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Ban on Private Cryptocurrencies & Advent of Central Bank Digital Currency :

The Way Ahead for Blockchain Technology in India

Conference Paper · September 2019

DOI: 10.5281/zenodo.4000319

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 PROPOSED LAW TO BAN PRIVATE CRYPTOCURRENCIES & ADVENT OF
CENTRAL BANK DIGITAL CURRENCY: THE WAY AHEAD FOR BLOCKCHAIN
TECHNOLOGY IN INDIA

Pankaj Kumar Sharma

(This paper assumes the fundamentals of cryptography, cryptocurrency, blockchain technology

and Distributed ledger technology)

INTRODUCTION:

The enthusiasm surrounding block chain is understandable. The technology was born in the
crypto-anarchist underground of the Internet. In less than a decade, the original Bit coin white
paper748 was turned into a rich, functional, planetary-scale technology ecosystem in a bottom-up
fashion, by a rapidly growing group of technologists, investors, and entrepreneurs, sporting
grand techno-solutionist visions of how to change the world. 749 As a borderless, decentralized
and dis-intermediated mechanism, crypto currencies becomes a stepping stone to economic
freedom from dubious financial middlemen. Bit coin was just an initial step towards the broad

748
Satoshi Nakamoto, Bitcoin: A Peer-To-Peer Electronic Cash System,(2008). Retrieved from-
https://bitcoin.org/bitcoin.pdf
749
P Quintais, J. Bodó, & Ferrari, Blockchain and the Law: A Critical Evaluation. STANFORD
JOURNAL OF BLOCKCHAIN LAW & POLICY, (Aug 5, 2019, 05:22 AM). Retrieved from-
https://stanford-jblp.pubpub.org/pub/blockchain-and-law-evaluation
futuristic vision, soon after the release of first crypto currency, crypto community began to
discern the very potential of bitcoin, the true innovation i.e. a block chain – its underlying data
structure. Block chain technology facilitates the emergence of new self-contained and
autonomous systems of rules that create order without law and implement what can be thought
of as private regulatory frameworks, which can be referred to as lex cryptographica.750

The history of money has been a battlefield between governments and the private sector.
Historical examples of government reactions to privately issued money - eventually culminating
in banning or otherwise controlling private money by governments - underline the importance
of money as a coordination device for facilitating transactions in human societies by taking up
the role of a unit for the uniform measurement of value across several goods and services. In
modern times, when governments appeared to have conclusively won the battle over the
creation of base money751, the rise of cryptocurrencies has proved that the war is still ongoing. 752
India with a population that is over 1 billion strong has been on something of an economic
renaissance in the last few years. Such has been the extent of the country’s growth that the IMF
called it as one of the world’s fastest-growing economies- accounting for about 15 per cent of
global growth.753 In the early years of Bitcoin in India, only crypto hobbyist were interested in it
but gredually By 2013, it began to gain a level of popularity that was spreading across many
countries. That year, a few businesses began to accept Bit coin payment.754

Certain countries have made crypto currency subject to their respective tax regimes, while a few
other countries have designated it as a commodity, thereby crypto currency subject to
government regulation and accountable to exchequer but no such mechanism exists in India so
far. After the Inter-ministerial Committee constituted under the Chairmanship of Shubash
Chandra Garg (Secretary, Department of Economic Affairs) submitted its report, the crypto
community, economists, legal fraternity and technology geeks showered the media with their

750
P.D. Filippi and A. Wright, The Rule of Code vs. The Rule of Law, HARVARD UNIVERSITY
PRESS|BLOG (April, 10, 2018). retrieved from-
https://harvardpress.typepad.com/hup_publicity/2018/04/blockchain-and-the-law.html
751
Base money or high-powered money is the money issued by central banks and in most economies
consists of banknotes and coins, as well as demand/sight deposits held by commercial banks at the
central bank.
752
Nabilou & Hossein, Central Bank Digital Currencies: Preliminary Legal Observations, JOURNAL
OF BANKING REGULATION, FORTHCOMING (2019). Retrieved from-
http://dx.doi.org/10.2139/ssrn.3329993
753
https://www.imf.org/en/Publications/CR/Issues/2018/08/06/India-2018-Article-IV-Consultation-
Press-Release-Staff-Report-and-Statement-by-the-Executive-46155
754
Shailak jani, The Growth of Cryptocurrency in India: Its Challenges & Potential Impacts on
Legislation, Retrieved from-
https://www.researchgate.net/publication/324770908
intellectual opinions by justifying or criticizing or modifying the proposed ban on private crypto
currencies. The report brought into picture the concept of Central Bank Digital Currency issued
by the government and regulated by Reserve Bank of India. The two significant proposed
transformations in the crypto currency regime profoundly caught the attention of laymen as
well, as it would, in long run, likely to affect every characteristic of social control. With this,
the committee recommended a draft the law named “Banning of Crypto currency and
Regulation of Official Digital Currency Bill, 2019” that prohibits and penalizes the use of any
private crypto currency in any manner provided in the bill.

ANALYSIS OF THE REPORT755 OF INTER-MINISTERIAL COMMITTEE FOR

VIRTUAL CURRENCY:

The status of Virtual currency in different jurisdictions across the globe can be classified in
three pillars as: 1) Countries with no regulatory framework for virtual currency, such as United
States, 2) Countries having particular legal framework to regulate virtual currency, such as
Canada and Russia that allow virtual currency to be used for barter purposes, Switzerland and
Thailand allow VC to be used for payment, but are lot legal tender. 3) Countries that have
imposed explicit ban/restriction on virtual currency such as China.

Since India don’t have any legislation to regulate virtual currency, any malicious transaction
made through it, can’t be constrained by any penal provision. The non-existence of such law
provides an implicit license to commit any crime through virtual currency. Hence the
Committee to study issues related to Virtual Currencies was constituted on 2nd November
2017. The mandate of the Committee has been to study various issues pertaining to Virtual
Currencies and to propose specific actions that may be taken in relation thereto. Subsequent to
the constitution of committee, the union former union finance minister Arun Jaitley, in
paragraph 112 of the budget speech, reflected the motive of committee regarding virtual
currency and quoted that “Distributed ledger system or the block chain technology allows
organization of any chain of records or transactions without the need of intermediaries. The
Government does not consider crypto-currencies legal tender or coin and will take all
measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of

755
The official electronic version of the report. Retrieved from-
https://dea.gov.in/sites/default/files/Approved%20and%20Signed%20Report%20and%20Bill%20of
%20IMC%20on%20VCs%2028%20Feb%202019.pdf
This section of the paper incorporates the summarized analysis of the report.
the payment system. The Government will explore use of block chain technology proactively for
ushering in digital economy.”756

This was followed up by the RBI in its April 2018 monetary policy meeting. “The Reserve
Bank has repeatedly cautioned users, holders and traders of virtual currencies, including
Bitcoins, regarding various risks associated in dealing with such virtual currencies,” the
central bank had said. Despite these notifications, the committee notes that how Indians
continue to invest in cryptos which have no backing of the government. This requires a law that
bans any activities linked to cryptocurrencies in India.757 Advocating the distributed ledger
technology (DLT) as a significant instrument of prospective economic transformations, the
committee referred to some research studies758 and deduced several recommendations pertaining
to increasing effectiveness of KYC norms, implementations of DLT in the Department of
Economic affairs and for such purpose MeitY and GSTN would play a major technology
supportive role for exploring and building the uses of DLT for enabling trade financing by
enabling the growth of trade invoicing through DLT.759

Cryptocurrencies have certain characteristics that make regulation necessary. Some of these
characteristics are: They lack intrinsic value and are subject to fluctuations, They are
decentralised networks with no central authority, The transactions in cryptocurrencies are
irreversible, They provide a degree of pseudonymity, although not complete anonymity, to
participants in a transaction.

The Committee Presented the Following Reasoning To Ban Non-Official

Cryptocurrency:760

A review of global best practises shows that private cryptocurrencies have not been recognised
as a LEGAL tender in any jurisdiction. 761 There have been enormous instances where Non-
756
The official electronic version of the Union budget speech 2018-19. Retrieved from-
https://www.indiabudget.gov.in/doc/bspeech/bs201819.pdf
757
Amol agrawal, Private crypto ban: Has India gone overboard?, MONEY CONTROL, (Aug 6, 2019,
04:23 PM). retrieved from-
https://www.moneycontrol.com/news/economy/policy/private-crypto-ban-has-india-gone-for-the-
overkill-4236981.html
758
Hong Kong Monetary Authority, WHITEPAPER on Distributed Ledger Technology, 2016. and
Jos´e Parra Moyano & Omri Ross, KYC Optimization Using Distributed Ledger Technology, 59,
BUSINESS & INFORMATION SYSTEMS ENGINEERING, 411–423 (2017).
759
Supra note 3
760
lbid
761
Virtual Currencies - Key Definitions and Potential AML/CFT Risks, FATF REPORTS (June 2014).
Retrieved from-
http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-
aml-cft-risks.pdf
official virtual currencies were used to defraud consumers, particularly unsophisticated
consumers. There is no fixed nominal value of these private cryptocurrencies i.e. neither act as
any store of value nor they are a medium of exchange. Since their inceptions, cryptocurrencies
have demonstrated extreme fluctuations in their prices. Central banks cannot regulate the
money supply in the economy if non-official virtual currencies are widely used, as these are
decentralised. The Decentralized character of cryptocurrency is the root to every issue. This
restricts their ability to stabilise the economy. Also, In the long run, banks and paper money
may lose their substantial value.

Since these cryptocurrencies are backed by trust and consensus-based algorithms, processing
transactions is time-consuming due to validation procedures and network latency 762 Besides
outright fraud, there are inherent vulnerabilities in the design of some virtual currencies that
leave consumers open to risk. Miners of a currency can collude to earn more revenue by
“forking” a currency, or changing the programming protocol to benefit themselves. 763 There are
other ways in which consumers can be left worse off than before while dealing with non-official
virtual currencies. EY estimates that more than 10% of the money raised through 372 ICOs has
been lost or stolen in hacker attacks, with phishing being the most commonly used technique.
Virtual currencies can provide greater anonymity than mainstream non-cash payment methods,
making them vulnerable to money laundering and use in terrorist financing activities.

Section 6764 of the bill prohibits the use of private cryptocurrency in any manner, and section 8
imposes the penalty that may extend to 25 lack (as indexed in the first schedule of bill) or with
imprisonment which shall not be less than one year but which may extend up to ten years, or
both. however section 3(2) of the bill allows using of technology or processes underlying any
Cryptocurrency for the purpose of experiment or research.765 Also, the report referred to some

762
The time it takes from the creation of a transaction until the initial confirmation of it being accepted
by the network or the participant in the transaction. Low latency is an important consideration while
designing a real-life payments system.
763
‘Forking’ is a process by which the programming protocol in a blockchain is changed by the
participating nodes such that two chains of transactions are created. In a hard fork, transactions using the
protocol of the previous chain are not accepted on the new chain. The new chain could have different
rewards for miners.
764
Section 6 of the Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 -
(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.
765
Section 3(2) of the Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 -
“Nothing in this Act shall apply to any person using technology or processes underlying any
Cryptocurrency for the purpose of experiment or research, including imparting of instructions to pupils
provided that no cryptocurrency shall be used for making or receiving payment in such activity.”
research studies766 to illustrate and introduce the Central Bank Digital currency mechanism and
scrutinized its application, regulatory framework and money transfer mechanism. The
Committee recommended that an open mind needs to be kept regarding introduction of an
official digital currency in India. If, in future any digital currency obtains the status of legal
tender, RBI should be the appropriate regulator of such digital currency by virtue of its powers
under Section 22 of the RBI Act.767

CRITICISM OF THE PROPOSED CRYPTO-BAN:

1. India is the signatory to the G20 Finance Ministers and Central bank Governors Meeting,
held at Fukuoka on June 8-9, 2019, where India advocated the crypto-assets as the phenomenal
instrument to broader economy and significant financial system 768 and showed consensus to
apply Financial Action Task Force Standards to Virtual Currencies. 769 Hence, the proposed bill
banning the private cryptocurrency is against the spirit of the aforementioned international
meeting at the first place.

2. The paramount repercussion of using private cryptocurrency for transaction is its substantial
utilization in terror and money laundering activities. It is to be noted that one has to do bank
payment first to get cryptocurrencies that actually worth something. But a lot of income from
black markets is in cash. Moreover, funding for terrorist activities is also made in cash, to evade
tax and to conceal from bank the huge amount of transaction. So if one wants to make some
trade in crypto, one has to transfer his funds on bank account first. It would make problems to
explain where you got that amount of money, if it was acquired illegally. It is inevitable to use

766
Norges Bank, CENTRAL BANK DIGITAL CURRENCIES, 2018.
Retrieved from-
https://static.norges-bank.no/contentassets/166efadb3d73419c8c50f9471be26402/nbpapers-1-2018-
centralbankdigitalcurrencies.pdf?v=05/18/2018121950&ft=.pdf
767
Section 22 of the Reserve Bank of India Act 1934 -
Right to issue bank notes. - (1) The Bank shall have the sole right to issue bank notes in India, and may,
for a period which shall be fixed by the Central Government on the recommendation of the Central
Board, issue currency notes of the Government of India supplied to it by the Central Government, and
the provisions of this Act applicable to bank notes shall, unless a contrary intention appears, apply to all
currency notes of the Government of India issued either by the Central Government or by the Bank in
like manner as if such currency notes were bank notes, and references in this Act to bank notes shall be
construed accordingly.
(2) On and from the date on which this Chapter comes into force the Central Government shall not issue
any currency notes.
768
Para 13, Communique,G20 Finance Ministers and Central bank Governors Meeting, Fukuoka, (June
8-9, 2019), MINISTRY OF FINANCE, JAPAN. retrieved from-
https://www.mof.go.jp/english/international_policy/convention/g20/communique.htm
769
The official electronic version of the Financial Action Task Force report-
http://www.fatf-gafi.org/media/fatf/documents/G20-April-2019.pdf
crypto for black market, it somehow might ease up some part of deals, but in general it doesn't
make difference with using USD or INR or other currency that is not traceable.

Currency in cash is as susceptible to circumvent the law enforcement as bitcoin or other

cryptocurrency. For instance, Silk road, a black market crypto-trading platform sought to
operate beyond the reach of law enforcement. Robert Faiella, for running an exchange service
directly on Silk Road that enabled Silk Road users to convert Cash into Bitcoins anonymously.
Faiella’s customers could then use those Bitcoins to make illegal purchases on Silk Road.
Faiella never registered as a money transmitting business, and he conducted transactions in a
manner designed to enable Silk Road users to maintain their anonymity.770

3. The another significant rationale to take down private cryptocurrency is the ‘anonymity’ of
the user. The mask of anonymity is prevalent among the criminals. but anonymity is not
absolute in every case. Transactions and accounts can be traced by investigating agencies if
needed, but the account owners aren’t necessarily known. However, investigators were able to
track down the owners when bitcoins are converted to regular currency.771 At some extreme
cases the Federal Bureau of Investigation investigated several cases such as Ross Ulbricht, the
31-year-old American who created Silk Road, a Bitcoin market facilitating the sale of $1 billion
in illegal drugs, was sentenced to life in prison in February 2015. In march 2015, the assets of
28-year-old Tomas Jirikovsky were seized he was suspected of laundering $40 million in stolen
Bitcoins. Two more fell in September 2015: 33-year-old American Trendon Shavers pleaded
guilty to running a $150 million Ponzi scheme - the first Bitcoin securities fraud case and 30-
year-old Frenchman Mark Karpeles was arrested and charged with fraud and embezzlement of
$390 million from the now shuttered Bitcoin currency exchange Mt. Gox.772

PROSPECTIVE CHALLENGES TO THE PROPOSED BAN:

One of the crucial motive of the ban is enabling the cyber surveillance by the government
agencies and RBI by monitoring of suspected and malafide transactions made by individuals
engaged in money laundering, terror funding and online black market. But today the anonymity
providing technologies such as TOR and VPN are in majority of the cases has proved to

770
Richard B. Zabel, Prepared Testimony for the New York State Department of Financial Services
Hearing on Law Enforcement and Virtual Currencies, UNITED STATES DEPARTMENT OF
JUSTICE, (Aug 21, 2019, 09:16 PM), https://www.justice.gov/usao-sdny/speech/new-york-state-
department-financial-services-hearing-law-enforcement-and-virtual
771
The PIL filed before the Supreme Court in 2017 seeking the regulation of Bitcoin in India. Retrieved
from- https://barandbench.com/wp-content/uploads/2017/11/PIL_bitcoin-watermark.pdf
772
John Bohannon, Why Criminals Can't Hide Behind Bitcoin, AAAS SCIENCE (Aug 22, 2019, 10:40
PM), https://www.sciencemag.org/news/2016/03/why-criminals-cant-hide-behind-bitcoin
circumvent government surveillance. Civil liberties advocates promote the use of the Tor
Network to maintain free speech, privacy, and anonymity. For example, the Tor Network may
be used to circumvent government censorship, enabling users to access online destinations that
have been blocked by authoritarian regimes. The Tor Network can also be used to facilitate
spaces online where individuals can conduct sensitive communications without fear of being
tracked.773 Hence banning cryptocurrency doesn’t necessarily guarantee its non-access. There
are enormous websites ban in India but people still use and circumvent the law that prohibits
their access.

4. With the advent of technology, it is critical to protect data privacy of every person, be him
rich or poor, and it is not impossible if state takes vow to protect it by several measures that
includes legislative and organizational framework.774 The landmark Puttaswami judgment 775 is
widely celebrated amongst the legal fraternity. The judgment not only declared right to privacy
as fundamental right but is also considered by the public as a significannt step towards
modernization where individuals, in technical sense, don’t encourage surveillance by the
Government; including central bank to monitor transactions (If CBDC is implemented).
Provided that the transactions over a certain amount have to abide by the Anti-money
laundering (AML)/Combating the Financing of Terrorism (CFT) legislation. For this purpose,
the bank has to monitor individual data. Since CBDC is likely to be programmable – meaning
that various smart contracts and features could be hardwired in them – it is likely that such a
currency would give rise to privacy concerns, as it may erode the privacy and anonymity of
users and grant additional surveillance powers to the state.776

THE CENTRAL BANK DIGITAL CURRENCY:

Central bank digital currency (CBDC) is the digital form of fiat money. They can be considered
as digital form of central bank liabilities. Some central banks have started considering the
possibility of issuing their liabilities in digital form at some stage in the future. The interest in
central banks digital currencies across the world has been motivated by a) interest in
technological innovation in the financial sector b) declining use of cash in a few countries and

773
Ghappour, Ahmed, Searching Places Unknown: Law Enforcement Jurisdiction on the Dark, 69,
STANFORD LAW REVIEW, 1075, 1089, (2017).
774
Tripathi, Shivnath, Right to Privacy as a Fundamental Right: Extent and Limitations (June 17, 2017),
http://dx.doi.org/10.2139/ssrn.2273074
775
K.S. Puttaswamy v. Union of India (2017) 10 SCC 1.
776
Hossein Nabilou, Central Bank Digital Currencies: Preliminary Legal Observations, OXFORD
BUSINESS LAW BLOG, (Sept 1, 2019, 11:24 AM), https://www.law.ox.ac.uk/business-law-blog/blog/
2019/02/central-bank-digital-currencies-preliminary-legal-observations
c) the emergence of new entrants in the payments landscape. 777 The technology behind CBDC is
well articulated by George Danezis and Sarah Meikle john in their research. 778 This was the
earliest attempt to operationalize CBDC. It may take various forms and based on its specific
design features, it could give rise to idiosyncratic legal challenges.779 For example, a CBDC
could be account based or value based,780 or it can be issued only for wholesale purposes or for
retail purposes.

TAXONOMY OF MONEY: DERIVING THE CENTRAL BANK DIGITAL

CURRENCY:781

The taxonomy of money is based on four key properties: Issuer (central bank or other); Form
(electronic or physical); Accessibility (universal or limited); and Transfer mechanism
(centralised or decentralised). This distinguishes CBDC (hereinafter in this section referred to
Central Bank Cryptocurrency (CBCC)) from other existing forms of electronic central bank
money, such as reserves, which are exchanged in a centralised fashion across accounts at the
central bank. Moreover, the taxonomy distinguishes between two possible forms of CBCC: a
widely available, consumer-facing payment instrument targeted at retail transactions; and a
restricted-access, digital settlement token for wholesale payment applications. 782 The three
characteristics of CBCC can be identified as they are electronic; are not the liability of anyone;
and feature peer-to-peer exchange.

It may seem natural to define CBCCs by adapting the definition of Committee on Payments and
Market Infrastructures (CPMI)783 to say that they are electronic central bank liabilities that can

777
Supra note 8
778
Danezis & Meiklejohn, Centrally Banked Cryptocurrencies, UNIVERSITY COLLEGE LONDON
(Aug 24, 2019, 11:00 PM), http://www.cs.ucl.ac.uk/staff/G.Danezis/papers/ndss16currencies.pdf
779
Supra note 5
780
Yves Mersch, Digital Base Money: An Assessment from the Ecb’s Perspective, EUROPEAN
CENTRAL BANK (Aug 27, 2019, 09:55 AM),
https://www.ecb.europa.eu/press/key/date/2017/html/sp170116.en.html
781
Morten Bech & Rodney Garratt, Central bank cryptocurrencies, BANK FOR INTERNATIONAL
SETTLEMENTS QUARTERLY REVIEW (2017) retrieved
from-https://www.bis.org/publ/qtrpdf/r_qt1709f.htm
This section of this paper incorporates the summarized analysis of the section ‘taxonomy of money’ of
the cited paper.
782
It is common to divide payments into retail and wholesale segments. Retail payments are relatively
low-value transactions, in the form of eg cheques, credit transfers, direct debits and card payments. By
contrast, wholesale payments are large-value and high-priority transactions, such as interbank transfers.
The distinction might become less relevant in a world with CBCCs. In that case, our usage would reflect
the types of payment primarily targeted by CBCCs.
783
The official electronic version of the Report of Committee on Payments and Market Infrastructures
on ‘Digital currencies’ (2015), retrieved from-
https://www.bis.org/cpmi/publ/d137.pdf
be used in peer-to-peer exchanges. But this ignores an important feature of other forms of
central bank money, namely accessibility. Currently, one form of central bank money – cash –
is of course accessible to everyone, while central bank settlement accounts are typically
784
available only to a limited set of entities, mainly banks. In this spirit, Bjerg (2017) includes
universally accessible (i.e. easy to obtain and use) in addition to electronic and central bank-
issued in defining the new concept of central bank digital currency.

Combining the properties discussed in CPMI (2015) and Bjerg (2017) to establish a new
taxonomy of money. This taxonomy reflects what appears to be emerging in practice and
distinguishes between two potential types of CBCC, both of which are electronic: central bank-
issued and peer-to-peer. One is accessible to the general public (retail CBCC) and the other is
available only to financial institutions (wholesale CBCC). Again, a Venn diagram (hereinafter
referred to Money flower) is useful for illustration.785

784
Ole Bjerg, Designing New Money - The Policy Trilemma of Central Bank Digital Currency, CBS
WORKING PAPER (2017) retrieved from-
http://dx.doi.org/10.2139/ssrn.2985381
785
A four-circle Venn diagram covers only 14 of the 24 = 16 possible combinations. Hence, in the case
of four sets, Venn (1881) suggested using ellipses in order to show all cases. See also
http://math.gmu.edu/~eobrien/Venn4.html
In principle, there are four different kinds of electronic central bank money: two kinds of
CBCCs (the shaded area) and two kinds of central bank deposits. The most familiar forms of
central bank deposits are those held by commercial banks – often referred to as settlement
accounts or reserves. Universally accessible forms of money that are not issued by the central
bank include (privately created) cryptocurrency, commodity money, commercial bank deposits
and mobile money.786 Cryptocurrency borders CBCC given that only one of its properties
differs. The other three currency forms are more removed because they are, in addition, either
physical or “not peer-to-peer”. A number of other forms of money are not universally
accessible. Local (physical) currencies, i.e. currencies that can be spent in a particular
geographical location at participating organisations, populate the right-hand petal of the flower.
The upper left-hand petal contains virtual currencies, which are “electronic money issued and
usually controlled by its developers, and used and accepted among the members of a specific
virtual community” (ECB (2012))787. There is also the possibility of a private sector wholesale

786
Mobile money is an electronic wallet service that allows users to store, send and receive money using
their mobile phones. The value stored in the wallets may be liabilities of the service provider or claims
on money held in trust at a commercial bank. For example- Paytm.
787
Virtual Currency Schemes, EUROPIAN CENTRAL BANK (Oct. 2012). retrieved
from-https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
version of cryptocurrency. It would be transferred in a peer-to-peer fashion by means of a
distributed ledger, but only between certain financial institutions.

EXPERIMENTAL MODELS OF CBDC:

Fed-coin is the example of Retail CBCC. It reintroduces one central point of control to the
monetary system by granting a central bank the ability to set the supply of tokens on a Fedcoin
blockchain. This allows the central bank to guarantee the one-to-one equivalence between
digital Fedcoin tokens and physical banknotes. Even though Fedcoin restores the ‘backing’
point of control over currency, other decentralized features of Bitcoin, such as permissionless
validation, may continue to be implemented, the result being that Fedcoin could inherit some of
the features of coins and banknotes that Bitcoin has managed to digitally replicate. These
include a degree of anonymity, censorship resistance and reusability of tokens. Fedcoin also
provides central banks with a monetary control feature not offered by banknotes or coins:
negative interest rates.788

Cad-coin is the experiment of wholesale CBCC illustrated through Project Jasper.789 Bank of
Canada issues an equal amount of a central bank issued digital asset, referred to in the
presentation as CAD-coin, onto the distributed ledger and sends each bank an amount of CAD-
coin equal to the amount of cash they pledged. Banks can then send payments of CAD-coin to
each other in real time to meet the payment obligations that they have agreed to have settled on
this platform and may also send payments back to the Bank of Canada in order to “cash out”
and convert CAD-coin back into Canadian dollars. Technically, a CAD-coin is a deposit
receipt; it gives the holder a transferable claim on its value in central bank money. CAD-coin
transactions occur on a private, permissioned system. It is permissioned in that only a group of
trusted users validate and maintain the integrity of the ledger. It is private in the sense that only
a selected group of users can read and initiate CAD-coin transactions.790

In Sweden the demand for cash has drastically fall since the Riksbank introduced the project
implementing e-Krona as a substitute of cash. Already enormous shops and some bank don’t

788
JP Koning, Fedcoin: A Central Bank issued Cryptocurrency (2016), R3 REPORTS, retrieved from-
http://www.r3.com/wp-content/uploads/2018/04/Fedcoin_Central_Bank_R3.pdf
789
Project Jasper is an on-going collaboration between R3 and six private Canadian banks, Payments
Canada and the Bank of Canada that began to explore the possibility of clearing and settling large value
payments using distributed ledger technology (DLT). The official electronic version of the project-
https://www.payments.ca/sites/default/files/29-Sep-17/jasper_report_eng.pdf
790
Rod Garratt, CAD-coin versus Fedcoin (2016), R3 REPORTS, retrieved from-
https://www.r3.com/wp-content/uploads/2017/06/cadcoin-versus-fedcoin_R3.pdf
accept cash. No decision has yet been taken in terms of technology (Sveriges Riksbank
(2017)).791 Hence, the e-Krona is located on the border between deposited currency accounts
and retail CBCCs.792 With these properties an e-krona will be similar to cash in the sense that it
is universally accessible (without restrictions) and supplied according to demand. The
properties may also be necessary conditions for parity between an e-krona and other forms of
the Swedish krona. Furthermore, and importantly, they also imply that an e-krona would
constitute a safe and liquid asset with essentially zero transaction costs that could be held by
all (including professional investors) and in unlimited quantities.793

RS-Coin introduces a degree of centralization into the two typically decentralized components
of a blockchain-based ledger: the generation of the monetary supply and the constitution of the
transaction ledger. In its simplest form, the RS Coin system assumes two structural entities: the
central bank, a centralized entity that ultimately has complete control over the generation of the
monetary supply, and a distributed set of mintettes that are responsible for the maintenance of
the transaction ledger. mintettes collect transactions from users and collate them into blocks.
rather than performing some computationally difficult task, each mintette is simply authorized
by the central bank to collect transactions. In RSCoin, this authorization is accomplished by a
PKI-type functionality, meaning the central bank signs the public key of the mintette, and each
lower-level block must contain one of these signatures in order to be considered valid. one of
the major benefits of centralization is that, although the generation of the transaction ledger is
still distributed, consensus on valid transactions can be reached in a way that avoids the
wasteful proof-of-work required by existing cryptocurrencies.794

The Multi-Blockchain model of CBDC called MBDC is based on the permission blockchain
technology. The model makes use of the multi-blockchain architecture and Chain-ID to
improve the models scalability and process payments more quickly. In this model, central bank
and commercial banks and other agencies build and maintain the blockchain. On one hand,
central bank could master the issuance of currency. On the other hand, relying on the user
account address protocol, central bank could separate the users identity and transaction
information. In this way, central bank could avoid double-spending issues and protect users

791
the official electronic version of the Annual report for Sveriges Riksbank 2017, retrieved from-
https://www.riksbank.se/globalassets/media/rapporter/arsredovisning/engelska/annual-report-2017.pdf
792
Supra note 28
793
Armelius, Boel, Nessen & Claussen, The e-Krona and the Macroeconomy, (Nov. 2018). retrieved
from-
https://www.researchgate.net/publication/329124005_The_e-krona_and_the_macroeconomy
The authors work in the Payments Department and the Monetary Policy Department of the Riksbank.
794
Supra note 27
privacy. In addition, the establishment of DC (Data Center) and layers of supervision provide
strong supervision for the model.795

THE WAY AHEAD FOR BLOCKCHAIN TECHNOLOGY IN INDIA:

Blockchain-based DLT, which was first applied as the underlying technology of the
cryptocurrency Bitcoin, has a variety of potential applications beyond the narrow realm of
digital currencies and cryptocurrencies.796 Optimistically speaking, even though the blockchain
technology is adopted by public and government for various purposes, the fountainhead of its
failure still exists because of the only crucial issue of generation of adequate electricity.
Blockchain use automation via computer processing power, networking via the internet, and
cryptography to transfer value from one person to another. 797 So, the Functionality could be
temporarily available during electricity or infrastructure breakdowns but still be susceptible to
catastrophic events.798799 India has a renewable energy credit system, which requires those
entities determined by state regulators to meet a Renewable Purchase Obligation (RPO) through
the purchase of either renewable energy or renewable energy certificates. The regulator has
delegated authority to the National Load Dispatch Centre (NLDC) to centrally manage the REC
programme. This includes registration of renewable energy generators, issuing RECs and
managing the REC repository.800 Although legislative changes would be required for the
introduction of blockchain, India’s REC framework supports electronic transactions and data
sharing among the regulator, power exchanges and participants. This could improve the ease of
introducing blockchain into an established framework.801

The hash function used in blockchain preserves the integrity and credibility of court data,
submitted evidence and also makes tampering with such sacrosanct data impossible.802 More

795
He Sun, Hongliang, Xiaomin, Zhidong, Kai Hu, Wei Yu, Multi-Blockchain Model for Central Bank
Digital Currency, 18TH INTERNATIONAL CONFERENCE ON PARALLEL AND DISTRIBUTED
COMPUTING, APPLICATIONS AND TECHNOLOGIES, 360-367 (18-20 Dec. 2017).
796
Supra note 46
797
E Tahyar, I Kiviat, J Roberts, Liang & Jackson, Harvard Case Study: Central Bank Digital
Currency, HARVARD CASE STUDY SERIES (2019)
798
lbid
799
A recurrence of the 1859 Carrington Event could knock out communications and power for up to a
year and render digital money useless.
800
Downes & Reed, Blockchain for Governance of Sustainability Transparency in the Global Energy
Value Chain, QUEEN MARY UNIVERSITY OF LONDON, School of Law Legal Studies Research
Paper No. 283/2018, retrieved from-
https://ssrn.com/abstract=3236753
801
Central Electricity Regulatory Commission, Approval of Modification of REC Procedures, (15 Apr
2018) retrieved from-
http://www.cercind.gov.in/2014/regulation/RP.pdf
802
Kartik H, Legal Systems and Blockchain Interactions (2017) retrieved from-
and more economic activities can be brought under the ambit of contract law in the coming
years. For instance, the Smart contracts 803 may emerge in business organizations to eliminate
the need of third party assistance. Many jobs will obviously be automated. But it will open up
new areas where law is applied. The Justice process can focus more on niche areas like criminal
law where subjective interpretation of human actions is a necessary part of the Natural Justice
system. But all this disruptive change can be brought about in an orderly manner only if
Controlled Blockchains are deployed. Instead of destroying existing systems, we can shift
existing systems to newer platforms with minimal disruption and maximal continuity.804

CONCLUSION:

The legislative intent behind the proposed crypto ban is unequivocally generous. The report of
the committee reflects tremendous research that deduced to penalise the use of private
cryptocurrency. It must be noted that the technology knows no boundary. The ban of any kind
on any technology, particularly on cyberspace would not be exhaustive for its non-access. There
are technologies to almost successfully circumvent the legal prohibitions. Tor is one of them.
However, the ban may reduce the repercussions caused by private crypto. On one hand the
cessation of private cryptocurrency is a dire need to deter enormous repercussions, on the other
hand, technological innovations such as blockchain is worthy of welcoming concerning its
global encouragement in various dimensions. To reconcile this conflicting point, the adoption
of a middle way is crucial. The regulation and reasonable control over such controversial
technology by the state to ensure public welfare is always preferred. The central bank digital
currency is the key to unlock the doorway of middle way. It is true that CBDC is merely a
concept until implemented. The experiments for its effective implementation have taken place
by banks and governments throughout the globe. Various jurisdictions have adopted various
designs and mechanisms of CBDC as aforementioned in the paper. Every such experiment is
the consequence of vast multidisciplinary research and the intellectual endeavours to eliminate
every possible disadvantage and incorporate all possible favourable elements. India, on this
stage seems somehow perplexed as no initiative has been taken so far for any experiment of
CBDC. What should be the design and mechanism of CBDC suitable particularly for India, is
apparently a question with multiple answers in the dynamic state of economy. The mode, extent
and scalability of implementation remain the second significant question. The prospective

https://dx.doi.org/10.2139/ssrn.2893128
803
Smart Contracts effectively automate the contracting process with the rules of the contract governing
the transactions or activities. Money can be programmed to return back to the owner's account if a
contract is breached, fraud (by service provider), poor quality of service etc.
804
Supra note 54
 answers of all these prospective questions are the matter of conclusion to be drawn from the
eclectic researches of economics, finance, technology, sociology and law. In India, majority of
the population reside in rural areas. So, for the future growth of CBDC, sufficient digital
literacy and accessibility to the remote areas is indispensable. Depending upon the design of
CBDC, in addition to the technical issues and potential transitional risks, the RBI might face
legal risks while issuing such virtual currency.

Even if every form of private cryptocurrency is banned, the door for other applications based on
blockchain such as Encrypgen and Followmyvote always remains open. Cryptocurrency is the
only successful application of blockchain so far. Other applications that run on blockchain may
take time, but the future of blockchain and DLT is seemingly much broader than just
cryptocurrency. Depending upon the awareness of blockchain, other existing service providers
may also switch to blockchain to avail its potential advantages. Currently the blockchain is at its
infancy and the fountainhead of all the potential prospective differences in its implementation is
subject to the passage of the proposed bill in the Parliament.

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