Sep 11, 2020 14:31 UTC
Sep 11, 2020 at 14:45 UTC
Virtual Currency Theft: Is Blockchain Transaction Safe?
The advancement of technology took all the transaction and communication to next level, the person need not to be present in person to communicate and to discuss business. This shift in the paper-based approach to electronic approach led to the need to frame laws governing the transaction and communication in cyberspace. Traditionally, the transaction takes place in form of physical currency, bank notes or coins, but in this era of innovation and technology how money can be left in its physical form.
At the very beginning trade happened through barter system with the passage of time it was took over by metals coins and then bank notes, coins and digital currency in the form of debit and credit cards are there, we can clearly trace the evolution of money with the changing need of the society. Now-a-days when technology is preferred over any other mode, the nature of money also changed, and then Crypto currency comes into the picture. Crypto currency is a currency created with the help of computer system using codes, it does not have any physical form, it is a currency that is created and circulated in the virtual space or cyberspace. We can say that this currency does not have shape, neither we can touch it nor can we see it, but still it exists in the virtual space.
The evolution of technology over the period of time is believed to be good as it made things convenient for people, now we don’t have to go out to buy things, we don’t have to stand in long que for money transfer, we don’t have to travel from one place to another to see someone just a video call is enough. Money is one of the crucial things in anyone’s life, people spend their lives earning money for their survival. Physical form of money has a lot of drawbacks, it requires physical space to store, it has to be safe or one my might lose it, theft of money and many more. With the introduction of crypto currency now people can easily transact business, locally as well as internationally.
Cryptocurrency as its name suggest is created through cryptography method. Blockchain is a technology that records the transaction takes place through cryptocurrency. Traditionally as ledger was created to record the transaction to track the flow of money, blockchain is a ledger technology that is used to validate the cryptocurrency transaction and record of transaction is stored. When we evaluate this mode of currency it is very convenient and easy to use but the advancement of technology not only makes things convenient but also expands the scope for crime. Hacking is common with the increase use of technology and it is not always easy to trace the criminal. Where technology makes day to day life easy it also helps to commit crime with less efforts, now one can commit theft by sitting in his own room while using his personal computer. The important question that arises out of such situation is that What are the remedies of the owner of cryptocurrency? Who is to be held responsible for the transaction of cryptocurrency? How to protect the interest of investor from theft or fraud?
CRYPTOCURRENCY FRAMEWORK ALL AROUND WORLD
The growing market of cryptocurrency poses a difficulty as to recognise the different products falls within the cryptocurrency in common terms. The basis of all the product is same as they all are result of the cryptography but there are various terms denoting these currencies in different countries. Some of the terms used by countries to reference cryptocurrency include: digital currency (Argentina, Thailand, and Australia), virtual commodity (Canada, China, Taiwan), crypto-token (Germany), payment token (Switzerland), cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon), and virtual asset (Honduras and Mexico).
The cryptocurrency market is not a stable market and involve a lot of risk and an interesting feature that is noted among various nations is that government issued warning about risks involved. The issue of currency is the responsibility of the Central Banks and various financial authorities, they record the transaction, maintain the ledger and record of customer’s credit. Theses Central bank and other financial authorities issued these notices to educate the citizen of its country about the differences between state backed currencies and cryptocurrencies which are not backed by the states, most of the notices involve the risk and the use of virtual currency to facilitate illegal and unregulated transaction.
Nations in modern era are aware about the technology, its use for betterment and prospects, there are some countries that not only issued notice for awareness but also expanded their laws on money laundering, counterterrorism and cryptocurrencies related crimes. Cryptocurrency’s anonymity presents a challenge to law-enforcement and a risk to legitimate users. Users can create and discard unlimited public keys, can use bitcoin mixers for additional anonymity and do not need to be physically present to receive money or register any identifying information to use Bitcoin.
Many institutions said that cryptocurrency’s lack of a central-authority that administers and provides redress as a key risk’. This lack of central-authority makes it impossible for Bitcoin to ‘conduct due-diligence, monitor and report on suspicious activities, implement an AML program and accept or process legal requests like subpoenas’. The US Justice Department was able to charge E-gold proprietors, a centralised virtual-currency, for violating money-laundering regulations and knowingly allowing a transaction to purchase child-pornography. If cryptocurrency is used for such transactions, regulators cannot directly target a central body. This makes it impossible to ‘target a central location or company for investigative purposes or to shut down the system’.
Some nations have gone even further and imposed restrictions on investments in cryptocurrencies, the extent of which varies from one jurisdiction to another. Some (Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam) ban any and all activities involving cryptocurrencies. Qatar and Bahrain have a slightly different approach in that they bar their citizens from engaging in any kind of activities involving cryptocurrencies locally but allow citizens to do so outside their borders. There are also countries that, while not banning their citizens from investing in cryptocurrencies, impose indirect restrictions by barring financial institutions within their borders from facilitating transactions involving cryptocurrencies (Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia).
In India, after the launch of Bitcoin several cryptocurrency exchanges began to operate. However, such a situation was a legally unprecedented one. This is because not only was there no clear definition of a cryptocurrency but any laws that regulated or prohibited their use also did not exist. Until in April 2018, Reserve Bank of India issues a notification directing the banking and financial institutions to ban all the transaction dealing with the cryptocurrencies. However in the case of Internet and Mobile Association of India v. Reserve Bank of India, Supreme Court of India held that though RBI has power to regulate the virtual currency but this notification banning cryptocurrency is ultra vires of the constitution, it is in violation of the Article 19(1)(g) and in absence of any such legislative act, cryptocurrency cannot be called as illegitimate.
Japan, as the world’s third largest economy, boasts about some of its most progressive and stringent cryptocurrency regulations. However, what is most astonishing that regulating the market was carried out against several high-profile crimes involving cryptocurrency. The Japanese regulators, instead of reacting negatively to these events, used them as an opportunity to develop a legal framework that can help reduce illegal activities through cryptocurrencies and instead in regulating them to provide safety.
Thus, the regulation of cryptocurrencies is not uniform across the globe. There are some nations which deals with cryptocurrency, some imposed partial ban and other imposed complete ban on the cryptocurrency. It is very difficult for investors to find the right place for them to deal with the cryptocurrency. They are free to deal in some countries while some country allows investments but not recognise it as legal tender and there are some countries where complete ban and they cannot trade at all.
IS CRYPTOCURRECNY SAFE?
If anyone thought that cryptocurrency was safe from misappropriation, they were mistaken. Cryptocurrency holdings are recorded on an electronic ledger accessible only to authorised users by means of an encrypted key. With Bitcoin that electronic ledger is called a “block chain” because the structure of the electronic ledger comprises blocks of data in the form of a chain. Safety was supposed to be guaranteed by having the electronic ledger exist in multiple electronic copies, which would be inherently difficult to change simultaneously. It is reported that several leading banks are now actively considering whether to adopt the “block chain” electronic ledger system to effect money transfers.
A company called Bitpay, Inc. commenced proceedings on 15 September 2015 in the District Court in Atlanta, Georgia, US against its insurer for failing to pay under a policy against computer fraud, covering ‘loss of … money … or other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises’. The definition of “money” was later extended by agreement between insurer and insured to cover Bitcoin. In the proceedings in the District Court, the plaintiff is alleging that a fraudster sent an email which caused the plaintiff to connect to a fraudulent website, where the plaintiff was deceitfully persuaded to disclose the key to its Bitcoin account, and lost bitcoins to the value of US$1.85m. The insurer has filed a defence denying liability on grounds that include a denial that the lost bitcoins were removed from inside the plaintiff’s premises or banking premises, and the litigation continues.
There are ground of defence which can be argued before the court. On 7 December 2015, a US (federal) criminal court in San Francisco imposed a 71 month prison sentence on a man called Bridges, who while a member of the US Secret Service’s electronic crimes task force investigating Silk Road, an online criminal market place that was part of the “dark internet”, had participated in stealing bitcoins that at the time were worth some US$350,000.
REMEDIES FOR LOSS OF CRYPTOCURRENCY
Proceeding on the assumption that individuals possess intangible property interests in Bitcoin, its owner then must be afforded the “right against interference with possession from the world at large.” And this right necessarily implicates the law of theft-punishment for violating that right is critical to both deterrence and public confidence in its protection. The proper object of theft as “anything of value,” including “intangible personal property,” seemingly to broaden the protections of the criminal law. The critical question, however, is not whether intangible property rights are objects of theft in the abstract; it is rather “whether the victim’s loss constituted property for purposes of the statute being considered.”
In English law, money as a token of value has long been regarded as property. English law should therefore have no conceptual difficulty in treating cryptocurrency as being worth its exchange value. When printers of bank notes were tricked into permitting fraudsters to circulate unauthorised bank notes in Portugal, a majority of the House of Lords held the printers liable in damages for the exchange value of the spurious bank notes, rather than just for their nominal value as printed paper. Similarly, in Fairstar Heavy Transport NV v Adkins, the Court of Appeal held that a principal was entitled to recover its business emails from a former agent who had control of the only copies, there being no reason in such a context to distinguish between printed and electronic documents.
It makes little difference that in the absence of express contractual provision, rights and remedies may depend on physical possession of something tangible, which cryptocurrency is obviously not. For example, it has been held that no non-contractual possessory lien is capable of subsisting in the contents of an electronic database.
In Re Lehman Brothers International (Europe) (in administration), J. Briggs construe express contractual provisions alleged to create a lien over intangibles.
“I invited the parties to consider whether the time might have come for English law to take a broader view of the matter … counsel continued to invite me to treat the established limitation of the scope of a general lien to intangibles as set in stone, or at least too firmly set to be disturbed at first instance“.
English criminal law has sometimes seemed to struggle with the concept of intangible assets, and whether there can be the statutory crime of “theft” of a bank credit balance of which the only record of its existence is in a ledger, electronic or otherwise; or only some such statutory crime as “gaining a pecuniary advantage by deception”. However, the Fraud Act 2006 in England may be dispelling any remaining confusion by concentrating attention on what the fraudster has done, rather than whether he has done it to something tangible.
There is no necessary conceptual difficulty in the law of contract as developed on a case by case basis under English common law continuing to be applied on the same basis to cryptocurrencies, to answer questions whether contractual obligations have been incurred, on what terms, whether performance of such obligations may be avoided or brought to an end, and what remedies may be available. The claim of the individual loser of bitcoins in the proceedings can not dismissed on the ground that a right of property could not exist in cryptocurrency, but only on the ground that the person could not claim as a preferred creditor.
In any event, many transactional and litigation lawyers both in practice and of necessity tend to think of the juridical basis of money less as personal property in ownership or use, and more in terms of obligations owed by and to persons with respect to that money; and therefore less in terms of proprietary rights and more in terms of available remedies.
There are no fixed regulations that governs the cryptocurrency trade around the world, that is the reason that nations are dealing with it differently. In India we can see that the changes are leading to regulate the cryptocurrency. While in Japan the cryptocurrency is totally legal and one can legally trade. However, in some countries there are bans only in regard with the trading of the citizens and other activities are allowed. Cryptocurrencies are not backed any financial institution or authority and in the case of any misrepresentation or fraud one cannot be held responsible, which lead to anonymity and poses a greater threat in regulation.
One must also not forget that though the merits outweigh the demerits of cryptocurrency, those demerits exist, and it would be beneficial to all if in the future, while enacting laws regarding the same. In English Law, the position is clear, and cryptocurrency is recognised as property having value in the eyes of the law. In the case where cryptocurrency is in the question or any dispute arises out of trade of cryptocurrencies, the matter does not dismissed alone on the basis of the matter being intangible and is not in its physical form rather it has to prove that there is loss of property and this loss resulted in the damages. So there are no fix remedies all over the globe it depends upon the country to country and loss amounts to the loss of any other property.
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