Bitcoins, Their Functionality And Legality Of Use

PRAVEEN-DALAL-MANAGING-PARTNER-OF-PERRY4LAW-CEO-PTLBDigital or Virtual Currency is gaining importance day by day. In many Jurisdictions these Digital Currencies are allowed to be used to purchase goods and services. They can also be traded for real money in real world in many Jurisdictions.

The most prominent Digital Currency of contemporary times is known as Bitcoin. Although many Jurisdictions have tried to regulate Bitcoins yet they have not achieved much success in this regard. Even the United States Federal Bureau of Investigation (FBI) temporary closure of the online black market Silk Road has made little effect on Bitcoins.

So what is a Bitcoin and how it works? According to Wikipedia, Bitcoin is a peer-to-peer digital currency that functions without the intermediation of a central authority. The concept was introduced in a 2008 paper by a pseudonymous developer known as Satoshi Nakamoto.

Bitcoin has been called a crypto currency because it is decentralized and uses cryptography to control transactions and prevent double-spending, a problem for digital currencies. Once validated, every individual transaction is permanently recorded in a public ledger known as the blockchain. Payment processing is done by a network of private computers often specially tailored to this task. The operators of these computers, known as “miners”, are rewarded with transaction fees and newly minted Bitcoins.

Bitcoins are stored by associating them with addresses called “wallets”. Wallets can be stored on web services, on local hardware like PCs and mobile devices, or on paper print-outs. Thefts of Bitcoins from web services and online wallets have been covered in the media, prompting assertions that the safest way to store Bitcoins is in secure paper wallets.

With the growing significance of Bitcoins, Cyber Criminals have started targeting the same. In many cases Bitcoins have been stolen by Cracking the Computer Systems, by compromising the Private Encryption Key and by using other “Innovative Methods”. The latest to add to this series is the use of Distributed Denial of Service Attack (DDOS) against the Institutions managing Bitcoins and demanding ransom for ceasing to do so.

The Technological Structure of Bitcoins is such that once they are transferred, either legally or illegally, it is very difficult to reverse the transaction. Of course, if the parties to the transaction can be identified and both of the parties agree to reverse the transaction that is still possible. But such a scenario is very rare in the present times.

Governments and Regulatory Bodies around the World are wary to deal with Bitcoins. Every attempt to label Bitcoins illegal has only kick backed. United States has just realised that if it is too harsh to the Bitcoins, the Bitcoin Infrastructure may shift to more friendly destinations like China. Besides many Countries would encourage Bitcoins to operate in their Jurisdictions as this would benefit their Economy and may damage the grip of Dollar in the World Market. The dealing in Bitcoins in India is still A “Grey Area” and it is not safe to consider it “Strictly Legal”. Till the time Indian Government or other Regulatory Authorities of India make use and dealing of Bitcoins Legal in India, the use of the same in India is at the own “Legal Risk” of concerned person or Institution.