An Analysis of Cryptocurrency and Cyber Security Laws

We live in the era where technology plays a major role in all aspects of the life. Most importantly, the monetary transactions are done usually online which can be referred as “Fintech”. The internet technology now enormously developed with more advanced features has negative impact as well. Illegal criminal activities like unauthorized access to personal system, network frauds, Identity Theft etc has become common in cyber space. Such crimes in cyber-space are termed as cyber-crime. In order to control or to punish the cyber criminals, the term cyber law was framed. Cyber law is the part of the modern legal systems that deals with the Internet connectivity, cyberspace, and other internet related issues. It covers wide area, encompassing legal rights like freedom of expressions, access to and utilization of the Internet, and online security or online privacy. Many cyber criminals use virtual currencies for their illegal transactions termed as crypto currency. Cyber criminals who are using crypto currencies for illegitimate activities like money laundering, terrorist financing and tax evasion are increased in wide aspects. Thus, the article analyses the key aspects of the crypto currency offences relating to cryptocurrency perpetrated in the current context. The article examines the concept of cyber security laws and scrutinizes the legal status, challenges and opportunities of crypto currency in India.

The internet causes a wide source of information resources and services with interlinked hypertext Documents of World Wide Web (WWW). Cyber space involves an online global community with no territorial barriers[1]. The internet technology has not only improved the lives of people but has also transformed the criminal activities perpetrated against the society. It is pertinent to note here the difference between conventional crime and cybercrime. Conventional crime is normal crime or offences which were almost done in person. Cybercrime is a crime always perpetrated with electronic device or information systems as primary source.

CYBERCRIME AND ITS CLASSIFICATION

Sussman and Heuston first proposed the term cybercrime[2] in the year 1995. The cybercrimes are related to the computer data or electronic sources and has a correlated terms like electronic crimes, high-technology oriented, computer network related, network fraud etc. In simple terms, cybercrime is the offences or crime that takes place over computer networks. These types of crimes do not require the physical requirement of the criminals. The victim and offender may never come into close contact.

Crimes in general can be classified into four major categories.

a) Cyber Crime against individuals[3]:

Email spoofing

Spamming

Cyber defamation

IRC Crime (Internet Relay Chat)

Phishing

b) Cyber Crime against property

Software piracy

Copyright infringement

c) Cyber Crime against organization:

Unauthorized changing or deleting of knowledge.

Email bombing

Salami attack

d) Cyber Crime against society:

Forgery

Web jacking

Child pornography

DEMYSTIFYING THE TERMS RELATED TO FINTECH

A huge growth in digital platform has triggered virtual money in business trading process such as trading, marketing, and buying. Crypto currency which are used electronically in online social platforms, online games, deep virtual worlds and peer-to-peer networks. The crypto currency is virtual currency working through the cryptography method.

Cryptography

Cryptography[4] or cryptology is the practice and study of techniques for secure communication in the presence of third parties. Cryptography is about developing structured protocols that prevent other parties from reading secret messages. Current cryptography methods are complex combination of mathematics, physics, computer science technology, Electronics and communication Engineering. Cryptography applications include electronic commerce, chip-based payment cards, digital currencies, computer passwords and military communications.

Cryptanalysis[5]

Cryptanalysis is the technique of examining cryptographic systems for flaws or information leakage. Cryptanalysis is commonly thought of as looking for flaws in a cryptographic system's core mathematics, but it also includes looking for flaws in implementation, such as side channel attacks or weak entropy inputs.

Classifications of cryptography

Cryptography systems are grouped into three categories namely,

a) Symmetric Cryptography

b) Asymmetric Cryptography

c) Hash functions

a) Symmetric Cryptography[6]

In simple term cryptography is the technique to convert plaintext into cipher text by using a key. Here the key used are symmetric in both sender and receiver side. Some symmetric cryptographic algorithms are AES, DES, Blowfish and RC5 etc.

b) Asymmetric Cryptography

Here the methods of using the key are different. The sender and receiver have two keys. Some asymmetry cryptographic algorithms are RSA, Diffle-Hellman etc

c) Hash Functions

It performs transformation by using mathematical patterns and methods to encrypt data irreversibly, hash functions are SHA-1, MD5, etc.

Cryptocurrency

A crypto currency or crypto is a digital assert formulated as a medium of exchange in business without having centralized system of network strongly using cryptography to secure the transaction records and to create and control additional coins. Typically, crypto currency does not exist in physical form like normal currency and not issued by any central monitoring authority. Crypto currency uses decentralized mode of money transfer by using distributed Ledger Technology namely a block chain. Crypto currencies are not regulated by any authorities and are a decentralized form of currency. They are created using cryptography which makes it even more secure as double spending can be avoided. Moreover, there are no intermediaries so they can be directly transferred to the receiver in their digital wallet.

Digital Currency

Digital currency is nothing but the digital representation of the physical currency of a country. Digital currency can be used for transactions and all other utilities that normally would be carried out using physical currency. They are regulated by the government and can be used through debit/credit cards or online payments.

Virtual Currency

Virtual currency is neither issued by the government nor regulated by the government. Virtual currencies can be used for transaction in apps and games and are issued by the developers. They do not hold any real value and can only be used digitally, i.e., they cannot be converted to fiat currency (digital or physical form).

Concept and basic aspects of crypto currency

The concept of formulation and transacting the process is regulated by cryptography method instead of central governing authority. The concept was first proposed by a computer programmer named Wei Dai in 1998. In 2009, bit coin is said to have created by an unknown person in the pseudonym Satoshi Nakamoto. The bitcoin network is open source. Hence, any person can build and add the code on the internet to create chain network.

Key aspects of crypto currency include - Open-source software, Digital currency, Peer to Peer network, Pseudonymous, Trust less, Encrypted and Global.

Types of Cryptocurrencies

Cryptocurrency is designed to work as a medium of exchange. The number of cryptocurrencies available over the internet is over 1600 and growing. A new cryptocurrency can be created at any time. By market capitalization, Bitcoin is currently the largest blockchain network, followed by Ripple, Ethereum and Litecoin

Bitcoin (BTC)

One of the most commonly known currencies, Bitcoin is considered an original cryptocurrency. It was created in 2009 as an open-source software. Bitcoin allows users to make transparent peer-to-peer transactions. All users can view these transactions; however, they are secured through the algorithm within the blockchain. While everyone can see the transaction, only the owner of that Bitcoin can decrypt it with a “private key” that is given to each owner. Unlike a bank, there is no central authority figure in the Bitcoin. Bitcoin users control the sending and receiving of money, which allows for anonymous transactions to take place throughout the world.

Litecoin (LTC)

Litecoin was launched in October 2011 as an alternative to Bitcoin. Like other cryptocurrencies, Litecoin is a peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Its creation and transfer are based on an open-source cryptographic protocol and it is completely decentralized. Litecoin is different in some ways from Bitcoin. A few differences between these digital currencies are: The Litecoin network aims to process a block every 2.5 minutes, while, Bitcoin takes 10 minutes. This allows Litecoin to have faster transaction confirmation. The coin limit for Bitcoin is 21 million and Litecoin is 84 million. Experts says that Litecoin are more complicated to create and more expensive to produce because it uses different algorithm called scrypt and FPGA (Field Programable Gate Array) and ASIC (Application Specific Integrated Circuit) devices made for mining.

Ethereum (ETH)

Ethereum is a type of crypto currency which was proposed in late 2013 by Vitalik Buterin, a crypto currency researcher and programmer. It was initially released on July 2015. It is an open-source platform based on block chain technology. While tracking ownership of digital currency transactions, Ethereum block chain also focuses on running the programming code of any decentralized application, allowing it to be used by application developers to pay for transaction fees and services on the Ethereum network.

Block chain technology

The rise of crypto currency paves the way for decentralized transactions and their technology termed as block chain technology. Block chain-based applications are springing up, covering numerous fields including financial services, reputation system and Internet of things (IOT). The block chain is a technology that provides a distributed ledger of transactions on a network that is scalable, secure and tamper-proof. It is shared transaction, distributed over a network of members, made up of series of data blocks; each by itself contains a set of transactions.

Like other crypto – currencies, bit coin records all transactions in a public ledger. All the transaction between any party is encrypted in nature and in the process of decryption (by peer-to-peer verification on network), it is verifying in public ledger. Public ledgers are forms blocks and blocks are connection in a sequence which is called block chain.

Bit coin and India; Recent Indian Government and RBI Steps towards Crypto – Currencies

In India, RBI is the apex body who regulates the monetary system. Indian banking system is a centralised system where RBI decides the various norms about currency and monetary policies. Crypto currencies (also bit coin) which become popular in last decade became a concern for RBI. RBI have some concerns about bit coins and other crypto currencies, because of their decentralised process, non-regulatory authorization, price volatility and possible usage of illegal activities and tax evasion. RBI assumes crypto currencies as a threat for financial stability.

In early 2012, some small-scale bit coin transactions were carried out by some crypto hobbyist in India out of interest. Due to the concerns about crypto currencies RBI issued a circular on 24 December 2013, which cautioned the customers with the statement that Virtual currencies are not backed by a central bank, their value isn’t underpinned by an asset and thus a matter of speculation. It further stated that, RBI is in the process of reviewing the proposed regulatory structure for crypto currencies in India and will give further directions based on their review.

On 6 April 2018, RBI issued another circular in which the RBI prohibited commercial and cooperative banks, payment institutions, small financial institutions, NBFCs and payment system providers from not only trading with virtual currencies themselves but also ordering them to avoid offering services to all organizations dealing with virtual currencies. Due to this, “Crypto exchanges, unable to access banking services in India, find their businesses crippled overnight. Trading volumes fall by 99% and by August 2018 about 95% of jobs vanish.” (The Economic Times, 2021) RBI said that this is an appropriate action for ring fencing the financial system. Against this circular of RBI, some exchanges filled writ petition in honourable Supreme Court.

In July 2019, the committee which was setup earlier in November 2017 recommended ban on private crypto currencies in India by submitting their report. “On 4 March 2020, the Supreme Court lifted the ban imposed on 6 April 2018 by the RBI in the case entitled “Internet and Mobile Association of India (IAMAI) Vs Reserve Bank of India which prohibited its regulated entities, such as banks, from trading in or facilitating banking transactions in virtual currency (VC).

In 2021 government introduced a bill “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” banning private cryptocurrency and a new official currency launch is proposed, and government will also form a committee got research and study about crypto currency.

CONCLUSION

The implementation process of cryptocurrency is yet to be examined. The government need to make proper working design for its own block chain technology, because of increasing popularity of crypto - currencies and its positive favour in some countries like U.S.A., Canada, Australia, Britain. India needs to think about it and for this government of India need to formulate regulations about it. The main concerns about crypto currencies like – lack of regulation, irreversibility, price volatility, tax evasion and use of illegal activity requires more study and researches. The government need scrutinize the security features of current currency transaction and customer data base and it also need to promote digital literacy to layman about crypto currency. India is a developing nation and with 135 crore (approx.) people’s population need a strong framework of exchange system as they can do their transaction securely. If government can successfully create the own crypto currency system, it will become a great achievement and helps in India’s growing GDP because crypto currency is attracting FDI, increases job opportunity, provides immunity from theft.

References

[1] Anirudh Rastogi, Cyber Law- Law of Information Technology and Internet, p. 2 (2nd ed. 2014). [2] Rohitk.Gupta, “An Overview of Cyber laws vs. Cybercrimes: In Indian Perspective”, 2013. [3] Prabhash Dalei & Tannya Brahme, Cyber law in India: An analysis, 2013. IJHAS, volume 2, issue 1 [4] Rivest, Ronald L. (1990). "Cryptography". In J. Van Leeuwen (ed.). Handbook of Theoretical Computer Science. Elsevier. [5] Thomas W. Edgar, David O. Manz, Chapter 2 - Science and Cyber Security, Editor(s): Thomas W. Edgar, David O. Manz, Research Methods for Cyber Security, Syngress, 2017, Pages 33-62, [6] Kahate, Atul. Cryptography and network security. Tata McGraw-Hill Education, 2013.

Books

1. Anirudh Rastogi, “Cyber Law- Law of Information Technology and Internet”

2. Mohak Rana, “Crimes in Cyberspace: Right to Privacy and Other Issues”

3. Talwant S. “CYBER LAW & INFORMATION TECHNOLOGY”

List of Statutes

1. Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019

2. Information Technology Amendment Act, 2008

S. Sudhan Raj is Guest Faculty, Government Law College, Villupuram, Tamil Nadu