Huawei v ZTE: SEPs, Injunctions and the Points of Interface between the ECJ Case and Indian Jurisprudence : Part II

Posted on by Tech Law Forum @ NALSAR

[Ed Note: This post is the second part of a two part series authored by Vaibhav Laddha, a student of NALSAR University of Law. The first part can be found here.]

The Indian telecommunications market is one of the largest in the world, and therefore becomes an important market for the key participants in the telecommunications industry. Indian jurisprudence on FRAND practices for SEPs is underdeveloped at this stage, with a handful of decisions by the Delhi High Court and the Competition Commission of India. The rules that govern SEP have not been clearly defined, and the positions adopted by the Delhi High Court and the Competition Commission of India have differed greatly.

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YouTube and Censorship

Posted on by Arvind Pennathur

One of the most discussed topics in the world today is how much we can trust the sources of news around us. Fake news seems to be running rampant and it is obvious that we have to evaluate how much faith to put in what we read. That being said, the situation becomes considerably worse when several viewpoints on contemporary problems are removed from the conversation entirely, which seems to be becoming a common occurrence on social media sites. YouTube in particular has been repeatedly associated with this trend. Since its ascension to one of the premium sources for news and information, with viewers gaining information as per their own convenience and hearing different opinions on issues, it has fast been accepted as a stalwart of social media. It is no secret that YouTube has had several problems with content regulation in its 13-year lifespan, the most recent of these being the removal of advertisements from videos deemed ‘unsuitable for advertisers’, thereby preventing their creators from earning money in an event that has come to be known as the ‘YouTube Adpocalpyse’. It appears that YouTube is now going one step further, with the outright removal of several videos from the platform.

Since February, YouTube has been shutting down channels that talk about marijuana in any shape or form. Around the second week of May, the disappearance of several channels at once sent users into a panic. When they reached out to the company, YouTube provided arbitrary reasons for this, citing the violation of its community guidelines. However, the videos in question seem to be adhering to them, making their removal all the more questionable. Even channels such as Marijuana Televisión, a Spanish channel that focuses on medicinal use of marijuana and has no association with usage of the drug in a negative way, was struck down. Several content creators have spoken out against these arbitrary shutdowns.

A user by the name of Paul Joseph Watson uploaded a video critiquing the music video of Childish Gambino’s song, ‘This is America’, claiming that a social justice narrative that attempted to fit into the popular ‘black lives matter’ movement was propagated without paying heed to key facts that contradicted the narrative of the music video. YouTube blocked the video on the grounds that it contained ‘content that may be inappropriate or offensive’. It’s worth noting that the original music video never received a warning of any kind, and is going strong on YouTube with over 329 million views. Watson took to Twitter to announce that his video was blocked. While YouTube reinstated the video later, it raised questions on what kinds of videos YouTube censored.

In 2017, PragerU sued the company for supposedly censoring conservative videos, citing their rights to upload content under the First Amendment. However, the lawsuit went in favour of YouTube, with the judge ruling that YouTube did not operate as a ‘state actor’ that was subject to the First Amendment. The primary question that the court dealt with was whether private companies like YouTube fell under the ambit of the First Amendment. District Judge Lucy Koh cited LLyod Corp v Tanner, which held that a mall was allowed to prevent citizens from distributing handbills in its compound, as a precedent to make the decision, departing from the decision in Marsh v Alabama, in which an appellant was allowed to distribute religious texts in a privately-owned sector. It was further stated in the judgment that YouTube was not a ‘public forum’ for speech to be protected under the First Amendment.

Not classifying YouTube as a public forum is problematic, as in recent times, YouTube and other social media have been taken to be important mediums for the public to discuss and debate issues at large. This viewpoint has been echoed by the Supreme Court in the case of Packingham v North Carolina, where it observed that the relationship between the First Amendment and the Internet can no longer be considered static and that the courts could not arbitrarily ban people from using parts of the Internet.  Social media sites have grown to be an integral part of people’s lives, and as such, constitute a ground for discussion on important topics. It is therefore, unreasonable to exclude them from being classified as public forums in lieu of their important stature in society in this day and age.

While it is true that companies like YouTube are privately owned companies that must protect their business interests and reputation, if the law gives them the ability to regulate content to the extent that they strike out information that is contrary to their views, they are essentially being given a free hand to establish a stringent set of rules as to what content is allowed on the site and what isn’t. One argument commonly tossed around is that if social media sites were considered to be public forums, then their own community guidelines function as violations of the First Amendment, as regulating what people say is the very antithesis of the purpose of the law. However, this argument is flawed for the sole reason that there needs to be regulation in its most basic form as to what is allowed on the site. This can include removal of hate speech, misleading or discriminatory information and other such malicious content. The removal of information should not be extended to respectful, well thought out opinions on contemporary issues.

George Washington once said, “If freedom of speech is taken away, then dumb and silent we may be led, like sheep to the slaughter.” While he may have said it within the context of the formation of a constitutional framework for America, his words ring true in contemporary times as well, as it is one of the most essential qualities of the modern age. Social media is a place where all of us can express whatever we want, and instead of unreasonable restrictions on what thoughts we can project, balanced regulation can be achieved at the most basic level. If opinions are stifled and one side of the debate is cut out, it leaves an unfinished picture, which can bring about conjecture and assumptions at the very least, and misconduct of the highest order at the worst.

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Regulation of Artificial Intelligence : The Way Ahead

Posted on by Tanvi Apte

The “employee” at JP Morgan called COIN,  “recruited” in June 2017, is highly efficient to say the least. It does work that earlier took 3,60,000 hours in a matter of seconds. Meanwhile, in a few developed countries ghost cars that are programmed to “drive themselves”, that is, driverless cars, are hitting the roads. On the military front, among other machines, Russia has created a semi – autonomous robot soldier called Ivan that can accurately copy the movements of a human. Attempts are being made to make Ivan fully autonomous. If Russia can create one Ivan, in time, it can also create an army of Ivans. USA also has similar “soldiers”.

The above examples are just a few of the more glamourous applications of what is called “artificial intelligence” (AI). AI is a simulation of human intelligence processes undertaken by computer systems. These processes include learning, computing, reasoning and the like. AI – powered machines are programmed through use of mathematical algorithms that can discover patterns and generate insights from data they are exposed to. These algorithms enable them to perform certain tasks that have been mathematically “fed” into their “brain”, thereby dictating their working. The global AI market is estimated to grow at 36.1% from 2016 to 2024 to reach a valuation of 3,061 Billion USD. Thus, the staggering potential of AI technology can never be understated, as will also be seen through the scope and impact of its applications.

There are three main categories of AI called Narrow AI, General AI and Super AI – in increasing order of complexity and automation capacity. Narrow AI, that is, machines which fulfill a particular purpose only, is surprisingly pervasive in our daily lives – right from the “Cortana” on Windows Operating Systems to the “Dr. Watson” present in IBM. General AI, largely not achieved yet, refers to machines that can perform several automated tasks at human capacity but are still guided through human control. An example is Tony Stark’s “Jarvis” in the Iron Man movies. Super AI, also not yet achieved, refers to fully automated robots with capacity beyond human ability – in other words, superhumans, like Arnold Schwarzenegger in “Terminator”.

With high potential of use invariably comes high potential of misuse, as has also been illustrated by Cambridge University’s ground – breaking report co -authored by 26 renowned experts on technology. Apart from technological errors, AI powered machines are at a constant risk of being hacked and used maliciously. For instance, the program of a driverless car can be tampered with to make it a kill – machine. AI can also be used to create highly realistic fake audio and video to induce certain consequences such as the alleged use of pro – Trump robots during the previous elections and their impact. Further, AI machines make our day – to – day lives more vulnerable to invasion of privacy as it becomes that much easier to secretly keep a watch on us all the time –  an example being AI- powered machines being used for state sponsored underhand surveillance, as is allegedly happening in China. To cut a long story short, the actual and potential ways to misuse AI is unending. This is where the possibility of regulation arises.

It is important to note that there already exist laws which regulate use of AI like those on privacy, data protection and cybersecurity. For example, even under the current regulatory framework, using an AI- powered machine to snoop into people’s houses will attract punishment under the relevant laws. Thus, the presence of existing regulation narrows the regulatory scope of AI. In this light, requirement of regulation now arises to either cope better with the current situation or to cope with a completely new situation unforeseen by the existing framework.

Looking at the present stage of development AI is in, the need of the hour is specific rules to cope better with the current situation, just like there are safety guidelines for hazardous industries or permissible lead levels in foodstuffs. Similar industry – centric rules like technical guidelines and disclosure requirements based on the nature of particular AIs will go a long way in ensuring accountability today. Such targeted regulation has several advantages, as has been seen with USA’s driverless – car regulatory policy. Firstly, specific regulation means an explicit statement by the law that it has an eye on AI which will deter potential misusers. Secondly, regulation will help achieve quality control. For example, it will ensure quality driverless cars that will actually help reduce accidents by eliminating human errors associated with driving. Thirdly, and most importantly, regulation will increase people’s faith in AI. A person is more likely to sit in a driverless car which he knows has to legally meet certain safety standards rather than one which does not, since the former gives him a better assurance of safety. Further, if people become more secure about the AI machines they are presently using, the popularity of AI will only increase, leading to win-win situation. Thus, the specific regulation will actually boost the AI industry rather than pull it down.

The requirement of specific rules to beef up the current framework thus being established, the question now is whether at this stage in time, additional rules are required in order to be prepared for a change in the current situation, that is, development of General and Super AI – machines which operate at or beyond human capacity. In this regard, there are fears that superhuman robots might go out of human control and prove to be an existential threat to humanity, much like the way Dr. Banner’s experiments in the “Hulk” movie turned out. Proponents of this “existential threat” theory have compared AI experiments to “children playing with a bomb”. As Elon Musk puts it, if AI goes out of human control, it would be an “immortal dictator from which we can never escape.” What Musk and several others, including Stephen Hawking, are trying to say is that because of the destructive potential of uncontrolled AI, its regulation should be proactive rather than reactive to be on the safe side. It is thus argued that the mere possibility of out – of – control robots (whenever they might develop) is enough to regulate now, the risk of unpreparedness being too great.

On the other hand, opponents of the “existential threat” theory like Mark Zuckerberg and bill Gates argue that firstly, such a situation is much too far-fetched and uncertain. Secondly, even if we decide to regulate, there is simply nothing to specifically regulate against. Such regulation is like shooting arrows in the dark. Legislation requires some kind of a base and that is absent here, since there is no concrete idea of when such robots will develop and what their characteristics will be. We cannot overreact and make laws, especially when regulation is coming at the cost of curbing innovation. Any law regulating AI will have the effect of limiting the freedom to experiment and curtailing technological growth, just like imposing sanctions on news channels has a chilling effect on the freedom of speech and expression. Further diminishing the need to regulate is the fact that the wide but uncertain scope of AI induces an inbuilt chilling effect already. For instance, to a scientist, irrespective of the legal framework, the fear that he might create armed cyborgs already constitutes a chilling effect in itself.  Further, each country will try to outdo the other in AI development, thus creating a prisoner’s dilemma situation that makes domestic regulation all the more difficult. Thus, the “existential threat” theory does not prompt regulation today.

The above arguments present a regulatory dilemma. While on one hand it is imperative to be prepared before it is too late in case the “existential threat” theory comes true, there is no concrete way to know what exactly to prepare against and when. In other words, it is too early to regulate AI now but there is no saying when it will become too late to regulate AI.

The answer to this dilemma is to take the middle ground, that is, develop broad general principles (like say, mandatory presence of a “kill switch” in every AI machine) and wait for the right time to come up with specifications, this “right time” being when technological progress clearly points towards development of advanced forms of AI with a clue as to what their specific characteristics will be. Existing principles along these lines include Asimov’s evergreen “Three Laws of Robotics” and the recently coined Alisomar Principles, which are a set of 23 guidelines to curb potential AI – related harm signed by about 1,200 AI researchers and over 2,300 others. Greater, more inclusive collaboration at the international level is essential to formulate more such principles that will ensure preparedness to cope with the future.

To conclude, presently, AI should be regulated in two ways – through specific industry – centric rules and universal general principles. While the former will help tighten the existing framework and ensure greater accountability and safety of the public, the latter will keep mankind prepared for the future developments that might take place in the AI field considering the fact that the consequences of neglecting possible AI development are too severe. Such a balanced regulatory framework will thus help cope with the both the realities as well as the implications of AI progress.

Other supporting links –

https://analyticsindiamag.com/russia-prepares-future-wars-array-ai-based-arsenal/

https://www.nytimes.com/2017/09/01/opinion/artificial-intelligence-regulations-rules.html

http://issues.org/33-4/perspective-should-artificial-intelligence-be-regulated/

https://www.technologyreview.com/s/608296/elon-musk-urges-us-governors-to-regulate-ai-before-its-too-late/

https://theconversation.com/does-regulating-artificial-intelligence-save-humanity-or-just-stifle-innovation-85718#

https://www.huffingtonpost.com/entry/should-artificial-intelligence-be-regulated_us_597a452de4b09982b737630c

http://money.cnn.com/2018/02/21/technology/malicious-artificial-intelligence-use-warning-cambridge/index.html

 

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Part II: Public Law and Cryptocurrencies The Institution of Property – Form and Function

Posted on by Tech Law Forum @ NALSAR

[Ed note: This post, published on the “Law and Other Things” blog, has been co- authored by Namratha Murugeshan and  Prachi Srikant Tadsare. The views expressed by the authors are in a personal capacity and do not reflect the views of the institution the authors are affiliated to.]

On December 28, 2017 the South Korean government banned domestic cryptocurrency exchanges from allowing users to transact through anonymous accounts.

Anguk Law Offices is a small boutique firm in Seoul holding itself out as a firm for foreign investors and immigrants. But, it is in the spotlight in the cryptocurrency and public law space as a result of this ban. Anguk is putting forward a unique argument on behalf of cryptocurrency investors in retaliation to the South Korean government’s administrative guidance.

In a constitutional appeal, Anguk argues that this move of regulating the cryptocurrency trade through administrative guidance without any legal grounds is an infringement of property rights. The law firm argues that cryptocurrencies are assets or commodities and therefore should not be regulated differently. Further, it also argues that the government’s regulations led to devaluation of these assets making trading difficult and thus infringing on the right to property as guaranteed by the Korean constitution. This lawsuit assumes cryptocurrencies to be property.

This lawsuit is particularly relevant to the Indian landscape with the RBI recently denying formal banking avenues to individuals and businesses transacting in crypto assets. While the RBI has been sounding warnings about cryptocurrency since 2013, this is the first time formal action has been taken.

Like Anguk’s lawsuit in South Korea, Kali Digital Ecosystems, a company aspiring to start a cryptocurrency exchange, CoinRecoil, has also taken this matter to the court, citing the RBI circular as “arbitrary and unconstitutional”. Kali Digital Ecosystems specifically states that RBI’s move violates the firm’s constitutional right to practice any profession, trade or business.  It also argues that RBI’s decision constitutes discrimination under the Constitution, because it gives crypto services “differential treatment” without justification. This lack of justification, the company contends, stems from the failure of RBI to adequately define the scope of the term “cryptocurrency.”

While the two lawsuits target different sets of rights under their respective constitutions, what unites them is that they challenge the government’s understanding of the term “property.” But, to be treated as property, cryptocurrency must behave as such in both form and function. In the previous post, we argued that cryptocurrencies by their form – through their inherent technological design, behave as transferable assets, thus constituting property. Here, we take that analysis forward by looking at the function of virtual currencies from a jurisprudential perspective. We try to show that understanding this form and function should be the basis of any ensuing regulation.

The theory of Property

Two descriptive approaches to the theory of property help clarify the function of cryptocurrency as property – the bundle theory and the essentialist theory.

The traditional bundle theory understands property as a collection of rights derived from their relationship to a particular thing. This idea involves two concepts: a collection of tangible or intangible things and a collection of various relations that the owner has regarding such things as claim rights, liberties, duties, and liabilities and other basic legal concepts. This philosophical approach is equivalent to the legal concept of norms in personam.

On the other hand, the essentialist theory focuses on the most essential characteristic of property: the right to exclude. This approach can therefore be translated to the legal concept of norms in rem which bind “all the world.” The exclusion theory captures the essential idea of property as the right to exclude non-owners from the use of resources.

Academicians interpreting cryptocurrency in the context of the modern theories of property in philosophy rely more heavily on the essentialist or exclusion theory. To qualify as property under this theory, the interest behind property ownership must be exclusion of all others. We saw in the earlier post that the most primitive aspect of blockchain (and cryptocurrencies) is the digital signature. Created to prevent double spending, the primary function of the key was therefore to exclude everybody except the owner of a private key from modifying the content of a message.

The owner of bitcoins has the exclusive right to dispose of them, transfer them using the blockchain, sell them for other currency, or give them away.

Secondly, to classify as property under this theory, the property in question must also be “separable.” This means that ownership should not presuppose any special relationship with the property (unlike talent), making the property rights transferable. Such a transfer does not alter the nature of the property and the duty of all other non-owners to remain excluded from it. Virtual currencies fully satisfy this separability criteria – they offer multiple modes of ownership change, not only in the form of transactions on the blockchain, but also in the form of the physical transfer of the key pair.

Reading the exclusion theory further, we see that although it seeks to exclude others, this does not equate this right to a full, liberal, ownership. The right to exclude is not absolute and can be overridden by legitimate state power.

One of the reasons this discussion is highly relevant right now is due to newer developments in this field. For example, virtual currency platforms such as Ethereum are now developing smart contracts. Smart contracts are a series of “IF, THEN” statements, where the “ifs” are preconditions that must be met in order to trigger the “thens.” Proponents arguing that cryptocurrencies are beyond the realm of regulation often argue that as the smart contracts execute themselves without legal intervention, the “Code is Law.”.

A natural corollary to this would mean that while cryptocurrencies depict as “liberal” a form of ownership as possible, the holder of cryptocurrency can nevertheless be divested of this ownership by the “authority of law,” an understanding which is reflected in Article 300A of the Constitution.

Right to property under Article 300A

Article 300A of the Constitution is a remnant of Article 31 which until 1978 guaranteed Indians the fundamental right to property. However, with the 44th Amendment, Article 31 was partly deleted. Article 31(1) was transferred to Article 300A and provides that “no person shall be deprived of his property, save by the authority of the law.”

The Supreme Court in recent years has accepted that Article 300A covers more than just ‘immovable property’ given the numerous judgements that have read intellectual property into this definition.

While cryptocurrencies may qualify as property both through theory as well as under a general understanding of 300A, rights in them may still be restricted by “authority of the law.” 300A places certain caveats on what this entails.

Firstly, it is restricted to only a legislation or a statutory rule or order and excludes executive fiats. This has been interpreted to mean that if one were to trace the source of the ‘law,’ one would find a route through a statute, to the legislature. Additionally, such a law must be just, fair, and reasonable. (See, Basantibai v. State of Maharashtra). Were the CoinRecoil lawsuit to argue an infringement to the right to property, the latest regulation by the RBI would most likely not stand this test, given that the action does not emanate from a statute that can be traced to the legislature. But, an act by the parliament such as the one discussed below may very well satisfy this standard.

Banning of Unregulated Deposit Schemes Bill, 2018

The Korean regulation or administrative guidance was put in place just a little while before the Indian government’s statements equating cryptocurrencies to Ponzi schemes. To tackle this, the Union cabinet recently approved the Banning of Unregulated Deposit Schemes Bill, 2018 which seeks to penalize “unregistered deposit takers.” To be able to regulate cryptocurrency, cryptocurrency transactions would need to be interpreted as “deposits” and cryptocurrency service providers as “deposit takers.”

As it stands, the draft bill defines deposits to mean “the receipt of money, by way of advance or loan or in any other form, to be returned, whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, by any Deposit Taker, with or without any benefit in the form of interest, bonus, profit or in any other form.” A deposit taker could be an individual or group of individuals, partnership firms, LLPs, companies, association of persons, trusts, co-ops, or any other arrangement. It excludes companies incorporated under acts of the parliament and banking companies. Furthermore, for companies, the definition of deposits is as per the Companies Act. We now look at these definitions from the perspective of different stakeholders in the cryptocurrency ecosystem.

  1. Cryptocurrency exchanges: While the sale of virtual currencies can occur freely in the marketplace, buyers or sellers will not be able to convert these cryptocurrencies to fiat without a cryptocurrency exchange. In this transaction, cryptocurrency exchanges would receive money (as fiat) or as virtual currency, however as they don’t receive it with the intention of return, they would not qualify as “deposits.”
  2. Service providers: This analysis is particularly important for providers offering engaged in one of the burgeoning areas of cryptocurrency investment: sale of tokens and the ICOs – Initial Coin Offerings. While the specific workings of these transactions are beyond the scope of this paper, both types of transaction exchange fiat currency for “tokens” or “coins” which represent a shareholding in the venture. These tokens can be programmed to behave as securities or bonds or derivatives. (See discussion on smart contracts above) It is possible that the service providers may envision “returning” the original investment thus classifying these transactions as deposits.

However, the definition of deposits specifically excludes amounts received by way of contributions towards capital by partners of any firm. By this logic, cryptocurrency service providers raising capital through tokens or ICOs could claim that the money received is capital towards the firm and that token or coin-holders are in fact partners of the firm thus being exempt from the ambit of this bill.

Thus, the application of this new bill is transaction and user specific. Moreover, the legal analysis above underscores the argument that cryptocurrencies behave just like other classes of property.

While this post only discusses two attempts at regulation of cryptocurrencies, as they behave similar to other assets, virtual currencies may be capable of being regulated under other existing laws and regulations. Regardless, they behave similar to assets and this must be kept in mind while regulating. In this matrix, we try to sum up other applicable laws that may be relevant, although each heading could be the subject matter of an entire blog post by itself.

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Misnomer of the Decade: Crypto -“currency” Part I : What is Crypto- “currency” and How Does It Work?

Posted on by Tech Law Forum @ NALSAR

[Ed note: This post, published on the “Law and Other Things” blog, has been co- authored by Namratha Murugeshan and  Prachi Srikant Tadsare. The views expressed by the authors are in a personal capacity and do not reflect the views of the institution the authors are affiliated to.]

A lawyer and her client walk into a room full of accountants. The client looks at the room and says, “I hereby pay my lawyer, X units.” All the accountants note this transaction in their ledgers.[1]

This sounds like a roundabout way of carrying out a transaction – something that could have been accomplished simply by the client giving the lawyer a cheque instead. When the client pays the lawyer through a cheque, only their respective accounts would reflect this transaction. When the client pays the lawyer by the earlier method, all ledgers reflect this transaction. This transaction is harder to dispute and much harder to reverse, reducing the overall chances of either party being defrauded. This is a decentralized ledger – the way in which cryptocurrencies (like Bitcoin) work. The “X amount” in this example above is the number of units of a particular cryptocurrency – say, 1 Bitcoin or a 100 Ether.

This understanding of a decentralized ledger is pivotal to our post in which we try to legally classify cryptocurrency to understand how it ought to be regulated. We will show that the word “cryptocurrency” is in fact a misnomer and that cryptocurrency is not currency of any form, and therefore should not be regulated like one. In fact, we argue that cryptocurrencies are merely assets whose value is rooted in speculation, similar to stocks. Therefore, it should not be given specialized treatment.

This is the first post outlines the existing regulations and highlights the framework that could be used for future regulations. In this post we elaborate on what cryptocurrency is, how it works, and talk about various factors affecting its regulation without taking any particular stance regarding its need. The second explores the implications of public law on cryptocurrency in depth while looking at regulation in India and other jurisdictions based on the diverse applications of cryptocurrency.

Going back to the earlier illustration, how would the client have obtained the cryptocurrency in the first place?

There are three ways to obtain any cryptocurrency – mining new ones; buying on a cryptocurrency exchange; and accepting it for goods and services. While the word “mining” mimes the creation of a legal tender, “mining” in the context of cryptocurrencies is more similar to a newspaper’s crossword puzzle contest. Here’s how:

Cryptocurrencies are “mined” via an algorithm. This algorithm is always on the lookout for transactions on the internet that involve an exchange of cryptocurrency. Once it gathers a specific number of such transactions, it puts them in a “block” and turns that into a “puzzle”. It then invites “miners” (basically, programmers) to solve this puzzle. The answer to this puzzle is a unique key. Miners often use other algorithms to crack this key. The first miner to find the key announces it to other miners on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. These other miners are the accountants from our earlier illustration.

Once a majority of these other miners verify this, the entire block of transactions is added to the ledger containing the previous chain of all transactions (hence the term “blockchain”). The miners now move on to the next set of transactions. The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger. Imagine that the accountants in our example were paid on the condition that they accurately record all transactions that take place in the room and cross-verify the ledgers maintained by the other accountants. This gives miners an incentive to participate in the system and validate transactions. This also means that cryptocurrencies are an essential subset of blockchains, and any effect on one will have repercussions on the other.

This basic understanding of the technology is at the core of its relationship with any regulation. Failure to understand these basics may lead to two extremes – it could either lead to an overarching legislation that might threaten to halt further useful research based on this technology. On the other hand, there is the danger of succumbing to the claims that because of the unique nature of this technology, no laws apply and it should be left as is resulting in a parallel platform ripe for fostering illicit transactions. However, if we look at the way this technology functions, we may just realize that existing regulation is perfectly capable (maybe, with a few modifications) to contain this epidemic.

  1. Why are we suddenly talking about cryptocurrency regulation?

The debate around cryptocurrency regulation has swirled up again in the past few months because of the sudden rise (and subsequent fall) in the prices of these cryptocurrencies. The value of cryptocurrency is determined by speculation of adoption. That is, if the pool of investors believes that there will be more adoption (demand) for this cryptocurrency in the future, the price rises. While cryptocurrency by itself may not be fully accepted as legal tender, it is an asset in which investments are made and it is increasingly becoming an accepted form of tender.

At one time in December 2017, bitcoin had been trending at $19,783. One of the many reasons behind this was the increased speculation as people started investing in “futures” contracts with bitcoin. This meant that they could speculate about the price of bitcoin without ever owning one. Simply put, futures are an agreement to buy or sell an asset on a specific future date at a specific price. Once the futures contract has been entered, both parties have to buy and sell at the agreed-upon price, irrespective of what the actual market price is at the contract execution date. This caused the price of cryptocurrencies (especially bitcoin) to rise exponentially.

This sudden increase in prices lead to concerns amongst regulators for two main reasons. Given the opaque and anonymous nature of cryptocurrency transactions, they are susceptible to be used to finance illicit activities. This came to the light in 2013, when the FBI cracked down on the online black market – Silk Road, which was being used as a marketplace for illegal drugs. The underlying method of payment for these drugs was through bitcoin. Secondly, regulators are also worried that the hype around cryptocurrencies poses an inherent credit risk in the market as an increasing amount of investors jumping on the bandwagon use credit cards to purchase cryptocurrency. If investors are unable to pay off this credit card debt, this could potentially affect other commodities in the market.

South Korea was the first to announce possible legislation that would ban trading on cryptocurrency exchanges. Bitcoin prices fell about 12% to around $12,801 following this news. Then in February 2018, the Indian government started talking tough about cryptocurrency. While the RBI had previously cautioned against investment in cryptocurrency, during the financial budget, Finance Minister Arun Jaitley announced that the country does not recognize Bitcoin as legal tender and steps would be taken to penalize crypto payments. He however maintained that research on the underlying blockchain technology would continue.

Shortly after the minister’s statement, the price of Bitcoin fell to a two-month low of less than $7,000. At least 2 cryptocurrency exchanges have now halted trading in India, whereas most Banks have notified their customers that their credit and debit cards will not be allowed for cryptocurrency transactions. These private players have interpreted the government’s actions negatively and are erring on the extremely cautious side of any impending regulation.

While the government has made it clear that any potential regulation would not affect blockchains but merely cryptocurrency, given the rarity of blockchains without an accompanying cryptocurrency, makes one wonder if such regulation may have a cascading effect on blockchain research as well. As investors, regulators, and the markets in general struggle to  answer this question of what constitutes adequate regulation, the first question they would need to ask is cryptocurrencies are in fact a currency or just another asset.

(i) Is cryptocurrency a currency?

The basic definition of legal tender is that it must be a medium of exchange that is recognized by  a legal system to be valid for meeting a financial obligation. Finance Minister Jaitley emphatically stated in his address that India did not recognize bitcoin (and any other cryptocurrency, by extension) as legal tender. This is true – Entries 36 and 46 of List I of the Seventh Schedule of the Constitution gives the unrestricted power to legislate in respect of currency, coinage, legal tender, foreign exchange, and other like instruments. Further, the Reserve Bank of India (RBI) has the power to regulate the issuance of bank notes under Section 22 of the RBI Act. The definition of currency is found in Section 2(h) of the Foreign Exchange Management Act, 1999 and includes currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank. In the absence of any such notification by the RBI, it is but natural that cryptocurrencies are not considered legal tender. In fact, the RBI has explicitly cautioned against the use of virtual currency. This approach however is consistent with other jurisdictions in the world (with the possible exception of Japan) who do not consider cryptocurrency as a form of currency.

Cryptocurrency as we understand it is simply a medium of exchange. It cannot be classified or treated as an alternative or a parallel form of currency because it is simply not recognized by the law as legal tender.

(ii) If not, are cryptocurrencies just a speculative asset class?

This raises the question of what these “virtual currencies” should be classified as. In our earlier example, would the transaction still be legal if the client agrees to pay the lawyer in the form of a painting.

The argument is that, cryptocurrencies are simply just another form of assets. They are highly speculative in nature, yes, however, they are simply another type of asset class. Some countries have gone as far as to defend the right to invest in these under the constitutional right to property. If individuals are not prohibited from making speculative investments in assets like art, antiques, and even real estate, why should investment in cryptocurrencies be any different? While cryptocurrencies have been at the center of scandals used to finance illicit activities like the Silk Road case, this is just as true of other assets.

One of the recent judgments of the New York Federal Court succinctly captures this understanding. In CFTC v. Patrick K. McDonnell,  the Commodities Futures Trading Commission (“CFTC”), a federal body which regulates the futures and options market in the US, sued the defendants, alleging that they “operated a deceptive and fraudulent virtual currency scheme” and “simply misappropriated customer funds.” CFTC sought a preliminary injunction, damages and restitution. The first question framed by the Court was whether cryptocurrencies are commodities bringing them under the jurisdiction of the CFTC. Judge Weinstein of the Eastern District of New York concluded that virtual currencies were commodities simply because, “Virtual currencies are “goods” exchanged in a market for a uniform quality and value.”

We believe that this is one of the most valuable takeaways for the Indian legal system currently. The current legal framework may very well be sufficient, if we were to understand how cryptocurrencies function. In such a scenario, given that they behave as commodities, securities, sometimes as derivatives, and facilitate payments, they may simultaneously be governed by SEBI, RBI, payment systems regulations, as well as the agencies in charge of anti-money laundering. We will look into this aspect of cryptocurrency regulation in a follow-up post.

Investing money in cryptocurrencies, given their evolving regulatory landscape, requires a comprehensive understanding of their legal status and functions. Recent judgments and regulatory actions highlight the need for a nuanced approach to cryptocurrency investments.

Trade Capex App offers valuable insights and tools for investors looking to navigate this complex terrain. With advanced algorithms and real-time market analysis, these platforms empower individuals to make informed investment decisions, manage risk effectively, and adapt to changing regulatory environments.

As cryptocurrencies can behave as commodities, securities, derivatives, and payment facilitators simultaneously, trade bot guides provide a structured approach to navigating these various aspects of cryptocurrency investments. In a regulatory landscape where clarity is still emerging, these platforms serve as essential resources for investors seeking to work towards their financial goals with confidence and compliance.

[1] Credits for this illustration go to NPR’s fantastic podcast – Planet Money, Episode: Bitcoin Losers.

 

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Is Protecting Internet Intermediaries and Forgetting their Users Wrong

Posted on by Tech Law Forum @ NALSAR

Ed Note: The following is a guest post by Abhijeet Singh Rawaley, a student of NALSAR University of Law.

The law surrounding online intermediary liability in cases concerning copyright infringement has posed a major interpretive challenge in Indian jurisprudence. The division bench of the Hon’ble High Court of Delhi in its 2016 December judgment attempted to resolve the same in MySpace Inc. v. Super Cassettes Industries Ltd. While the case dealt with a host of issues in copyright law, this post shall limit its analysis and critique the judgment on its discussion and holding concerning the role played by online intermediaries. It is devoted to understanding as to how we can create a framework of internet governance that not only protects intermediaries where they deserve and merit protection from liability, but also makes them more accountable and responsible actors who wield significant command over a valuable media such as the internet. The interpretative impediment in the case arose due to the prima facie discord between Section 79 and the proviso to Section 81 of the Information Technology Act, 2000.

Both the provisions were brought in through the landmark amendment of 2008 (that came into effect in 2009) which transplanted the “safe harbour” provisions and the “notice-and take-down regime” into the Indian law dealing with the internet. The seminal significance of the exemption granted to online intermediaries for any third-party content hosted by them cannot be disputed. Intermediaries are the channels, forums and platforms through which the internet becomes what it is. They are legally defined in Section 2 (1) (w) of the IT Act as entities which “receive, store or transmit” information on behalf of any other person through the internet. The section then provides a non-exhaustive illustrative list of “telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes” as intermediaries.  In Rishabh Dara’s words, online “intermediaries are widely recognized as essential cogs in the wheel of exercising the right to freedom of expression on the Internet”. Provided that they fulfil certain due-diligence conditions, Section 79 exempts intermediaries by precluding their liability arising due to any third-party content hosted by them. Taking the significance of IT Act to a very high position, its Section 81 enacts that the IT Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force,” However, the exemption granted by Section 79 and the non obstante contained in Section 81 is apparently taken for a toss by the proviso to Section 81. This proviso crafts what seems to be a very special protection over and above the IT Act for the specific operation of the rights conferred by the Copyright Act, 1957 and the Patents Act, 1970. The sections were misconstrued to mean that the intermediaries, regardless of their due-diligence, could still be held liable for copyright and patent infringing third party content hosted by them.

In specific reference to technology law, the case of MySpace v. SCIL principally dealt with the question of whether the proviso to Section 81 negates and nullifies the exemption granted to intermediaries by Section 79. The Court held that it did not because, as per it, Section 79 granted only a “measured privilege” in favour of an online intermediary and not a “blanket immunity from liability.” It however did not classify the actors involved on the landscape of internet on the basis of their personalities. While Section 79 only exempts intermediaries, it leaves the door open for third-party uploaders to be liable for the copyright infringing content uploaded by them. This nonetheless implies that an intermediary will be liable for the wrongful content that it itself uploads.

Rationalizing the insertion of the proviso to Section 81, the Court observed that but for it, the copyright holders “would have been unable to pursue legal recourse” to protect their copyrights. This goes on to show how the Court without explicitly referring to it, applied the common law principle of ubi jus ibi remedium (where there is a right, there is a remedy) to the virtual space. It harmoniously read Section 79 with the proviso to mean that the former restricts claims of copyright (and concomitantly the remedies that flow from it) against intermediaries as a specific class of actors on the internet. Of course, this exclusion of claims against intermediaries does not happen by itself. The scheme of the law manifests a quid pro quo where intermediaries can avail the benefit of protection under Section 79 only by fulfilling the conditions set out in Sections 79 (2) and (3) and abiding by the due-diligence framework created in the Information Technology (Intermediaries Guidelines) Rules, 2011 as clarified in 2013. This framework of due diligence builds on the principle of self-regulation and mandates intermediaries to put in place specific “rules and regulations, privacy policy and user agreement for access-or usage of the intermediary’s computer resource” by its users. It makes intermediaries the arbiters of complaint notices received from any person who may be aggrieved with such information hosted by them which comes within the four corners of Rule 3 (2) of these rules.

Apart from covering cases of intellectual property infringement, the ambit of information subject to control under the 2011 Rules ranges from blasphemy to defamation to obscenity to such information which may be invasive of another’s privacy, to such that may threaten the unity, integrity, defence, security or sovereignty of India.  What is most problematic about the process to control the information coming within the ambit of Rule 3 (2) is that the ‘notice and takedown’ regime established by Rule 4 does not mandatorily require the forwarding of a notice received to the user who is alleged to have uploaded the objectionable content violative of Rule 3 (2). The regime to disable the objectionable content coming within the purview of Rule 3 (2) only suggests that the intermediary may work either with the uploader of information or the complainant. Since the involvement of the complainant is achieved simpliciter at the first instance of receipt of its complaint, there is no mandatory countervailing obligation on the intermediaries to approach their users who upload the allegedly objectionable content. Hence, the regime to protect the affected person’s rights fails to take into account the uploader’s perspective and thus makes a mockery of the cherished principle of audi alterum partem (hear the other side). While the requirement to hear the other side may have little value in grave cases which concern crimes such as publishing content which may be pornographic or invasive of someone’s privacy, it is nonetheless important in cases concerning copyright infringement. When the uploader of allegedly copyright infringing content is not given a chance to respond to a take-down notice, his possible plea of ‘fair use’ is altogether ignored. Therefore, it is submitted that the notice and take-down regime should be overhauled to extend its coverage to mandatorily take into account the response of uploaders of content to the notices received. This would only go on to ensure that the virtual web space becomes more fair to the different stakeholders that it caters to. An argument might be made that the ordinary contractual remedies may provide some say to the uploader of content (user of the intermediary) to allege breach of his contract with the intermediary.  But, the pursuit of those remedies will entail only a post-facto engagement between the two important stakeholders and will be digitally very inefficient considering how publication and removal of content on the internet can otherwise be efficaciously administered through reworking the take-down mechanism.

Hence, while we do focus on protecting intermediaries from being liable for third-party content hosted by them, we must also not ignore their larger than life existence or dominance on the internet. While the judgment in MySpace v. SCIL is indeed a laudable one when it comes to protecting intermediaries, it only does a lip service when it tangentially touches upon the aspect of protecting their users who upload the information. While the Court recognized how intermediaries provide the channels of information, one must not forget that these channels would be worth nothing sans the information that they host. There is a need to make intermediaries more responsible and accountable to protect and promote the speech and expression of internet users. Therefore, while our support to exempting intermediaries from being liable for third-party content should be resolute and dutiful, it must not happen at the cost of muting and ignoring their users who are the ordinary people using the internet.

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At What Point Does Hacking Become Illegal?

Posted on by Tech Law Forum @ NALSAR

Ed. Note: This post by Tanvi Apte is a part of the TLF Editorial Board Test 2018

It is 2008. An entity called ASTRA has been stealing sensitive weapons technology from the Dassault Group for over half a decade and selling it to individuals, costing the company $360 million and the world much more.[1] Ironically enough, ASTRA means “weapon” in Sanskrit.

It is 2013. Every single one of the 3 billion accounts of Yahoo have been compromised. Personal information is known to be floating on a cloud called the “dark web”. No one conclusively knows who is responsible. [2]

It is 2016. American Presidential Elections are around the corner. Someone called Gucifer 2.0 has gained access to the Democratic Convention Network and leaked over thousands of classified documents. Yet again, No one knows Gucifer 2.0. but everyone knows the impact of his actions. [3]

These events are just the tip of the iceberg. They are common examples of what is perceived to be “hacking”. A combination of fascination, curiosity, and dread is what comes to most of our minds when we think of hackers, thus making the community an enigma. It is this enigma that has made society perceive hackers as fringe elements. Their anonymity, precision, lack of detection and the sheer impact of their actions have made us wary of them, thus promoting the perception that all hackers are criminals or at the very least, anti-social elements.

However, contrary to popular perception, not all hacking is illegal and not every hacker is a criminal. To start with, there is a nomenclature problem. The term “hacker” refers to not only criminals but also to those who help organisations make their system more secure. They use their skills in a constructive and intelligent manner, thereby preventing crime. There is another term to refer to those who maliciously access others’ systems without authorization –  Cracking. [4] Sadly, few know of the distinction between hackers and crackers. Thus, crackers have been collapsed into the term “hackers” which is delegitimizing and demeaning hackers themselves. As a result, even a good-intentioned hacker is perceived to be a malicious criminal.

Due to this misconstruction, hackers have begun stratifying themselves in other ways, that is by calling themselves “ethical” or “white hat hackers”, thereby in contrast to their malicious counterparts – “black hat hackers” or “crackers”. Furthermore, some also identify themselves as “grey hat hackers” – those between the black and the white whose actions might not be strictly “ethical” all the time.[5] Thus, hackers are developing specialized identities to gain legitimacy in the eyes of law and society.

This attempt of the hacker community to gain legitimacy has been reflected in the Indian law to an extent. The IT Act 2000[6] is the chief legislation against hacking in India. It is important to note that the word “hacker” has been omitted from this act via amendment in 2008.[7] This omission explicitly shows that the law does not consider every hacker a criminal in a blanket fashion. It recognizes that all hacking is not illegal. This leads to questions about the threshold to determine legality of hacking. Two aspects are used to determine this threshold– consent and intention, simultaneous application of which leads to gradation of liability.

Hacking with consent of the owner but without malice does not invite any liability. Major companies and security agencies even invite hackers to find faults in their system and subsequently reward them for their work. For example, Alphabet paid a staggering $112,500 to a security researcher who found two bugs in its Android system. [8]

Hacking without consent but lacking in malicious intention however does invite civil liability under Section 43 of the IT Act. Thus, hacking is actionable per se. Moving further up the severity scale, hacking without consent and with malicious intention (cracking) invites criminal liability under Section 66 of the Act. In addition, cracking also attracts the provision of cyber theft under Section 378 the Indian Penal Code, thus cementing the severity of the offence. [9]

Therefore, it is seen that Indian law recognizes different levels of severity as a basis for fixing liability. This is in tandem with how hackers categorize themselves. Ethical hacking or “white hat hacking” does not invite any liability while cracking or “black hat hacking” invites the most severe liability. Hacking without malice falls within the ambit of “grey hat hacking”, thereby inviting civil liability, the middle ground in this scenario. Thus, all cracking is illegal but not all hacking is illegal. Hacking becomes illegal at the point where consent of the owner of the system so hacked does not exist.

While this gradation of liability by law does serve to alter the blanket perception of illegality associated with hacking to an extent, it is not enough in itself. The legal system must make hackers abandon their ambivalence and perceive law as liberating rather than as restrictive. It is important to simultaneously develop a vibrant counter culture of ethical hacking because ethical hackers are the only ones who have the expertise to stop their malicious counterparts. The aim of law is not only to punish but also to prevent. Explicit support to ethical hackers will be an effective tool to achieve this objective. This can be done by providing legal recognition and subsequent rights and incentives to hackers. More awareness about ethical hacking both at the domestic and international level along with laws that present favourable conditions for the surrender of crackers will also go a long way in achieving the same. These changes must however be brought about keeping in mind the policy concerns associated with creating an environment which “breeds” a community of “genius” hackers who could pose a serious problem if they turn sour.

Thus, the pivotal role of ethical hacking in the prevention of cracking has not been explicitly acknowledged by the black letter of our law and our legal system yet. The onus is on the legal system and its enforcement institutions to keep integrating more ethical hackers within it for systematic, robust crime control in the future.

[1]Damien Scott, The 8 Best Computer Hackers of All Time, Complex, February 13 2012. (http://www.complex.com/pop-culture/2012/02/the-8-best-computer-hackers-of-all-time/)

[2]Selena Larson, Every single Yahoo account was hacked – 3 billion in all, CNN tech, October 4 2017. (http://money.cnn.com/2017/10/03/technology/business/yahoo-breach-3-billion-accounts/index.html)

[3]Joel Lee, 10 of the World’s Most Famous Hackers & What Happened to Them, MUO, June 28, 2017. (https://www.makeuseof.com/tag/5-of-the-worlds-most-famous-hackers-what-happened-to-them/)

[4]Abhishek Jaiswal, Cyber Hacking law, Legal Services India. (http://www.legalservicesindia.com/articles/cyhac.htm)

[5] Clare Edwards, Is Computer Hacking a Crime?, It Still Works. (https://itstillworks.com/computer-hacking-crime-1387.html)

[6] The Information Technology Act, 2000 (Act No. 21 Of 2000).

[7] Sylvine, Laws Against Hacking in India, Pleaders, July 1, 2016. (https://blog.ipleaders.in/laws-hacking-india/)

[8] Luke Stangel, Google just cut a check for its biggest bug bounty in history, Silicon Valley Business Journal, January 22, 2018. (https://www.bizjournals.com/sanjose/news/2018/01/22/google-bug-bounty-android-guang-gong-goog.html)

[9] supra note 4.

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Regulating Cryptocurrencies in India

Posted on by Tech Law Forum @ NALSAR

Ed. Note: This post by Tanvi Apte is a part of the TLF Editorial Board Test 2018

Technology is changing the very nature of the world we live in. Currency, not to be left behind, is also adapting to this technology-driven change. As Charles Dixon says, “There are three types of currencies (today): commodity based, politically based and now maths based.”[1] This “maths based” currency is called cryptocurrency, which simply means virtual money. Cryptocurrency does not have any tangible existence but is electronically “mined” using complex mathematics and circulated over decentralized peer-to-peer computer networks both as a currency and security.

Cryptocurrency is not recognized as legal tender in India since the cryptocurrency prices differs so much from the ordinary prices which eventually reduces the value of the Indian currency again in the market. For those seeking to stay updated on the potential impact of such initiatives and explore investment opportunities in the cryptocurrency space, it’s advisable to explore Invest Diva review.

In his recent budget speech, the finance minister himself reiterated that the “country does not recognize Bitcoin (the most popular cryptocurrency) as legal tender.”[2] This comes against the backdrop of repeated warnings by the Reserve Bank against its use since 2013. That said, cryptocurrency is still not illegal in India, it is just not legal currency. Due to this, it is traded as a security or asset (like shares) and not treated like currency. An intensely speculative trading industry (like the stock market) is now developing in India in the wake of increasing popularity of cryptocurrency driven by an inclination of investor preferences towards storing cash electronically, especially post demonetization. Furthermore, the cryptocurrency market is estimated to touch a staggering $1 trillion towards the end of 2018.[3] This is indeed a testimony of its growing use. Knowing about the How To Referral services in cryptocurrency investment is beneficial as they offer valuable insights and information on the best deals currently available in the market.

However, with growing use also comes growing misuse. Due to anonymity features and jurisdiction independence and lack of regulation, cryptocurrencies, especially Bitcoin, are being increasingly used in criminal activities like money laundering, terrorist financing, fraud, tax evasion (cryptocurrency exchanges in India grew by 250% post demonetization)[4], Ponzi schemes etc. Bitcoin is also becoming the go-to currency for demanding online ransom in instances of phishing and other cyber-attacks. For example, in the recent WannaCry attack that affected about 150 countries, ransom was demanded in Bitcoin.[5] Furthermore, the online black-marketing industry is entirely based on cryptocurrencies. For example, “Silk Road”, one of the many sites selling everything ranging from drugs to bomb making material on the “dark web”, makes extensive use of cryptocurrencies.[6] Furthermore, crackers are also attacking crypto exchanges for the purpose of stealing. Recently in Japan, crackers managed to steal cryptocurrency worth $530 million from an exchange called Coincheck. This was preceded by an attack on exchange Mt. Gox, where about 6% of all the Bitcoin in circulation at the time was stolen. [7]

Thus, to cut a long story short, the list of illegal purposes involving use of cryptocurrency is unending. Also unending is the list of implications of this illegal use. This is precisely why cryptocurrency should be regulated – to clamp down on the illegal activities it is supporting. In lieu of this, the government has constituted a panel in consultation with SEBI and RBI to suggest regulatory measures, thus inviting anticipation that a new cryptocurrency law will soon be in place. [8]

Those against regulation argue that cryptocurrency should not be made illegal just because it serves as a means for illegal activities, analogically comparing it to the situation of cars and guns being made illegal just because they are used as means for illegal activities. However, there are two flaws in this argument.

Firstly, technological superiority of cryptocurrency and its potential to disrupt cannot simply be equated with other commodities. Countries like Russia are using crypto trade as a means of avoiding international sanctions.[9] If there is a cyber war, cryptocurrency will be an inherent weapon used. Thus, cryptocurrencies are an apt example of exactly how destructive technology can be in the wrong hands. They must be regulated to keep technology in the right hands.

Secondly, regulating cryptocurrency need not extend to making it illegal or out rightly banning it. The government hasn’t made guns and cars illegal but has indeed imposed regulatory controls on them, just as it should do for cryptocurrency. Banning cryptocurrency will have the reverse effect of killing a technological revolution. It may be deemed to be a rejection of blockchain technology itself and project India as technology unfriendly. If India bans cryptocurrency, it will lose out on not only its potential technological benefits but also on the growing industry and commerce supported by it. That said, some regulation for cryptocurrency is essential to curb its misuse and impose much-needed criminal liability for the same. Thus, limited, balanced regulation and not banning is the way ahead.

Keeping this in mind, there is no harm in allowing cryptocurrency as immediate legal tender, as long as it is subject to reasonable regulation. Like Japan and to an extent Germany, India should also recognize it as legal tender but at the same time introduce compulsory registration and licensing measures for trading in it. Furthermore, imposition of stringent taxation rules on its trade is very important as lack of the same will be construed as the government politically choosing to favour rich crypto users who evade tax. Thus, this policy of balanced regulation will help the crypto industry thrive under greater legal security which will in turn reduce investor risk and promote cryptocurrency itself.

Even though cryptocurrency is regulated, due to jurisdiction and implementation issues, a global body having transnational authority will probably serve to be a much more effective regulator of cryptocurrency than any one country.  However, consensus for the creation of such a body is currently not in sight because of different stances towards cryptocurrency globally. Till such a consensus happens, if at all it happens, the government cannot wait and watch while cryptocurrency goes out of hand.

Thus, some regulation for cryptocurrency is imperative. However, it should be limited to preventing its misuse and not extend to killing its revolutionary technological potential. The balance between allowing technology to thrive while at the same time not allowing it to be misused is what the law should aim to achieve. Hopefully, the upcoming Indian law will do just that.

[1] Chris Dixon, Top 10 Bitcoin Quotes – The Best Quotations About the New Cryptocurrency, Oct 29, 2013. (https://www.slideshare.net/BitcoinChaser/top-10-bitcoin-quotes-the-best-quotations-about-the-new-cryptocurrency)

[2] Sindhuja Balaji, India Is Not Banning Cryptocurrency, Here’s What It Is Doing Instead, Forbes, Feb 6, 2018. (https://www.forbes.com/sites/sindhujabalaji/2018/02/06/india-is-not-banning-cryptocurrency-heres-what-it-is-doing-instead/#304160477c6f)

[3] Arjun Kharpal, Cryptocurrency market could hit $1 trillion this year with bitcoin surging to $50,000, experts say, CNBC, Feb 7, 2018. (https://www.cnbc.com/2018/02/07/bitcoin-price-could-hit-50000-this-year-experts-say.html)

[4] Karan Dhar, How to buy and sell bitcoins? Are bitcoins legal in India?, Business Times, Dec 19, 2017. (http://www.businesstoday.in/current/economy-politics/how-to-buy-bitcoins-in-india-sell-legal-in-india-price/story/253734.html)

[5] Anonymous, WannaCry: hackers withdraw £108,000 of bitcoin ransom, The Guardian, Aug 3, 2017. (https://www.theguardian.com/technology/2017/aug/03/wannacry-hackers-withdraw-108000-pounds-bitcoin-ransom)

[6] Marco Santori, Silk Road Goes Dark: Bitcoin Survives Its Biggest Market’s Demise, Coindesk, May 5, 2017.

[7] Anonymous, New raids on Japan cryptocurrency exchanges after Coincheck hack, The Straits Times, Feb 9, 2018. (http://www.straitstimes.com/asia/east-asia/new-raids-on-japan-cryptocurrency-exchanges-after-coincheck-hack)

[8] P Suchetana Ray, Govt plans to bring in law to regulate cryptocurrency trade, forms panel, Hindustan Times, Jan 13, 2018. (http://www.hindustantimes.com/india-news/government-plans-to-bring-in-law-to-regulate-cryptocurrency-trade/story-SpAO63DDfk6Gg7lo5yNKCJ.html)

[9] Rebecca Pinnington, Bitcoin SHOCK: Russia backs cryptocurrency in bid to DODGE US sanctions, Sunday Express, Dec 17, 2017. (https://www.express.co.uk/news/world/890506/bitcoin-Russia-cryptocurrency-greenback-dollar-oil-petrol-US-sanctions)

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The Data Protection Dilemma And Why Context Matters

Posted on by Tech Law Forum @ NALSAR

Ed. Note: This post by Shweta Rao is a part of the TLF Editorial Board Test 2018

In today’s day and age, where a majority of our lives are documented on the internet through online registrations, Instagram uploads and various social media profiles; data collection and the protections around the same are becoming exceedingly critical. Data Privacy (or as otherwise known as Data protection), aims at protecting private data collected through an interdependent relationship between the gathering and dissemination of data, the expectation of privacy, technology and politico-legal issues surrounding the same. Data privacy regulations strive to strike a balance between the utilization of data whilst also protecting the particular individual’s privacy preferences with respect to their personally identifiable information that they have provided to Big Data collectors. The fields of computer, data and information security utilize a variety of software and human resources to handle any issues that arise with respect to Data Privacy.

The field of Data Privacy, much like any technology linked field is ever evolving and dynamic, and hence any regulation or law relating to it must be strike a balance between being stringent enough to protect the best interest of the individuals whose data is being harvested as well as being flexible enough for the field to develop and advance. An example that has been the inspiration for many other forms of data regulation is the General Data Protection Regulation (GDPR)

As far as wide reaching, functional policies go, the GDPR which is a set of regulations set in place by the European Union which aims at regulating the usage and export of data of European Union residents outside of the European Union. This is a regulation that has passed through the scrutiny of the European Parliament, the Council of the European Union and the European Commission and has now been put through a two year testing period. The GDPR was passed with the intent to strengthen and streamline the data protection process for all the individuals within the European Union. This regulation was adopted on the 26th of April 2016 and shall become fully enforceable in 2018 upon the lapse of the two year probation period. The regulation also discusses the export of personal data of EU residents outside the EU. The main discernable aim of the GDPR is to hand the citizens of the EU control over their personal data and its usage. Another aim of the GDPR is the homogenizing of the regulation process so as to ease the business transaction within the EU relating to data collection. This regulation shall be replacing the 1995 Data Protection Directive, a move that has been long overdue given the large technological leaps that have occurred in the field of data sciences over the past two decades.

Whilst the GDPR has received its fair share of criticism, from arguments based on procedural aspects and labeling it as an “administrative burden”, to criticisms pointing out the stark lack of protection offered to the personal data collected by employers from employees. Most of these criticisms have been or are in the process of being ironed out, as the end of the regulations two year trial run comes to an end. Regardless of the various loopholes that exist with the system, the biggest advantage of the GDPR is the fact that the regulation is specifically uniformly tailored to provide protection for the citizens of the EU against the various data harvesters that one encounters on a daily basis, be it signing an employment contract or logging into Facebook, rather than depending on precedent and dealing individually with instances of data privacy violation.

It is here where the data regulations for India and its citizens differ. It would be untrue to say that there exists no data protect or regulation in India, and it would also be untrue to say that the protection is not through. But what the laws regarding the regulation data of Indian citizens do lack is the broad coverage of the types of data that may be protected under this. The act controlling the regulation of some types of data is the Information Technology Act, 2000 and the subsequent Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (IT Rules) which were issued so as to be in accordance with the power of the Central Government to lay down “reasonable security practices and procedures” (RSPPs). The main focus of this act is with respect to data that originates in India, rather than Indian data, i.e. data of Indian citizens. Whilst the data generated by Indian employees and or employees of Indian companies are heavily regulated, the personal data, non-business related, are left almost unmentioned within the act. As evidenced through this act, the context of data protection and privacy has been largely in term of employment and data produced during the course of the same. This would have remained the context, if not for the Puttaswamy judgment delivered by the Supreme Court of India in mid-2017, which threw data protection and privacy back into the limelight and drew a plethora of demands for the implementation of GDPR-esq regulation system that is all encompassing of a citizens data related activities rather than being limited to only data related to business transactions. This judgment, which declared the Right to Privacy as a fundamental right, flowing from Article 21 of the Indian Constitution, bought into question as to how the handling of routine data of Indian citizens was going be affected. This is also in context of the ongoing hearing at the Supreme Court on the constitutional validity of the mass personal database of all Indian residents (not only citizens) by the way of the Aadhar Act. Which brings one to this juncture where in one must ask, does India need a general data regulator and who shall perform the function for the same? Answering affirmative for the same is simple, of course India needs to regulated the trade of Indian’s data and ensure that access to such data lies solely inside the shores of India and within hands of Indian people, but then answering the follow up question becomes difficult.

Directly implanting the European model of data regulation, which was a highly political process, is in complete contravention to the Indian scenario wherein the Right to Privacy was judicially realized, rather than through the legislature. The direct European implementation would also completely contradict the abovementioned Aadhar proceedings, which is for the prevention of the mass collection of bio-data of Indian residents. The Indian system of governance works very differently to that of the EU. The Indian system is heavily centralized and it concentrates too much power in the unaccountable hands of a few, and creating a centralized data protection authority much like the GDPR will continue to contribute to and aggravate the centralization of power within the Indian Bureaucracy. A method of combatting the same would be through the partial usage of the process of “individualization” of data privacy and its regulation. This process, which heavily involves the active participation of the individual whose data is being used, takes inspiration from the usage of “individualization” process in computer privacy, where individual’s quantifiable traits are used to provide security nudges. The transposition of the same individual-centric principle would prevent, to some extent, the accumulation of data in the hands of the few, and rather allow the people to control the usage of their data.

India is situated in a position to innovate and implement a new type of data regulatory framework that are a universal phenomenon but are adapted and enforced for different jurisdictions, and should not whittle away this opportunity through imitation.

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Financial Technology: The Industry of Innovation

Posted on by Tech Law Forum @ NALSAR

Ed. Note: This post by Shweta Rao is a part of the TLF Editorial Board Test 2018

In this Age of Digitalization, technological innovation has permeated nearly every profession. In particular, the financial services sector has seen a monumental surge in the amalgamation between traditional financial services and a variety of technological advancements.  This cross-over between the two is known as Financial-Technology (dubbed as FinTech).

FinTech is a term that describes a large platform which caters to a broad set of financial services that are tailored to the pace and technology of the modern world. It comprises of any form technological advancement in the field of finances, that is inclusive of (but not limited to) more commonly- retail banking and investment as well as crypto-currencies (ex. – bitcoin), but also includes digital innovations in the sphere of financial education and literacy.

Whilst it is commonly thought that the FinTech enterprise is a rather recent development, in actuality the timeline of the industry paints the past Six Decades a picture of evolution and innovations. In the 1950’s and 1960’s FinTech eased the transaction of acquiring and spending money by the introduction of credit cards and ATMs,  the 1970s and 1980 saw this type of innovation seep into the management of  stocks as well as bank accounts. And in the 1990s with the introduction of the Internet, businesses based around e-commerce emerged and began their domination of the marketplace, resulting in a flourish of online stock brokering websites that were aimed primarily at retail investors.  All of these innovations, from the early 1950s to the late 1990s made financial businesses, transactions and the general usage of financial services greatly convenient for customers, but it was also met with backlash from within traditional financial circles as the introduction of technology meant the replacement of human capital occupied in bank telling, record keeping, and person to person stock brokering. This wave of discontent was quickly subdued as it became evident that the usage of the machines was not only advantageous for the customers but also economically viable for those controlling various financial services.

The developments that have taken place in the past sixty years have created a sturdy infrastructural base for the FinTech industry to thrive in, by creating sophisticated systems for risk management, data analysis and trade processing tools for usage by banks and financial services firms at the institutional level. In today’s world, FinTech has even more so become a part of our everyday lives due to the invention of smartphones, which enables one to have control over any and all financial services, at any point of the day. Whilst these aforementioned systems of infrastructure are not apparent to the everyday user, they form the basis of a multimillion dollar industry with the objective of becoming the backbone of financial services.

These technology linkup services are usually rendered by the way of collaborations between financial market giants and, companies like Bloomberg, Thompson Reuters, Misys and SunGard, who have become market leaders, overtaking the smaller service providers, and have become the bedrock for the institutional infrastructural framework, some banks such as HSBC and Credit Suisse have even begun their own in-house innovations that cater specifically and wholly to their customers. But off late, due to the rapid rate of growth of the industry specialized start-up companies have started disaggregating the hegemony of the global banks and also have included the facility of doing kyc on video which is time-saving.

FinTech, is one of the fastest emerging industries in the world’s economy, with an estimated growth in global investment of 2,200% from $930 million in 2008 to more than $22 billion in 2015. The Euro-American markets have at the moment occupied the market of FinTech with New York City, London and Amsterdam racking up the highest profits from the FinTech industry. Australia as well has been riding the FinTech Wave and 9% of its GDP comprises of profits from the FinTech industry.

As with any industry that is a vanguard of innovation, there are always naysayers and risks of varying severity involved. Finance in specific has always been seen as especially vulnerable as the industry depends of the timely acquiring and usage of knowledge rather than any specific good. During the initial years of the FinTech industry, the backlash received was wholly concentrated on the disposal of human capital. In modern times, the concern has shifted the fact that since the entirety of the service is rendered through the internet or networks, opens up the same for attacks from malicious hackers, as well as the concern of appointment of liability in issues of data breach.

In both of these cases, FinTech companies are highly regulated by respective national legislations that outline and guide the functioning of FinTech companies in so far as protecting the various stakeholders. Leading global Fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations, and to also ensure protection against malicious hackers. On the contention of assignment of liability, the 1999 American legislation- the Gramm–Leach–Bliley Act, which is followed widely across the world, firmly assigns liability on the respective FinTech Company for any data breach of customers, irrespective of how large or small it may be.

Whilst the abovementioned regulations do solve issues of data security and transaction transparency, over regulation of the industry is leading to service providers being unable to be governed by the Invisible Hand of the marketplace, which is proving to be unraveling the very USP of speed and convenience of the FinTech industry.

The FinTech industry shall have, for the foreseeable future, an upward incline in market profits, and given that this is an industry that has weathered decades of technological development and economic upheavals, innovating around iron clad regulations shall not be an insurmountable issue.  The 2010s is predicted witness a near total takeover of the FinTech industry in global markets, especially Blockchains, which have the potential to minimize the cost of transacting, and revolutionize financial systems.

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