Blockchain Technology and Cryptocurrency are the future of Information and Communications Technology (ICT) and provide a greater security for data protection and financial transfers. This is so, because under Blockchain a ledger is created and data is continuously being added to the ledger which is in the form of blocks and therefore hacking such data is tougher than the systems in place now.
DEMISTIFYING BLOCK CHAIN
Block chain is a basically a decentralized ledger, that is, the digital information is stored in the form of blocks on a public ledger which acts as the chain.A Block is a batch of transactions that happened across a network. The blocks are cryptographically chained together. Every transaction’s data is covered into an unreadable form (data) and this is where it is a safe and secure way of storing data from theft. The ledger can only be accessed by a key which the authorized people have it and use it to login to the ledger.
THE WAY BLOCK CHAIN TECHNOLOGY WORKS:
1. Transaction and Contacts – transactions are the fundamental blocks and contracts are pre-defined business logics on which 2 or more people do business.
2. Accounting Records and Ledger – ledger acts as a record keeping system of transactions which can be created and read but cannot be deleted or updated.
3. Centralized to Decentralized System – Blockchain is a distributed ledger containing multi central nodes. Hackers may not be able to hack into decentralized nodes as easy as centralized nodes. The data may be stored across thousands of networks which are decentralized and are secured using advanced and powerful hashing techniques.
4. Block Chains are in a Distributed Ledger and Cryptographically chained blocks and therefore you cannot manipulated many nodes. Incase, there are only a handful of nodes as in a centralized system it can be capable of being manipulated but not in blockchain technology, but if 51% of the nodes in the network are untrustworthy, then we can say that blockchain is not roboust. Only if it is greater than 51% of trusted networks, we can say blockchain is safe. It can be understood to be an Immutable Data.
5.Smart Contracts – Smart Contracts help to automate the transaction and the terms and conditions are codified. Transactions are then processed automatically.
6. Trust and Transparency – The data in Block Chain is trustable and safe due to the property of immutability. This is needed more so because in business generally we transact with someone we don’t know at all.
APPLICATIONS WHERE BLOCK CHAIN CAN BE USED:
1. Digital Currency – E-commerce, Global Payments,
2. Record Keeping – Healthcare, Title Records, Intellectual Property
3. Securities – Equity, Debt, Crowdfunding, Derivatives
4. Smart Contracts – Digital Rights, Escrow
BLOCK CHAIN CAN HELP PROVIDE VERIFICATION AS A SERVICE – AN EXAMPLE / ILLUSTRATION FOR USE OF BLOCK CHAIN TECHNOLOGY APART FROM FINANCE:
For instance, I would take the Academic Certificates Verification process. Now, currently we need to contact the respective university to get the certificates verified as they are on a centralized node. That is, every university maintains its Data Base Management System (DBMS)and is vulnerable to hacking due to the centralized node as I mentioned earlier. This can be powered by Block Chain Technology when the certificate issuing authority uploads the details on the Block Chain node, we can directly verify it through the data keys, and the uploaded data on the node / network is time stamped and can only be seen and not manipulated. Hence, it is a roboust system to the digital world.
There has always been a problem of fake academic and experience credentials for the Recruitment Team of the Human Resource Management Department of any organization. They spend a lot of money on the certificate verification process which is time consuming as well from the time of submitting an application requesting the university to verify the certificate till they get it verified from the university’s end. With a Block chain, this process can be simplified and save time and costs and is a secure way for every university and organization to store and view data.
COUNTRIES EMBRACING BLOCK CHAIN TECHNOLOGY CURRENTLY:
USA, Canada, Australia, New Zealand, Switzerland and Japan, etc are a part of the 120-odd countries actively using Block Chain Technology for various purposes.
Block Chain and Cryptocurrency are almost synonyms and when we say cryptocurrency we come across the concept of Bitcoins, the first open-source software from its 2009 existence (though not yet legal in India as on the date of writing this article on, 30th June, 2020). which is one among the 500-odd cryptocurrencies in existence.
Cryptocurrency is a digital currency represented by mathematical algorithms and generated through the process of mining (proof or work) on blocks of nodes. Cryptocurrency is also known as ‘internet of money’. Cryptocurrency can be transacted from p2p (peer-to-peer) all across the world, without any intermediary (decentralized transaction).
CHALLENGES IN CRYPTOCURRENCY
Cryptocurrencies like Bitcoins are subjected to extreme volatility and price fluctuations in the international market and is not a legal tender in India. Due to this decentralized blockchain where cryptocurrencies exist, they have become a hub for funding illicit transactions and terror funding and are therefore illegal in India as per a Reserve Bank of India circular on April 06, 2018 which bans transactions in cryptocurrencies in India which are otherwise called as Virtual Currencies.
LEGAL ISSUES IN CRYPTOCURRENCY
Cryptocurrencies are not regulated yet and do not have a proper policy framework yet in India. There are no laws yet in place to validate Blockchain and Cryptocurrency applications in India
CASE LAW WITH REFERECE TO CRYPTOCURRENCY IN INDIA
Internet and Mobile Association of India v Reserve Bank of India
In the above case, the April 6th, 2018 circular of the Reserve Bank of India regarding prohibition on dealing with Virtual Currencies in India which imposed a blanket ban on cryptocurrency dealings in India was quashed by the Supreme Court of India.
These instructions are issued in exercise of powers conferred by section 35A read with section 36(1)(a) of Banking Regulation Act, 1949, section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949, section 45JA and 45L of the Reserve Bank of India Act, 1934 and Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007.
On thorough reading of the case judgement we can understand that if precautionary steps like avoiding cash transactions, updating Know Your Customer (KYC Norms) and if these virtual currency transactions are done only within India then they may be allowed as per the Supreme Court’s directives.
Virtual Currency had the characteristics of money as per the economics sense, as in, it acted as a medium of exchange, unit of account, store of value but not as a legal tender.
According to Investopedia, Virtual currency is a type of unregulated digital currency that is only available in electronic form. It is stored and transacted only through designated software, mobile or computer applications, or through dedicated digital wallets, and the transactions occur over the internet through secure, dedicated networks. Virtual currency is considered to be a subset of the digital currency group, which also includes cryptocurrencies, which exist within the blockchain network.
MY ANLYTICAL VIEWS
I strongly feel that digital currency, crypto currency is the future. Even data protection laws may use blockchain to protect the data in the future since the governments and other institutions may see that data is safer when protected using private key and public keys.
PROS OF USING THESE TECHNOLOGIES
1. It is safer to use and more faster to retrive data.
2.It is the future and mostly all data might transfer to blockchain in the next few years like countries who have adopted them.
3. It will be a success if laws are amended to protect the transactions done using cryptocurrency.
4. There must be a proper mechanism for adjudicating disputes arising out of using these technologies then it would be successful.
5. It would work akin to encryption and therefore data theft can be prevented.
6. Using Blockchain, verification can be done easily instead of having to rely on third parties solely for this purpose.
7. Data is the new oil and hence protecting it must be the most important criteria and blockchain technology contributes to such data protection in a systematic manner.
8. When transactions are done online, record keeping is made much more easier and simpler and reference is easy.
CONS OF USING THESE TECHNOLOGIES
1. Data safety might be an issue as if hackers find out ways to by-pass the system and yet penetrate into encrypted data, data loss might be there.
2. We need to develop a strong law first for this before it could be allowed in real-world transactions.
3. Since transactions in crypto currency maybe done world wide, hackers might be in any part of the world using the same crypto currency and involve in illegal transactions.
4. Cross-Border transactions using a currency not of one single country’s but since it is a virtual currency may have to be taken into account.
5. A universal convention may be entered into by countries involving in digital currency transactions like crypto currency to formulate certain set of rules and regulations for its conduct.
6. Putting to use these technologies without having a law in place renders it illegal and therefore any disputes arising out of such an illegal transaction may not be adjudicated. This is a disadvantage now to use cryptocurrency since it is not yet legalised in India. So any claims will not be entertained in relation to crypto assets.
7. The process of blockchain maybe cumbersome as concepts of computer programming like private key, public key have to be created and that maybe a little difficult to understand for people.
8. The technology of blockchain is still not aware by many people and hence is in its nascent stages of development. Implementing it not in a developing country like India may be unviable without proper regulatory mechanisms.
Blockchain and Cryptocurrency are thus building blocks in information technology and is the future of data protection and financial transfers but is still in the very nascent stage in India and it may take a few years to materialize and legal policy frameworks be framed for the same. Until such time, only experimental tests may be run to see its viability in India. Blockchain definitely adds as a secure measure of storing data in a cloud like platform though decentralized thus making it difficult to be hacked into as a multiple nodes have to be hacked into before the data could be compromised. Cryptocurrency on the other hand is a digital currency stored in wallets and used like bitcoins but I would not advocate buying or selling bitcoins as it is totally illegal in India at the moment and is unlawful to trade in them or hold them. One must not trade in bitcoins in India. Cryptocurrency is used for terror financing and other illegal activities as it does not come through the legal banking channel and operates parallelly and therefore is difficult for the Reserve Bank of India and the Government to monitor. Hence it is not given a legal sanction yet. Though the day is not far away when we would use these technologies.
https://www.investopedia.com/terms/b/blockchain.asp (Accessed on 10th July, 2020)
Blockchain-and-CryptoAssets-25th March-Bhubaneshwar.pptx (Accessed on 10th July, 2020)
Sagona-Stophel, Katherine. “Bitcoin 101 white paper” (PDF). Archived from the original (PDF) on 13 August 2016. Retrieved 11 July 2016. (Accessed on 10th July, 2020)
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243&Mode=0 (Accessed on 10th July, 2020)
Writ Petition (Civil) No. 373 of 2018
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243&Mode=0 (Accessed on 11th July, 2020)
https://www.investopedia.com/terms/v/virtual-currency.asp (Accessed on 11th July, 2020)
This blog is authored by Ujjwal Vats, IMS Unison University, Dehradun