In this article, Shubham Singh of KIIT School of Law discusses whether trading in Ethereum is legal in India or not.

Introduction

Ethereum was first mentioned in 2013 as a result of a research work by Vitalik Buterin on the Bitcoin community. After this, an Ethereum white paper (i.e., a guideline) was published by him, in which he discussed the technical designs and the rationale regarding the protocol of ethereum and the architecture of smart contracts. Ethereum was duly announced in the year 2014 by Buterin in Miami, Florida, USA at The North American Bitcoin Conference.

Ethereum was co-founded by Vitalik and Dr. Gavin Wood. Dr. Wood, in April 2014 published the Ethereum Yellow Paper, which included technical specifications for the Ethereum Virtual machine (EVM).

What is Ethereum?

Ethereum is an open blockchain platform which allows anyone to develop and use decentralised applications which work on blockchain technology. Ethereum is just like Bitcoin, where no one owns it or controls it. Ethereum is an open source project which is built by many people around the world. Ethereum was designed different from Bitcoin, aiming to be adaptable and flexible. On Ethereum platform it is easy to create new applications.

It has a cryptocurrency named Ether that runs on the ethereum blockchain. It is a digital currency.

A next generation blockchain

A blockchain is a place where every network crossing completes and records the transactions taking place, those transactions which are grouped into blocks, it is an allocated computing architecture. Blockchain technology was first brought up in 2008 in the white paper “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto, it is the technological basis of Bitcoin.

Ethereum Virtual Machine

Ethereum Virtual Machine or “EVM” is used for execution of code of arbitrary algorithmic complexity. Developers create different applications which run on EVM by using programming languages which are based on the existing languages like JavaScript and Python.

Smart contract

It is a phrase that is used for describing computer codes which can simplify the exchange of money or content or property or shares or anything of value. When a smart contract is made run on the blockchain, then it starts acting as a self-operating computer program which automatically executes whenever specific conditions occur. Without any fear of censorship or downtime of fraud or third party interference, smart contract run fully as programmed, because it runs on the blockchain.

Other blockchains are limited but Ethereum provides developer with an option to create any operations which they want. This will allow developers to build much more different applications which will go beyond whatever anyone has seen before.

How do Ethereum works?

Ethereum includes a lot of features and technologies which are similar with Bitcoin and hence familiar to users of Bitcoin. Ethereum has on its own also introduced many modifications and innovations.

Unlike Bitcoin, Ethereum basic unit is the account and Bitcoin’s blockchain was entirely a list of transactions. Ethereum blockchain tracks the state of each account, and all state transitions are transfers of value and information between accounts.

There are two types of account

• Externally Owned Accounts (EOAs)- these are controlled by private keys;
• Contract Accounts- these are controlled by their contract code, and this account can only be ‘activated’ by an Externally Owned Account.

The main difference is that EOAs are controlled by human users and Contract accounts through internal code. In Contract accounts, the term ‘smart contracts’ refers to code. Users by deploying code to blockchain can create new contracts.

When instructed by EOA, then only Contract account can perform any operations. Hence, there is no possibility of performing native operations like random number registration and API calls by a Contract account.

Just like Bitcoin, it is mandatory for users to pay small transaction fees to the network and this leads to protection of Ethereum blockchain from different non-serious and malicious tasks, like DDoS attacks and Infinite loops. The sender of a transaction is bound to pay for every step of the program which they activated it also includes Computation and memory storage. All the fees are paid in ‘Ether,’ Ethereum’s cryptocurrency. The nodes which validate the network has the responsibility of collecting transaction fees. In Ethereum network ‘miners’ works as nodes and they receive, transmit, verify and then they execute the transactions. After this miners work is to group all the transactions that include different updates for the “state” of accounts in the blockchain of Ethereum- into “blocks”, then miners compete for every successful block that they have mine, among themselves. By this economic encouragement is given to the people so that hardware and electricity to the Ethereum network get provided by the people.

Similarly, as Bitcoin network, miners can successfully mine a block by solving a complex mathematical problem given to them. This process is referred as “Proof of Work”. As it has earlier occurred in the Bitcoin network for discouraging centralisation because of the use of specialised hardware (e.g. ASICs), Ethereum has chosen a memory-hard computational problem. This allows distribution of security in a more decentralized manner as compared to those blockchains of Bitcoin whose mining is dominated by specialized hardware.

Platform for Buying And Selling Ethereum in India

Ethereum is a free and digital currency like Bitcoin. It works on the model of blockchain with a scripting functionality. Ethereum offers EVM a virtual machine for the purpose of running scripts. Ethereum makes transfer of ‘ether,’ which is a value token and is necessary for compensation of network nodes that are involved in the process carried out in Ethereum Virtual Machine. Through the help of a mechanism known as ‘Gas,’ which is a transaction pricing machine, Ethereum aims to avoid network spam.

Since a lot of attention has been gained by Ethereum projects it is expected that Ethereum will beat Bitcoin in the upcoming years in India.

How to Buy Ethereum in India?

An online platform ‘ETHEXIndia’ has been provided for exchange and trading of Ethereum. In India, ETHEXIndia was the first marketplace launched for buying and selling of Ethereum tokens, ‘Ether’ or ‘Eth.’ With the help of an effective wallet system, this marketplace has offered a real time trading experience.

Registration on this platform does not require any fee, there is also no fees of trading also. After registering an account and getting access to it on ETHEXIndia, user can freely use the trading system and secure wallet services offered by the site.

Ethereum Vs Bitcoin

Usually, people compare the aspect of cryptocurrency of both Ethereum and Bitcoin. But in reality, both Ethereum and Bitcoin have very different projects and with different goals. Bitcoin has mainly emerged as a relatively stable digital currency, whereas Ethereum’s main aim is to encompass more, with ether just a component of its smart contract applications.

Ethereum and its legal implications

• Ethereum has brought up and offered an alternative to law. By the parts involved at the time of enforcing and verifying by the network, new types of law can be written. Agreements are unclear and enforcement of such agreement is hard. Ethereum has a way for solving this problem, it uses two special ingredients- first, a digital currency and second, a complete programming language.
• Ethereum also allows to set up certain program on its platform and it would stay on its database forever. An option is available to the peoples that they may store any program that are able to execute orders of any kinds and can also respond to various types of parameters such as dates or quantities or anything else that happens in the real world.
• The Reserve Bank of India (RBI) issued notification stating that it does not provide any license or authorisation to any cryptocurrency or digital currencies such as Bitcoin, and thereby, those dealing with the same are responsible for their own risks. This notification was for the benefit of the people ensured people that their actions might have consequences that do not guarantee a legal remedy.
• Traditional law is also an agreement; it is an agreement between peoples and their leaders as for how should people behave. It also acts as a legal contract among individuals. This type of contracts is a form of private law which applies to all the participants. Both types of agreements are enforced by a government legal system.
• Modifications in laws and new laws can only be formed by a voting system as per the Town Charter and written in EtherScript.
• Ethereum laws will automatically naturally fit agreements where value items are digital in nature. Ethers control and control over other digital assets such as websites or software or digital content or cloud storage or other can be enforced directly.
• A complaint to the cyber cell leads to a very slow and gradual help. They are slow to respond, and a probable cause might be the very fact that the RBI has advised against the usage of the same.

The Future of Ethereum in current scenario

Ethereum has one and only possible application i.e., Ether. Hence it is not possible for people to use Ether as a direct payment. But Ethereum brought a major revolution called smart contracts and we will come across it a lot in the future. Smart contract allows a lot of possibility of applications. Smart contracts are computer protocol with the main purpose to execute terms and conditions of a contract so that it can satisfy common contractual conditions without the need of intermediaries. Like this smart contracts can easily be used not just as a tool to set payment-related transactions but also as the deepest layer of any application development.

Conclusion

The preparation of norms for cryptocurrency or virtual currency is in the process by Union Finance ministry. This step has been taken due to latter’s rise in market size and investor base other than reports of related fraud. The government said that it feels the industry must have some government oversight and it can not be left unregulated. The panel does not seem to put a ban of digital currencies as the global market capitalisation for virtual currencies is near about $40 billion.

The protocol of Ethereum was formulated as an upgrade version of cryptocurrency to provide advanced features such as blockchain escrow, withdrawal limits and financial contracts also gambling markets and others through a highly generalized programming language. The Ethereum protocol goes far beyond only currency.

A group named Enterprise Ethereum Alliance (EEA) has been recently connected large companies to technology vendors for working on projects using the blockchain. Ethereum is running parallel to Bitcoin and has a great chance of surpassing it, in order to take over as the primary face of cryptocurrencies or digital currencies.

Reference:

1. http://ethdocs.org/en/latest/introduction/history-of-ethereum.html
2. http://www.business-standard.com/
3. http://www.indiabitcoin.com
4. http://www.newsbtc.com/2017/02/05/reserve-bank-india-bitcoin-warning/
5. https://www.ethnews.com/could-the-reserve-bank-of-indias-proposed-regulations-affect-virtual-currencies
6. http://cybercrimecomplaints.com/services