CRYPTOCURRENCY

Author: Dibya Lipsa Maharana, B.A.LL.B.(Hons.), KIIT School of Law, Bhubaneswar, Odisha

To the Point

A digital or virtual currency that functions independently of an administrative body, such as a bank or government, and uses cryptography for protection is known as cryptocurrency. Bitcoin is the first and most well-known cryptocurrency. It was first introduced in 2009 by Satoshi Nakamoto, an unidentified individual or organization. Other well-known cryptocurrencies are Dogecoin, Litecoin, Ripple (XRP), and Ethereum. The blockchain technology that powers cryptocurrencies is a decentralized system that keeps track of every transaction made through a network of computers. Transparency, stability, and durability against fraud or tampering are thereby guaranteed.

Abstract

Blockchain technology, an open-source database that transparently and permanently records transactions across a network of computers, is the foundation of cryptocurrencies. By making every transaction verifiable, traceable, and invisible, this technology fosters security and trust in online transactions. The practice of mining, which requires solving challenging mathematical puzzles in order to validate transactions and add them to the blockchain, is commonly used to create cryptocurrencies.

The potential of cryptocurrencies to destroy established banking systems is what makes them appealing. Peer-to-peer transactions are permitted, transaction fees are decreased, privacy is improved, and unemployed populations can now access financial services. Additionally, it creates new opportunities for innovation in fields like non-fungible tokens (NFTs), smart contracts, and decentralized finance (DeFi). But there are also a lot of obstacles to the wide use of cryptocurrencies. Governments and financial organizations around the world have criticized and investigated it due to its unstable market value, lack of regulation, potential for criminal activity, and environmental issues, particularly with energy-intensive mining methods.

Cryptocurrencies are becoming more and more popular as a valid currency and alternate form of payment in spite of these reservations. It’s expected that cryptocurrencies will become more significant in transforming international trade, banking, and data management as technology and legal frameworks develop. In summary, cryptocurrency signifies a fundamental change in how we understand and interact with the ideas of value and trust in the digital age, rather than merely a new type of cash.

Use of Legal Jargon

Since legal vocabulary helps to bridge the gap between new technology and established legal systems, it is crucial in the field of cryptocurrencies. To make it clear that cryptocurrencies like Bitcoin are not formally accepted by governments as required payment for debts, phrases like “legal currency” are frequently used. The “Howey Test” is widely used by regulatory bodies to determine whether a digital asset is a “security,” which would expose it to strict securities rules. The “Know Your Customer (KYC)” and “Anti-Money Laundering (AML)” requirements must also be followed by cryptocurrency exchanges in order to verify customer identities and stop illegal financial activity. Contract law concepts like offer, acceptance, and consideration have been influenced by the idea of “smart contracts”—self-executing agreements written on a blockchain. In a decentralized system, where identifying the proper laws and conflict resolution mechanism might be difficult, “jurisdiction” is a crucial topic that is frequently brought up in legal discussions. Furthermore, “custody” presents questions regarding the legal duty and safekeeping of digital assets. Some governments have temporarily loosened regulations for cryptocurrency businesses by establishing “regulatory environments”. All things considered, legal vocabulary ensures accountability, adherence, and protection by assisting regulators, courts, and stakeholders in situating cryptocurrencies inside the framework of traditional legal systems.

The Proof

Cryptocurrency, though digital and decentralized, operates on a highly secure and verifiable technology known as blockchain, which provides the foundational proof of its existence and transactions. Proof of Stake (PoS) and Proof of Work (PoW) are the two most popular types. PoW takes a significant amount of computer power and energy as miners work through challenging mathematical challenges to validate blocks. One well-known example of this approach is Bitcoin. PoS, on the other hand, is more energy-efficient since it chooses testers according to how many coins they own and are prepared to “stake” as security.

Case Laws

Craig Wright v. Kleiman Estate: David Kleiman, a deceased cybersecurity specialist, filed a lawsuit against Craig Wright, an Australian computer scientist who made an undisputed claim to be Satoshi Nakamoto, the unknown founder of Bitcoin. In its early years, David and Wright collaborated to create and generate Bitcoin, according to the estate, which was represented by Ira Kleiman. After David passed away, Wright allegedly stole more than 1.1 million bitcoins and important intellectual property. The majority of the Kleiman estate’s allegations, including the alleged partnership and claims to the Bitcoin assets, were ultimately dismissed by the jury. Wright was sentenced to pay $100 million in damages to W&K Info Defense Research LLC, a corporation connected to both parties, after being held responsible for intellectual property violation. The case was significant because it raised issues about Satoshi Nakamoto’s identity, the legal status of digital assets, and ownership rights of cryptocurrencies.


Internet and Mobile Association of India v. Reserve Bank of India: The cryptocurrency industry was essentially destroyed in 2018 when the Reserve Bank of India (RBI) issued a circular prohibiting banks and other financial institutions from offering services to people or companies that dealt in virtual currencies. Representing a number of cryptocurrency exchanges and other interested parties, the Internet and Mobile Association of India (IAMAI) opposed this action, claiming that the RBI’s decision was reckless and infringed upon the Indian Constitution’s Article 19(1)(g) guarantee of the freedom to engage in any occupation, trade, or business. In its ruling on March 4, 2020, the Supreme Court declared that the RBI circular was unconstitutional because it was disproportionate to its intended purpose and because, at the time, there was no law prohibiting cryptocurrencies. The Court stressed that although the RBI is able to regulate financial institutions, it must do so without violating fundamental rights without a valid reason. The return of cryptocurrency trading in India was made possible by this ruling, which was a major win for the Indian crypto industry.

Conclusion

With its decentralized, safe, and transparent approach to digital transactions, cryptocurrency is a game-changer for the global financial scene. Blockchain technology has made peer-to-peer transactions possible by doing away with intermediaries like banks, but cryptocurrencies have also brought about opportunities and difficulties. While they advocate for efficiency, innovation, and financial inclusion, they also bring up issues with regulation, money laundering, and consumer protection. Maintaining financial stability and legal adherence while promoting technological innovation must be balanced as governments and legal systems around the world struggle with its consequences. Cryptocurrency’s future rests on well-defined legislative frameworks, more public knowledge, and ethical use that serves society’s larger legal and economic interests.

FAQS

What is Proof of Work (PoW)?

In blockchain networks (such as Bitcoin), Proof of Work (PoW) is an agreement technique that makes sure all transactions are safely recorded and verified without the need for a central authority.

What is Proof of Stake (PoS)?

The Proof of Stake (PoS) blockchain agreement process, which depends upon users staking their bitcoin assets to acquire the authority to approve new blocks. It is an alternative of Proof of Work (PoW).