Arun Jaitley, Union Finance Minister of India, at paragraph 112 of his budget speech, 2018-19, said, “Distributed ledger system or the block chain technology allows organisation of any chain of records or transactions without the need of intermediaries. The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore use of block chain technology proactively for ushering in digital economy.”
This announcement categorically denies all existing crypto currencies the status of legal tender in India. However, it does not discount the use of blockchain technology altogether. It leaves scope for positive use of the technology for digital economy. The reason cited by the government for this declaration is that it has become a mode of financing of illegitimate activities. This announcement was expected because it was reported that Income Tax Department has sent a number of notices to persons engaging in transactions through cryptocurrencies.
THE BACKGROUND
The report in a newspaper had informed that Bitcoin, the cryptocurrency that has become the craze all over the world, was a hit with a lot of Indians too. More than $3.5 billion worth of transactions in the cryptocurrency had been conducted in India over a 17-month period. Such currencies are the recent craze among tech-savvy young investors, real estate players, jewellers and persons with an eye on get-rich-quick promise.
A cryptocurrency is a digital asset designed to work as a medium of exchange. It uses cryptography to secure its transactions. Creation of additional units of such currencies is controlled and a system of verification for transfer of assets is in-built. It is a decentralised currency which has no control of any central bank. It is a digital mode of transaction. It uses technology, a public transaction database, and is referred to as a distributed ledger. A blockchain is continuously growing list of records and is resistant to any modification of data, ensuring that no record is altered or modified retrospectively.
THE OVERVIEW
It is understood that Income Tax Department has sent more than five lakh notices to persons transacting in it. One such summon issued under Section 131 of the Income Tax Act comprises 28 questions. So, whereas Indian condition is concerned there is, at least now, no scope for any adventure in this area!
The problem with cryptocurrency arises with the anonymity of transactions. Despite the fact that the blockchain technology ensures that no record is erased or modifies and all transactions remain on board, the persons remain in dark. In a majority of cases the transactions are between currency to currency involving no real commodity. From Islamic Shari’ah point of view all transactions between same medium of exchange (money) are forbidden. There has to be commodity and that too a legally approved and correct commodity. Further, no system of redressal of dispute exists for real transactions of commodities. As of now it is a questionable, and so avoidable, adventure.