BITCOIN AND ITS LEGAL POSTION IN INDIA AND AROUND THE WORLD
WHAT IS BITCOIN?
In January 2009, a decentralized virtual currency was formed, widely known today as
âBitcoinsâ. Bitcoin is based on some ideas set out in a white paper by a person known as
Satoshi Nakamoto.1 The identity of the person who formed the technology is still unknown.
Bitcoin claims lower transaction charges as compared to the conventional payment systems
and is operated by a decentralized authority, unlike government-issued currencies which is
controlled and regulated by government.
Cryptocurrency uses a system of cryptography (encryption) to regulate the creation of
bitcoins and to check upon transactions. Cryptography, in basic terms, refers to the art of
writing and solving codes. Cryptography is in connection with the process of converting
ordinary plain text into unintelligible text and vice-versa. It is a method of storing and
transmitting data in a particular form so that only those for whom it is intended can read and
process it. Cryptography not only protects data from theft or alteration, but can also be used
for user authentication.2 In a case, where A sent the message to bitcoin network, bitcoin
account has two keys, i.e. private key and public key.
Let's consider an example of Mr. A and Mr. B, where A makes payment of 50 bitcoins to B,
thus, A's balance decreases by 50 bitcoins and B's balance increases by 50. This transaction,
on its full completion would be listed in public ledger, which is maintained by Bitcoinâs
public network. When A filled the necessary details and opted for âsendâ, the bitcoin network
receives a message from A that B is being sent so and so number of bitcoins by A. If some
thief can replicate that message and send it to the bitcoin network, then he might be able to
steal A's money bitcoins. But this message cannot be replicated as each of the message
consists of a unique signature, and only after encrypting this unique signature, the message is
sent to the Bitcoin network. Therefore, it is called a cryptocurrency, which is impossible to
copy.
The growing popularity for bitcoins has come under the government's lens. Bitcoin can be a
simple way to evade tax or snare unsuspecting small investors in ponzi schemes. Moreover,
the government has begun a crackdown on illegal uses of this unregulated virtual currency.
1 Bitcoin Project. "Frequently Asked Questions." https://bitcoin.org/en/faq#what-is-bitcoin, Accessed on Jan. 14,
2021.
2 Definition of 'Cryptography' https://economictimes.indiatimes.com/definition/cryptography, Accessed on
jan 14, 2021.
