Cryptocurrency and its Legal Implications by VEDANT JAIN at LEXCLIQ

A cryptocurrency is a medium of exchange i.e., encrypted, decentralized and digital. There is no central authority to determine the value of cryptocurrency. Instead, the value of cryptocurrency is determined by its customers over the Internet. Cryptocurrency functions through the network, where a large number of computers are employed, which is why the cryptocurrency is decentralized, and control of the currency is not confined to the hands of a government authority or a central authority.

Legal Implications of cryptocurrency

  1. Online Security threats – one of the main concerns of using the virtual currency or cryptocurrency is the attacks from hackers or unknown sources, these sources can enter into your system and create fake virtual currencies, steal your current virtual currency or know the process of creation of these cryptocurrencies. Many of the websites are not that reliable for the purchase of these currencies and when a user goes to other websites to buy something with the help of these currencies, it can seriously harm his personal data also and thus can lead to a breach of piracy.
  2. Inflation and collapse of the system – since these currencies are not regulated by any credible institutions the purchase of very high price cryptocurrency can lead to the unfavourable forces of demand and supply where a user end up paying really high price and thus results in inflation and collapse of the system in general.
  3. Problems in monetary system – Many times user uses these cryptocurrencies to buy the goods and services online instead of paying for them through real money from a traditional bank and some virtual currency exchange platforms allow users to exchange these cryptocurrencies to real currency in the market which can lead to higher liquidity in the market and thus seriously threatens the traditional monetary polices and control of liquidity in the economy.
  4. Decentralized – Most of the cryptocurrencies around the world are not monitored, controlled or regulated by any financial institutions or the central bank of the counties therefore it can have a very negative impact on the economy in terms of trust and security among the users. There will be no monitoring according to forces of demand and supply of the economy.
  5. Gold farming – this is the term common among games that obtain gold which is also a virtual currency by playing games and sell it to other users for real money thus resulting in huge cash generation through gold farming in an uncontrolled and unregulated environment which can lead to fraud and financial risks.
  6. Money laundering – these are the most serious concern of the different regulatory and investigative agencies where the exchange of cryptocurrency for real money can easily lead to launder of the huge amount of money which needs to regulate and because of the secrecy of the transaction, it is very difficult to know the culprits.
  7. Black Money market – use of cryptocurrency can lead to hiding of black unaccounted money easier from the authorities and will create a new market for corrupt and untaxed money to get hidden from the system.
  8. Terrorism funding – the most dangerous implications of cryptocurrency is the funding of terrorism and the creation of an untraceable market for buying and selling dangerous weapons by terrorist organizations.

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