Digital India Act…Discussions-3: Is Blockchain covered under the ITA 2000?…

This is part of a series of articles on the proposed Digital India Act set to replace the ITA 2000 which was once amended in 2008.  Now MeitY is interested in bringing the law upto date to accommodate the current technology eco system which includes Blockchain, Artificial Intelligence, Meta Verse, Crypto Currencies and new crimes like Ransomware.

In this context some discussions have ensued in the media stating the inability of the current ITA 2000 to cover the new IT environment such as Blockchain, Meta Verse etc.

We have already been presenting a series of articles on the New Data Protection Act of India addressing the replacement of the PDPB 2019 which was also shelved.  Since media has already started a motivated discussion on the Digital India Act as a replacement of ITA 2000, we need to simultaneously start a branch  of discussion on ITA 2000 replacement with DIA in addition to the PDPB 2019 replacement with the NDPAI.

I request all interested persons to keep watching this space and add their comments.

Block Chain is a favourite of one section of the society because it is the platform on which the popular Crypto Currency namely the Bitcoin runs. We are all aware that the Bitcoin is the currency of criminals and store house of digital black money and it’s popularity is because it facilitates corruption and monetization of crime.

In order to provide respectability to this Bitcoin platform other applications are often quoted to say that Block Chain is a useful technology. However if Block Chain is a distributed ledger of electronic transactions with a “Consensus Based Authentication”, it has already been overtaken by new technology like Hedera Hash graph.

We understand that there is a strong Bitcoin lobby in the MeitY which would like to legitimize Bitcoins and other Crypto Currencies. The Finance Ministry is also also in favour of Crypto Currency regularization. Supreme Court understands that Bitcoin is a good system for corruption and therefore supported the Bitcoin lobby against the RBI. The RBI is steadfastly opposed to regularization of Crypto Currency and the MHA may also be worried that Crypto currencies would be used for financing terrorism against the country.

In this background, we strongly oppose any backdoor being opened through the Digital India Act to give legal acceptability to Crypto Currencies.

Let us however look at the need for changes to be made to ITA 2000 that would affect the Crypto Currencies and Block Chain.

Block Chain in its popular form is a  technology where bundles of transactions are added to a block and connected to another bundle of transactions in the next block and continue the process of creating a ledger of transactions as a chain of data blocks.

Each Block contains a summary of transactions of a particular type  within a limit set by the block. Each block will have a block identity and the data will be distributed to a group of entities called the nodes. Every node will have a record of the transactions so that no change can be made to the block without it going out of sync with the block copies already with other nodes.  The transactions added into the block will be in encrypted form so that they cannot be altered. In the Bitcoin system a reward may be provided for one node in every block for creating the node along with a proof of work in the form of solving a puzzle.

If each data block is “Data” as defined in ITA 2000, there is no change of law required to provide legal recognition to a “Block Chain”.  Existing ITA 2000 recognizes electronic documents excluding those which are listed under Section 1(4)-Schedule I.

The exclusions provided in ITA 2000 are not based on what technical type of document it represents such as whether it was created on Microsoft Windows OS or Linux or Apple iOS or a Block Chain. The exclusions are based on the functional utility of the electronic document for the human users such as

a) Promissory Note and Bill of Exchange

b) Power of Attorney

c) Trust Deed

d) Will

e) Document of Title to an immovable Property

Any of the above documents created as an electronic document does not have “Legal Recognition” as any other document such as a contract document  created in electronic form.

If Block Chain is used for creation of any of these documents they would not be legally recognized. However in all other documents including “Smart Contracts”, a block chain document would be legally recognized and hence even under the current law, a block chain document for purposes other than the excluded documents, is usable.

Encryption and Digital Signature if it is part of the document, ITA 2000 has corresponding provisions which is legally acceptable as authentication.

The use of Block Chain for Crypto Currency would however be not possible because the RBI Act prohibits the any person other than RBI to issue an instrument which can be used as a “Currency” for general purpose exchange for goods and services.

A Crypto Currency by nature is an “Electronic Document” and it is recognised as such under ITA 2000. However if two persons exchange Crypto Currency with an understanding that it is “Currency” or “Notes”, it is prohibited under law and it is punishable.

In order to be more specific, it is possible to mention under Schedule I of the ITA 2000 that “Any instrument used as Crypto Currency” is one of the excluded documents.

As regards NFT, it is not necessarily considered as “Currency” since it is non fungible and unique. Hence it is valid under ITA 2000. However, purchase and sale of an NFT has to be done through legit currency like INR and not with any Crypto Currency.

In view of the above, we donot need any new law to address the Block Chain. It is therefore in-correct to say that ITA 2000 is archaic and cannot handle the issue of blockchain. If at all any body wants the new law to address Bitcoins or Crypto Currency, it is only to regularize the usage of Crypto Currency in violation of the RBI Act.

As regards crimes related to NFTs, it is within the Section 66 of ITA 2000 and does not need a new law as it relates to modification or alteration of the electronic document or  denying its access to the legitimate owner. Hence both Section 43 and 66 are applicable.

I wish MeitY consults persons who are aware of the law under ITA 2000 before releasing statements that ITA 2000 cannot handle modern technology.

Problems related to crime investigation in Crypto world arises because of anonymity of the transactions and the PKI encryption used. ITA 2000 has the power to demand decryption but like the “Proton Mail” the Crypto Exchanges are not co-operative.  Crypto Exchanges are however intermediaries and they will be not only liable for money laundering for their own transactions but also for the customers if they cannot identify them.

Under the new Intermediary guideline every user needs to go through KYC process at the time of registration and log records of every transaction need to be maintained. If the Exchanges and Wallet Account companies are foreign companies, the Government will find it difficult because this is a Criminal Mafia and will not co-operate with any Government agency.

In view of the above, the MeitY will be acting in violation of the law of the land if they donot specifically ban Crypto Currencies. If there is any attempt to legitimize the Crypto Currency in the new Act, then it will be ultra vires the law of the country.

We need to see if the power of corruption will provide courage to MeitY to regularize Bitcoins and Crypto Currencies in one pretext or the other. If so, we need to see if Mr Narendra Modi can understand the problem and take action.

RBI should not compromise its principles and it is unlikely to happen as long as the current Governor is in place. We donot know if RBI is compromised later.

We trust that the Supreme Court under the current CJI does not cave in  like the bench which heard the in-famous Crypto Currency case which was a fraud on the Indian legal system.

Let us keep our fingers crossed….

(More will follow)



About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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