asset and has to comply with the rules on taxes and reporting.
Q3. Are smart contracts enforceable under Indian law?
Smart contracts in India have validity if they fulfill the conditions required for an agreement as per the Indian Contract Act, 1872, eg. offer, acceptance, and legal consideration. Theoretically, they are enforceable, but there still exist some obstacles, such as how to interpret the code and where will be the jurisdiction, which can make courts less willing to enforce the rules.
Q4. Can blockchain records be used as evidence in court?
Yes, blockchain transactions are insertable as electronic evidence by virtue of Section 65B of the Indian Evidence Act if they comply with certain requisites of being a certified copy of the original document. The courts have already authorized the concept of electronically stored information and thus will be ready to accept the blockchain technology evidence when it can demonstrate immutability via a legitimate certification provided.
Q5. Are there legal risks in building or using blockchain platforms?
Indeed, there are some legal issues that come along due to the fact that there is no definite regulatory framework. Problems can be mentioned in areas like personal data protection, taxation, consumer responsibility, and the use of crypto tokens. It is still necessary for developers to comply with the general IT and financial laws as no specific blockchain rules have been issued yet.
