HOW DOES CRYPTOCURRENCY AFFECTS US?
IMPACT OF CRYPTOGRAPHY ON SOCIETY
INTRODUCTION
As it is widely known that Cryptography is a new age technology and it has wide scope in the market, its impact is also huge. This project has concentrated on the aspects of cryptocurrency, blockchain technology and case laws associated with it. The project starts with a brief of what is cryptography, beginning with the origin of the word cryptography.
This project highlights the impact of new technology on society. It has tried to bring different aspects of the same, which includes, technological advancements, economic impact, legal response, societal reaction etc.
The project starts by giving a brief explanation on ‘What is Cryptography?’. This part explains whether we have a definition or not, or what kind of definition is accepted etc., the second part deals with blockchain technology. Since this is a vast area, it has four subsections where it explains different arenas which are relevant to cryptography. Even though the project title contains the word cryptography, this project concentrates more on cryptocurrency. It is because cryptocurrency is the most prominent and emerging hot topic across the globe. Hence from the second section, the project takes a curve into the world of cryptocurrency.
From the next part onwards the project discusses about the impact of this technology on society, economy and across the globe as well. This project has been construed in such a way that it includes Governmental decision making part along with excerpts and recommendations from Government committees. It has also included case laws where the judiciary has directed the Government to clear their stand point on the legality of cryptocurrency. A landmark judgment has also been discussed. At the end the project concludes with a brief discussion on the pandemic situation and how virtual currencies has emerged as something of contemporary importance.
This project may not be a comprehensive one considering the vastness of the technology and its fast spreading rate across the globe, but it is definitely something which can give a very good and specific idea about cryptography and its effects on society.
WHAT IS CRYPTOGRAPHY?
The word cryptography comes from the Greek word ‘Kryptos’ which means hidden.
The most simple definition of ‘Cryptography’ as per the Oxford Learner’s Dictionary is “the art of writing or solving codes”. In the current era, we use Cryptography in an advanced way and hence we have an elaborate definition. Cryptography is a technique used for secure communications that allow a sender and receiver to communicate and view its contents privately. The word receiver here means the intended recipient.
There are two types of cryptography- one is symmetric and the other one is asymmetric. This distinction is on the basis of encryption.
While we send a message, which in this instance is confidential, then there will be keys available on both ends (one with the sender and the other with the intended recipient). With the use of these keys they can access the particular message. This is simply called encryption. In Symmetric encryption or symmetric cryptography, the same key is used for encryption and decryption. However, in case of asymmetric cryptography, there will be a private key and a public key. As the name suggests, private key is kept confidential and the public key can be distributed.
For encryption and decryption, asymmetric encryption employs a mathematically connected pair of keys: a public key and a private key. The corresponding private key is used for decryption if the public key is used for encryption. The corresponding public key is used for decryption if the private key is used for encryption.
The main goal of cryptography is to provide confidentiality and constant security. It shall keep authenticity and integrity even if the situation is in attack mode.
Cryptographic technologies like SSL/TLS provide confidentiality and integrity safeguards that can protect communications from malicious eavesdropping and alteration. Authenticity safeguards ensure that users are connecting with systems in the appropriate manner.
Cryptocurrencies rely on asymmetric cryptography during transactions. This is considered as safer and secure. It is also more acceptable among the consumers as well.
USES OF CRYPTOGRAPHY IN ASSOCIATION WITH BLOCKCHAIN TECHNOLOGY
What is Blockchain Technology?
Blockchain technology is a network of peer-to-peer nodes that keeps transactional records, also known as blocks, of the public in various databases, also known as the "chain." This type of storage is sometimes referred to as a 'digital ledger.' Every transaction in this ledger is signed with the owner's digital signature, which verifies the transaction and protects it from manipulation. As a result, the data in the digital ledger is extremely safe. To put it another way, the digital ledger is similar to a Google spreadsheet that is shared across several computers in a network and stores transactional information based on actual purchases. The intriguing aspect is that everyone can view the data, but they cannot alter it.
Applications of Blockchain Technology.
Blockchain technology has huge potential when it comes to application. These include Money transfers, financial exchanges, insurance, real estate, lending, secure personal information, encryption, voting, government benefits, artist royalties, non-fungible tokens, logistics and supply chain tracking, secure internet of things network, data storage etc.
In dealing with Blockchain technology we have to know certain abbreviations and its importance in the technology. GPU is one such abbreviation which is used constantly. It means Gaming Computer’s Graphics Processing. It is used to solve complex math problems to verify electronic transactions on the blockchain. It basically involves solving complex cryptographic equations using computers to get cryptocurrencies as rewards. Another one is AISC which means Application- Specific Integrated Circuit.
Under normal circumstances, we need to built a blockchain architecture to mine cryptocurrency. The architecture shall support PoW mining. Cryptocurrencies like Bitcoin, Ethereum, Monero, Litecoin and Dogecoin are some of the major cryptocurrencies which are mined in such a way.
We can also see a shift from PoW, otherwise known as Proof of Work to PoS, Proof of Stake. Proof of Work method uses a competitive validation method to confirm transactions. It also add new blocks to the chain, whereas Proof of Stake uses randomly selected miners to validate transactions. We can see this shift very evident in recent transaction trends.
NVIDIA GeForce GTX 1070 is the most popular cryptocurrency mining GPU.
Although Blockchain technology is a new and advanced form of technology, it is also evolving and changing time to time to accommodate new users and changing trends. Hence, it always attract the young generation, the people who likes to do things in pace and business persons easily. The ease and pace of the technology is the most attractive feature as well.
Cryptocurrency in the modern world.
Whenever we discuss cryptography the one immediate picture that comes to mind is of cryptocurrency. Cryptocurrency is otherwise known as Virtual currency (VC). Cryptocurrency is an application of cryptography and it has become one of the emerging and wide spreading form of exchange happening in the world via the internet using blockchain technology.
A blockchain is a decentralised database that is shared across computer network nodes. A blockchain acts as a database, storing information in a digital format. Blockchains are well recognised for their critical function in keeping a secure and decentralised record of transactions in cryptocurrency systems like Bitcoin. The blockchain's novelty is that it ensures the accuracy and security of a data record while also generating trust without the requirement for a trusted third party.
Although we do not have a precise universally accepted definition for cryptocurrency, the Deputy Governor of RBI’s keynote speech has mentioned the defining characteristics of cryptocurrencies.
They are as follows:
Cryptocurrencies are decentralized systems where transactions are authenticated by participants themselves by consensus. They are designed to bypass the financial system and all its controls. They cannot be traced or confiscated or frozen by Governments.
They are anonymous. Transactions happening are verified, but not the purposes or counterparties of transactions.
They are borderless since they work over the internet without any physical existence.
Some people define Cryptocurrency as a financial instrument in intangible form produced and stored on servers using blockchain technologies and does not include digital currency or electronic currency like digital wallets, prepaid credit top-ups, loyalty points, etc.
There is a section of people who considers cryptocurrency as “foreign currency”. But, a currency shall be accepted by another country to consider it as a foreign currency by other countries.
However, the question always gets narrowed down to is it a currency or a token of exchange where RBI has power to regulate it. There are conflicting arguments on this point and Supreme Court has clearly in IMAI case said that since cryptocurrency performs functions of money, it cannot be said that RBI has no power to regulate it merely because it is not a legal tender. But still cryptocurrency is not included under the heads of Goods, Exchange, Currency or Foreign Currency.
Since the 2008 financial crisis cryptocurrency has gained immense popularity. Cryptocurrencies like Bitcoin and Ethereum are conquering the financial market virtually. On 18th April 2022, at 10:28 AM, the value of Bitcoin was Rs 2967559.25 and the value of Ethereum was Rs 222679.22. As of February 2022, the US Government has $4.08 B as Bitcoin holdings. Cryptocurrency is highly volatile in nature.
This clearly indicates that Cryptocurrency has clearly carved a path to the future to become an independent and unregulated form of token exchange. In the world where humans are constantly fighting for liberalism, economic liberalism is also a major component to achieve. Hence, it is highly probable of any demography to turn to VC and become a player in the market.
In India, we can see a growing demography who converts their investment and exchange methods to cryptocurrency. CoinDCX, WazirX, CoinSwitch Kuber, UnoCoin and Bitbns are some famous cryptocurrencies in India.
Lack of Accountability
The Deputy Governor of RBI delivered on the same speech about the lack of transparency and accountability in cryptocurrency transactions.
When making a transaction using paper cash, the recipient only needs to ensure that the currency is not counterfeit. As a result, the receiver is the one who authenticates the payment instrument. Except in the few cases where the receiver fails to identify counterfeit coins, this technique normally works. Because practically all electronic transactions involve money transfers from one bank account to another, the validation of the payment is done by an intermediary such as a bank in the case of digital transactions. The bank confirms that the sender has sufficient funds in her account to pay the transaction, therefore this arrangement works.
In the case of Cryptocurrency, we cannot put blame on anybody. For instance, in the case of Bitcoin, we are still in the dark with respect to the identity of Satoshi Nakamoto. During any online transactions, anything can happen. Any person or agency can hijack the system or the white paper or can create an overriding program. This would seriously affect the economy and thereby society and day-to-day living.
Two major elements which make cryptocurrency riskier than the conventional banking transactions are market volatility and lack of federal insurance and regulation.
Major impacts
Our discussion has explained the roles of Diffie and Hellman in the discovery of public key cryptography, and how the dissemination of their ideas led to developments by others. Here we selectively consider specific practical applications to convey a sampling of the enormous impact of public key cryptography on society. While cryptography, and security technologies in general, are often thought of in terms of providing defense and protection, here we will see that public key cryptography has had major impact also by enabling new types of activities and behaviors not previously considered to be feasible, or that appear unlikely to have otherwise emerged as rapidly or as successfully.
ECONOMIC IMPACT
Marketplaces for cryptocurrencies are becoming increasingly important as cryptocurrencies expand in popularity and reputation. Understanding the characteristics of these marketplaces can aid in determining the viability of the cryptocurrency ecosystem and how design decisions influence market behaviour. Dramatic swings in traders' propensity to acquire or sell cryptocurrencies are one existential danger to cryptocurrencies. We ran an online experiment using a unique experimental design to see how vulnerable traders in these marketplaces are to peer influence from trading behaviour. Over the course of six months, we constructed bots that performed over a hundred thousand trades in 217 cryptocurrencies for less than a cent apiece. Individual "buy" actions resulted in short-term boosts in subsequent buy-side activity hundreds of times greater than the scale of our interventions, according to our findings.
Its volatile nature is a potential threat for any economy. It can lead a nation to inflation or even extend the effect to a global recession.
CASE STUDY
I wanted to include one case study quoting a real-life example, which has both economic and legal impact. Hence, I selected the case of Amit Bharadwaj in dealing with GainBitcoin.
Mr. Amit Bharadwaj was a 2004 engineering graduate from MGM’s College of Engineering and Technology. He joined Infosys as a software developer. In 2013, he set up an online retail platform known as Highkart.com that promised transactions in bitcoin. He also built his own GPU crypto miners as well. In 2014, he set up Variabletech Pvt. Ltd and started to operate a crypto exchange called BitEx. In the same year, he began selling GainBitcoin under a multi-level marketing strategy. In 2016, he founded Amaze Mining and Blockchain Research Ltd. in Singapore. He founded GB Miners under Amaze mining and started a bitcoin wallet called CoinBank under the same head. In effect, he set up more than 40 companies across the globe in the name of crypto investments.
The hazards started to occur when an investor called Zakhil Suresh started a petition on Change.org which garnered the support of 1266 people.
2018 was a crucial year for Amit Bharadwaj. This year was filled with police petitions and investigations. In January, an FIR was filed at Dattawadi Police station in Pune. The petition then included 3 other members as well. In Delhi, in March Tarun Kumar lodged a criminal complaint against him and 5 others and Variable Tech Pvt. Ltd. In April, the cyber cell of Pune arrested Amit Bharadwaj and 8 others. In the same year, the Enforcement Directorate (ED) registered its first ECIR against GainBitcoin and a few other entities and individuals under the PMLA in Mumbai. In May, Chandigarh police booked Amit Bharadwaj and 5 others and in July the Chandigarh police filed charge sheets (this is in addition to two other charge sheets filed by Pune police in June). In August, the Chandigarh District Court rejected Amit’s bail plea. In September, the ED attached immovable properties and the bank balance of Rs 42.88 Crores. In November, Amit and his brother Vivek filed bail pleas at the Supreme Court of India on health grounds, requesting to club all 12 cases against them.
Although in 2019, both Amit and Vivek got interim relief, in 2021 January the ED summoned Amit Bharadwaj and in May the Mumbai team visited his Delhi residence and interrogated him. Unfortunately, on January 15, 2022, Amit Bharadwaj died of cardiac arrest. The case is still going on.
CONTEMPORARY IMPACT ON SOCIETY.
Covid 19 Pandemic
The coronavirus has evolved from a local issue to a worldwide issue impacting individuals all over the world, and everyone is reacting to it, including investors, physicians, and even Bitcoin. The world has been caught aback by Covid 19. The epidemic has moved quickly, posing unknown obstacles that have destabilised global markets and altered global operations. The pandemic, on the other hand, might be the catalyst for moving towards a cashless society, and now that the fear of bitcoin is dissipating, this is the moment for cryptocurrencies to shine as interest in blockchain and cryptocurrency grows.
Falling Prices: Due to the coronavirus outbreak, US equities plunged the most in two years in February 2020. This decline in the US stock market wiped out all of 2020's gains. Bitcoin saw a similar dip, but it rose all the way to $7200, wiping all its gains for the year. The Macro Economy and Bitcoin are linked. On the 13th of February 2020, Bitcoin was valued at little over $10,000 before plummeting to a staggering $4000. Bitcoin Cash, Ethereum, and XRP all had similar outcomes.
New Cryptos: CoronaToken is a brand new cryptocurrency whose creators say that the total supply is based on the world's population of 7.7 billion people. These tokens will be removed every 48 hours based on the number of infected and deceased coronavirus sufferers. Furthermore, the creators stated that 20% of the tokens will be donated to the Red Cross.
Indian society is trying to understand the concept of decentralized economy and technological aspects. Indian society is known for their savings, especially with Gold. We also conserve money and convert into assets like houses, land, etc. Many of us also put Fixed Deposits in the bank, take life insurance etc. It's been very few years since Indians have started to invest in share markets and securities. But during the demonetisation and other inflation periods people started to think differently.
Public has started to invest in bitcoins and other forms of cryptocurrencies.
Inter-ministerial Committee on Cryptocurrency
The Government of India was relatively slow to understand and finalise its stand point in the case of Virtual Currencies. It has for this purpose appointed an inter-ministerial committee on cryptocurrency. This is probably the Government of India officially taken up cryptocurrency to position its legality.
The Inter-Ministerial Committee was formed on November 2nd, 2017 to examine the future of cryptocurrencies by the Ministry of Finance. The objectives of the committee were to take stock of the present status of Virtual Currencies both in India and globally; to examine the existing global regulatory and legal structures governing virtual currencies; to suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc. and to examine any other matter related to Virtual Currencies which may be relevant.
The Committee made a report and included some specific recommendations with respect to cryptocurrencies. It recommended that all private cryptocurrencies, except any cryptocurrency which may be issued by the government, be banned in India. It said that there is no underlying intrinsic value of private cryptocurrencies. These private cryptocurrencies lack all the attributes of a currency. There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor are they a medium of exchange. Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices. Therefore, the Committee is of clear view that the 56 private cryptocurrencies should not be allowed. These cryptocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence, private cryptocurrencies cannot replace fiat currencies. The committee also proposed a bill ‘to prohibit the use of Cryptocurrency, regulate the Official Digital Currencies and for matters connected therewith or incidental thereto’.
Thereafter the Committee proposed The Banning of Cryptocurrency and Regulation of Official Digital Currency Bill on 2019. Section 6 of the Draft Bill is the most relevant of all. It states that:
“(1) No person shall directly or indirectly use Cryptocurrency in any manner, including, as,-
(a) A medium of exchange; and/or
(b) A store of value; and/or
(c) A unit of account.
(2) Cryptocurrency shall not be used as legal tender or currency at any place in India.”
Chapter VI of the Draft Bill deals with offences and Part V of the Bill provides for the Penalties for non-compliance with the provisions.
Hence, it is very clear that how cryptocurrency has moved its pawns during the peak of pandemic and how public has approached it. The approach of the society as a whole will definitely have an economic impact and it would reflect in the policy and decision making of the Government.
VII. CASE LAWS- INDIA
Dwaipayan Bhowmick v. Union of India & Ors.
It is the first case filed in front of the Supreme Court of India which sought a regulatory framework for cryptocurrency. It was a Public Interest Litigation under Art. 32 of the Constitution of India against Union of India, Ministry of Finance and the Reserve Bank of India over the use and business of Bitcoins, Litecoins, Ethereum, etc. The Supreme Court on July 14, 2017, directed the RBI and the other concerned ministries to clarify their stance and enact a bill on the same before disposing off the PIL.
Internet and Mobile Association of India v. RBI
The IMAI case is a remarkable case law in the history of cryptocurrency.
On 6th April 2018, the Reserve Bank of India issued a circular which was titled as ‘Prohibition on dealing with Virtual Currencies (VC)’. As per this circular, RBI asked all the financial entities which are regulated by RBI to immediately halt and not deal any further with VCs for facilitating any person or entity in dealing with or settling VCs. Maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/ receipt of money in accounts relating to purchase or sale of VCs are considered as services which are prohibited under this circular. The circular extends to say that entities which are providing such services shall exit the relationship within 3 months from the date of this circular.
In the light of this circular Internet and Mobile Association of India filed a writ petition challenging the proportionality of the circular. The contention was based on Art 19 (1) (g) of the Constitution of India, 1950.
The Supreme Court of India in this case struck down a circular by the Reserve Bank of India.
The circular was also challenged on the grounds that denial of access to those who trade in cryptocurrency would tantamount to a denial of their constitutional right to carry on any trade or profession and thus would be violative of Article 19(1)(g). The Supreme Court upheld this contention by stating that "There can also be no quarrel with the proposition that banking channels provide the lifeline of any business, trade or profession." However, the Supreme Court drew a clear distinction between the three categories of persons those who trade in cryptocurrency as a hobby as opposed to those who engage in trading in cryptocurrency as their business/occupation.
VIII. CONCLUSION
I hope this project has provided you with a good idea of how the current economy is growing and to where it is going extrapolating a bit. I hope it has also given a legislative and judicial perspective as well.
One very relevant thing that I need to conclude with is that, the Indian Government is much slow in comparison with other countries. Since we are a fast-growing country and our economy is also growing with high pace, we have to keep up our every move with utmost importance and quality.
Our Government realised that we have to understand the pros and cons of cryptocurrency only when the people came to the Apex court with public interest litigations and when the court asked the Government to take a standpoint. The Government was acting like they did not know abou the volatility and accountability nature of cryptocurrency. It is very sad to accept such behaviours of the Government.
However, it is a pleasant news that Indians as a society are moving out of their comfort zone and are finding out new ways to invest. This metamorphosis from a traditional way to something new is not only an economical choice but also a societal choice and I hope it would reflect on many other aspects of life as well.
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