As the human species marches steadily into a present and future driven by innovation and technology, currencies for payment remain for the most part as paper money in circulation, saved up in bank accounts regulated by a centralised banking system or a banking system overseen by multiple regulators answerable to nation states.
Our future was promised to be different — Elon Musk, the world’s richest man and the CEO of Tesla and Space X would be living on Mars, we would continue to appear in law courts using highly stable and refined video-conferencing mechanisms, election campaigning would be done via holograms, and cryptocurrencies and digital currencies would be used to pay for services. Bitcoin, a kind of cryptocurrency, was expected to be more valuable than gold.
If the present is anything to go by most of that future is almost here: Musk is keeping his word, selling his lavish homes to unencumber his life for interplanetary living, “virtual” courts continue to exist as a means of adjudication, campaigning through holograms is here to stay. Only Bitcoin has failed to live up to its potential. Even Musk and Tesla have refused to accept payment in crypto since it is environmentally disastrous due to the carbon emissions generated by the computer processing necessary to mint new coins. According to The New Yorker, the electric mining of new bitcoins consumes more energy than Argentina on an annual basis. Meanwhile, the price of gold has risen, while Bitcoin has fallen in value.
Cryptocurrency continues to remain a great favourite of law-breakers, such as those who send ransomware into our computers and demand payments to let go of our valuable data. Greg Ip writes in The Wall Street Journal that illicit entities did an estimated $4.9 billion in business while legitimate merchants did only $2.8 billion worth in cryptocurrencies. Ransomware payments alone amounted to $348 million in 2020, a four-time jump from the previous year.
Earlier this year, China banned bitcoin, the most popular digital currency, and soon after introduced its own digital currency.
The fears about bitcoin were made clear when a few months ago, Colonial Pipeline, which runs the main fuel supply line on the Eastern Seaboard or the entire coast from Maine to Florida in the United States, agreed to pay hackers $4.4 million dollars as agreed in bitcoin.
Despite all these negatives, The Wall Street Journal estimates that the total market capitalisation of all cryptocurrencies is estimated to be $2 trillion. The undisputed bright spot is that the underlying technology that enables cryptocurrencies, i.e. the blockchain technology could be used to replace the current global payment systems, which are slow, expensive and tightly controlled. Cryptocurrencies threaten to create a decentralised market space, that is more efficient, more egalitarian, and thereby disrupt the insular structures that control banking systems, globally and nationally. At its core, cryptocurrencies threaten to reimagine the nation state as the arbiter of local and international currencies and payment systems. They take us back to a time when gold, spices, and other goods — privately tradable commodities — were used to for trade and services.
Meanwhile, in India, we are behind China in terms of trying to crack down on cryptocurrencies. On April 5, 2018, the Reserve Bank of India (RBI) by regulation essentially prohibited the provision of banking services to any entity dealing or using virtual currencies. Private entities challenged this regulation in the Supreme Court. In 2021, the Court in Internet and Mobile Association v Reserve Bank of India found that while the RBI had the power to regulate virtual currencies, the prohibition imposed by it was disproportionate and unconstitutional. The Court held that in the absence of any legislative prohibition, the business of dealing in virtual currencies constituted a protected right of occupation under Article 19 (1) (g) of the Constitution.
There is great value in this judgment, including its recognition of a lack of valid law that regulates or bans or provides for virtual currencies. The Court notes that while the RBI has the power to regulate VCs, the ban is disproportionate since no banks of any sort had suffered a loss on account of VC exchanges.
Reports indicate the legislative vacuum may soon be remedied, as the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is to be introduced in this winter session of Parliament. Unfortunately, the bill itself is not available in the public domain. While it is unclear what the Bill will contain, if India goes the China route and bans cryptocurrencies, it would be unfortunate.
While issues of money laundering and ransomware can be dealt with by tweaking existing statutes, what should be utilised and encouraged is the blockchain technology that can make our payment systems more efficient. A ban would also succeed in pushing further underground systems that are here to stay. What would be most intelligent is a regulatory mechanism that mandates the maintenance of customer and transaction records. Eventually, India will have to learn from the mistakes and best practices of countries like Dubai, Singapore, Switzerland and the United States which are grappling with legislation to regulate cryptocurrencies. While that is happening, we can monitor the process of Musk relocating to Mars.
This column first appeared in the print edition on December 11, 2021 under the title ‘Who’s afraid of crypto’. The writer is a senior advocate who practices law at the Supreme Court