In ancient times, the medium of exchange between people is through mutual exchange of goods which is known as barter system. However with the development in trade and exchange system, a common medium i.e currency found its place as a source of medium of exchange. Currencies in form of coins, notes were circulated in the market and regulatory bodies were established to regulate such transactions.
In earlier times the transactions were recorded in a book which is known as ledger, but with the advancement in technology the process of maintaining ledger was replaced with computer system entries. In recent times the data is maintained digitally through a database, which help in ease of business and other transactions.
Since technology advancement is a never ending process hence, the current system of using digital database has found an alternative in crypto currencies. Crypto currencies are type of virtual currencies which can be used in electronic form. Virtual currencies is stored and transacted only through a designated software including mobile, computers or through digital wallets and the transaction occur over the internet only. Virtual currency is a subset of digital currency group which exist within the block chain network.
Emergence of crypto currencies and block chain:
Back in the year 2009, based on the paper published by Satoshi Nakamoto, Bitcoin was introduced globally as an electronic cash system which aims to replace the traditional currency system. Block chain technology which was based on advance data storage management system introduced Bitcoin. This block chain technology is the heart of every crypto currency system.
A block chain is a specific type of data base which differs from typical database in a way that block chains store data in blocks that are chained together. As new data comes in it is entered into a fresh block. Once the block is filled with the data it is chained with the previous block, which makes the data chained together in systematically chronological order. Different types of information can be stored on a block chain but commonly used for legal transactions. In simple words a block chain is a type of data base of collected information that is stored electronically on a computer system. Collected or stored information is typically structured in table like format to allow for easier searching.
Due Diligence:
The general meaning of the term “Due Diligence” means taking reasonable steps to avoid the chances of error or fraud. The term is mostly used in business transactions especially in merger and acquisition transaction. Here it refers to the process during an acquisition deal whereby one company investigates the details, often looking at non - public information, of the other company. Due diligence can be conducted without actually contacting the other company, but normally refers to the process when access to the target company is granted to an acquirer. Similarly in general terms due diligence means acquiring, collecting all the relevant information, terms and conditions, hidden disclaimers etc. to avoid the chances of fraud or any type of error that can result in monetary as well as in other losses.
Legal aspect of Virtual Currency in India:
Till now, there is no specific law which deals the virtual crypto currency, but the efforts are being made to give legal recognition to virtual currency and bring it under one such central agency which can regulate such currencies for payments etc.
The term crypto currency was not very well known before the RBI press release on December 24, 2013. This is the first time in India, when the apex bank of the country through its press release cautioned the holders as well as traders of virtual currency about the security, financial and legal risks involved in it. The major concern was that there was no authority to regulate payments through this mode, scope for illegal activities, issues like cybercrime which can leaks the personal details of the users. On April 06, 2018 Reserve Bank Of India imposed a substantial ban on the dealing with the virtual currency. In the case of “Internet and Mobile Association of India V. Reserve Bank Of India” The Hon’ble Supreme Court of India lifted the ban on the dealing with the virtual currency imposed by RBI.
Customer Due Diligence for transaction in VC’s:
As already discussed above that on April 06, 2018 RBI imposed ban on virtual currencies whereas The Hon’ble Supreme Court of India set aside the RBI circular of April 06, 2018. Reserve Bank Of India in its recent circular dated May 31, 2021 clarifies that banks cannot reject or ignore transactions in virtual currencies. The RBI clarified two things through its new circular:
Conclusion:
Since in earlier times where the RBI strictly cautioned the virtual currency holders and traders, in present times RBI has taken a positive approach in dealing with it. With this circular, many entities dealing in VC’s can expect better growth and support for banking, financial services an insurance in near future. The interesting part with regard to this new circular issued by RBI is that RBI confirms the right to do business with crypto firms, therefore it will strengthen the bankers, entities and investors relations.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
