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India Taking a Step Towards CBDC After the Debut of its Blockchain-Based Payment System Vajra?

India has been taking multiple stances when it comes to blockchain and cryptocurrencies, as cryptocurrency has not been deemed legal, but not considered illegal either. The National Payments Corporation of India (NPCI) recently designed and adopted a blockchain-based system for automating payment clearing and settlement processes.

Earlier this year, the Bank for International Settlements (BIS) published a report stating that over 70% of central banks were exploring central bank digital currencies (CBDCs). The Reserve Bank of India (RBI) said that it would be investigating the issuance of a CBDC. The central bank has created a group to examine the potential of a rupee-backed digital currency. Since the emergence of private digital tokens, the aim of issuing a CBDC is to reduce the costs of creating paper and metallic money.

Shaktikanta Das, the central bank governor, revealed the central bank had held discussions with other governments and central banks regarding CBDCs. “It is very early to speak on a central bank issuing digital currencies. Some discussions are going on. Technology has not yet fully evolved. It is still in the very nascent stage of discussions, and at RBI, we have examined it internally,” he added.

‘Too early’ for CBDCs

However, the Indian government considers the trading and issuance of cryptocurrencies illegal in the nation.

Das said it was ‘too early’ to talk about a CBDC, as technology has not matured enough. Das made it clear that the central bank is entirely against private digital currencies, as he believes that the sovereign has the right over this function.

Shaktikanta Das, Governor of the Reserve Bank of India. Image via Bloomberg

“The world over, central banks and governments are against private digital currency because currency issuance is a sovereign function, and it has to be done by the sovereign,” he explained. “As and when the technology evolves with adequate safeguards, I think it is an area where the Reserve Bank will certainly look at seriously at an appropriate time.”

The blockchain-based payment system, Vajra

Although the Indian government is still skeptical about the use of cryptocurrency, the National Payment Corporation of India (NPCI) officially announced its permissioned blockchain-based platform, Vajra, to make payment processes more efficient and transparent.

As a permissioned blockchain-based platform, only registered parties under the network administrator are allowed to be part of the blockchain network. The three types of nodes on the platform consists of:

1) Clearing House Node, which has the administrative rights to the platform and is directed by the NPCI. It also has the right to add a new node on the platform.

2) Notary Node, which validates transactions only of the Aadhar biometric, is used for the authentication process, receiving transactions only from the clearing house node.

3) Participant Node, which is represented by the banks, and has the ability to post, receive, and view transactions.

The NPCI highlighted some of the key benefits of blockchain, stating that the distributed ledger technology will help the payment industry with higher resilience, and efficiencies through automation and transparency. The NPCI said, “DLT is an incorruptible decentralized ledger that not only provides a transaction medium but also acts as a repository for all transactions in hashed digital packets called blocks. The availability of transaction in the distributed ledger will reduce reconciliation steps and also increase transparency among participants.”

The platform allows for a system of self-executing contracts under the rules of the smart contracts. The Vajra platform aims to ensure zero to minimal processing time and efficiency for dispute resolution.

Unfriendly towards cryptocurrency?

In April 2018, the Reserve Bank of India banned financial institutions from providing services to crypto firms, including exchanges, which put them out of business. The ban was effective in July 2018, although several crypto industry stakeholders filed writ petitions with the supreme court to challenge the ban. The court has been scheduled to resume the hearing on Jan. 14.

The bill drafted by the interministerial committee (IMC) reflected on Das’ statements. Subhash Chandra Garg, the former head of the Secretary of the Department of Economic Affairs, submitted the draft bill entitled “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” to the Ministry of Finance in February 2019.

Image via Shutterstock

However, the draft bill has a section on CBDC and its proposed legal framework. The IMC advised of an open mind when introducing an official digital currency in India.

The IMC recommended the government, “In consultation with the Central Board of the Reserve Bank, may approve [the] digital rupee to be legal tender with effect from such date and to such extent as may be specified.” There were reports of the Indian government considering issuing a state-run digital currency called Lakshmi in 2017.

The RBI also stated to have considered the potential launch of its own centrally controlled cryptocurrency. Deputy Governor, BP Kanugo, said, “RBI will produce a report, and they will explore the feasibility and desirability of issuing a digital currency by the central bank. These are issued by central banks; they constitute the liability of the central bank, and they will be in circulation in addition to the paper currency. It also holds the promise of reducing the cost of printing of the notes.”

The Income Tax Department of India has also been secretly training its officials to look into cryptocurrencies. As cryptocurrencies have been seen as a gray area for the Indian community, the Income Tax Department sent notices to various cryptocurrency investors. Crypto investors were previously doubtful of how to show their investments in their tax returns.

Blockchain adoption in India

Blockchain adoption in India has been increasing as officials in the country are trying to put together a regulatory framework to govern the technology. The Minister of State for Electronics and IT (MeitY), Sanjay Dhotre, said that a strategy is currently being put together by regulators to research into blockchain applications in the financial industry, cybersecurity, and government agencies since November 2019.

The country has been using blockchain in its renewable energy sector, with the blockchain-based energy trading platform Power Ledger pioneering in the industry.

Image source: Shutterstock

Yonghui, Hema among supermarkets singled out by China's food safety watchdog for breaches

Photo by Fancycrave on Unsplash
Market regulator highlights 11 cases where supermarkets and online platforms sold food products that did not meet national food safety standards

Zen Soo

Celia Chen

China’s market regulator has highlighted 11 cases of supermarkets and online platforms selling food products that did not meet national food safety standards, some of which are operated by the country’s largest technology giants like Alibaba and JD.com.

In a formal notice issued Tuesday, China’s State Administration for Market Regulation singled out companies including two outlets from Tencent-backed Yonghui Superstore, and a Hema supermarket outlet in Guangzhou, operated by Alibaba.

Certain batches of eggs sold in a Beijing Yonghui Superstore exceeded safe levels of enrofloxacin, a type of antibiotic commonly used to treat animals. Another Yonghui store in Hebei, as well as the Hema supermarket in Guangzhou, sold squid that also exceeded safety levels for an antibiotic.

Other merchants selling products that did not meet the food standards include a Carrefour store in Beijing with yogurt waffles containing excess levels of sodium, as well as an online merchant selling crunchy rice snacks on JD.com’s e-commerce platform with too much peroxide. An online store on Taobao was also singled out for selling seaweed that exceeded acceptable lead levels.

Neither Alibaba, Yonghui Superstore or JD.com responded to requests for comment.

China has struggled with food safety issues over the years. The government stepped up oversight following a widespread incident in 2008 involving Chinese milk and infant formula being tainted with melamine. Stricter food safety requirements were imposed across the supply chain, from producers to retailers, and outdated national food safety laws were updated in 2015.

The regulator’s latest notice comes even as Alibaba and JD.com have unveiled initiatives to better track food safety. Both companies operate their own chain of supermarkets, Hema and 7-Fresh respectively, with each emphasising product safety and quality of their produce as a selling point to consumers.

In both Hema and 7-Fresh stores consumers can scan QR codes on the products to see their origin. Companies like Alibaba and JD.com have also launched their own blockchain initiatives to better monitor food safety.

Last month, a Hema Supermarket employee was caught in the act of changing the expiration date labels on a package of carrots in one of its outlets, with the new label showing a later date.

The scandal prompted outrage from consumers. Hema chief executive Hou Yi apologised in a statement and pledged to step up supervision in the stores, including recruiting consumers as inspectors and issuing severe punishments to any staff violating food safety regulations.

Alibaba is the parent company of the South China Morning Post.

Original URL: Here

The World Economic Forum Forms Six Tech Policy Councils Including Blockchain

The World Economic Forum (WEF) launched six different “fourth industrial revolution councils” to help regulators working on the new technology policy guidance. The new technology included artificial intelligence, autonomous mobility, blockchain, drones, internet of things and precision medicine, as revealed on 29 May.

The councils gathered for the first time for the Fourth Industrial Revolution Network in San Francisco. The boards are allegedly comprised of over 200 leaders across public and private sectors, civil society, and academia, including leaders from the European Commission, Microsoft, Qualcomm, World Bank, Uber, Chinese Academy of Medical Science, and Dana-Farber.

The WEF claimed that the participating companies will facilitate international policy exchange, reach a consensus on best policy practices and offer strategic guidance.

US SEC and FINRA Issued Latest Custody Guidance on Digital Assets Securities

The United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a statement addressing regulatory issues regarding the custody of digital asset securities on 8 July.

The recent statement highlighted that any entity involved in the transactions with digital asset securities must register with the SEC as a broker-dealer, and broker-dealers are required to “safeguard customer assets and to keep customer assets separate from the firm’s assets” under the Customer Protection Rule.

It was noted that some broker-dealers engage in digital asset securities without custody functions. Such noncustodial activities do not raise the same level of concern as long as the activities are compliant with relevant securities laws, SRO rules, and other legal and regulatory requirements. An example of a non-custodial activity is a digital wallet, where an issuer settles the transaction between the buyer and the issuer. The broker-dealer only instructs the customer to pay the issuer directly and issuers to issue digital asset security to the customer directly.

The SEC recognized the custody of digital asset is exposed to fraud, theft, and the possibility of losing private keys. The regulators urged broker-dealer to comply with Rule 15c3-3, hold in possession, or control digital asset securities. Besides, regulators also raised concerns that the other party could have a copy of the private key and transfer the digital asset security without the consent of the broker-dealer. As a result, the broker-dealer might not be able to reverse or cancel mistaken or unauthorized transactions despite the private key is held by the custodian.

US Senator Sherrod Brown: Facebook is delusional

“Mark Zuckerberg said that Facebook is more like a government than a company. That’s delusional.” US Senator Sherrod Brown said in a video tweet by NowThis News.

The video was released a few hours after Facebook’s hearing with the Senate Banking Committee. In the video, Brown added “We have to protect our democracy. We should be making it harder, not easier to concentrate so much power in big corporations like big banks and big tech companies like Google and Facebook.”

Brown raised a serious concern on Facebook having an ability to force users to use their own product to create new monopoly money. He asked, “what happens when Facebook forces businesses to quit accepting your credit card or your debit card? You could be forced to use Facebook’s new monopoly money. What about small business owners, forced to use it, or lose access to Facebook’s millions of users?”

During the hearing on Facebook Libra, Brown remarked: “We’d be crazy to give them a chance to let them experiment with people’s bank accounts.” Senator Martha McSally shared the same sentiment with Brown. She said, “instead of cleaning up your house you are launching into a new business model.”

David Marcus, Head of Calibra emphasized the separation between social and financial data during the hearing. He said, “the way we’ve built this is to separate social and financial data because we’ve heard loud and clear that they don’t want those two types of data streams connected, so this is the way the system is designed.”

Marcus also stressed that Facebook is not aiming to compete with sovereign currencies. He added, “Facebook will only have one vote and will not be in a position to control the association, nor will Facebook or the Libra Association position themselves to compete with sovereign currencies or interfere with monetary policy.”

China Declares Bitcoin as Virtual Property with Monetary Value

A property dispute involving Bitcoin was held in the internet court in Hangzhou, China on July 18, setting a new precedent by declaring that Bitcoin is virtual property with monetary value.

According to the case of plaintiff Wu against defendants FXBTC and Taobao, it has been recognized that Bitcoin has the attributes of virtual property and therefore should be protected according to Chinese laws and regulations.

For the first time, Bitcoin has been recognized as valuable, scarce and disposable which are attributes of property with protection under Chinese law, according to Pang Lipeng – one of the attorneys on the case. The court’s ruling concludes that owning cryptocurrencies in China is still legal and should be protected according to the corresponding property rights.

However, this is not the first case where cryptocurrencies have been deemed legal by the Chinese judicial body. In a previous case, the Shenzhen Arbitration Commission mentioned that cryptocurrency assets should be protected in accordance with Chinese regulations on property ownership in October 2018.

“This is a clear signal that the financial authorities are starting to loosen control over digital currency and virtual currency,” Cao Yin, one of the earliest advocators of blockchain technology in China, told the Global Times on July 18. However, they also officially mentioned that at the People’s Bank of China says that “Indeed, Bitcoin is virtual property, but it’s not fiat money.”

Wu’s case

In 2013, plaintiff Wu purchased 2.657 Bitcoins which was worth around RMB 20,000 at the time from the website “FXBTC” which was operated through a Shanghai technology company through Taobao.

The purchased Bitcoins were stored on a virtual wallet on the FXBTC website. When Wu wanted to access his Bitcoins in 2017, he found that the FXBTC website was shut down and therefore could not gain access to his funds.

Wu claimed that he was not notified of the website’s closure and could not withdraw his funds before the website shut down. Wu was not able to contact the website’s operator and demanded the defendants to pay RMB 76,314, which is the transaction price of 2.675 Bitcoins at the time of prosecution in compensation for his economic losses.

The court rejected Wu’s claims against FXBTC’s operator and Taobao due to the lack of evidence and the entire lawsuit was rejected. However, the court affirmed the legal status of Bitcoin as a virtual property in this case as a legal commodity but not a currency.

India’s Crypto Bill Hearing Postponed by Supreme Court

The Indian Supreme Court has set a new date to hear the crypto case, which was originally scheduled for July 23. The purpose of the hearing was to address the writ petitions against the central bank’s crypto restriction. On July 24, the court announced a tentative date postponed to Aug 2, however, they later updated it to July 25 for all the crypto writ petitions.

The Reserve Bank of India issued a circular regarding the banning of regulated financial institutions from providing services to cryptocurrency-related businesses. Since the ban, which was effective since July 2018, banks were obliged to close accounts of all cryptocurrency exchanges in India. Many crypto exchanges including Coindelta, Koinex, and Cryptokart all shut down due to unclear regulations. One of the largest crypto exchanges in India, Zebpay shut down its exchange operations in India. After the ban, stakeholders in the industry filed writ petitions to challenge the ban. The Indian supreme court was scheduled to hear all crypto-related petitions in September 2018 but postponed the hearing repeatedly.

Subhash Chandra Garg

The draft bill was released to the public this week, by the interministerial committee led by the Chairman Subhash Chandra Garg also known as India’s Secretary of Economic Affairs and finance secretary. This bill has officially been submitted to the government, which also contains the “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019.” The bill specifies, “No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use cryptocurrency in the territory of India.”

Although Indian banks are not allowed to offer their services to cryptocurrency-related businesses, cryptocurrencies are currently not banned in India. The interministerial committee has proposed the ban through the draft bill but will need to take many steps before it becomes law.

Images via Shutterstock and livemint.com

Unlicensed Bitcoin Exchange Operator Faces Up to 5 Years in Prison in the US

William Green, a 46-year-old American citizen of New Jersey has been indicted on one count of operating an unlicensed money transmitting business through his website, Destination Bitcoin.

In a press release by the Department of Justice stated that Green was involved in the business of selling over $2 million worth of Bitcoin through his unlicensed money transmitting business. He received money from his customers, which he then deposited into bank accounts under his name. Green later converted the money he received into Bitcoin and charged his customers for a fee.

According to the US federal law, any individual who owns or controls money transmitting business must register with the Secretary of Treasury including when Bitcoin is sold for cash. This applies to all involved businesses whether or not the business is licensed as a money transmitting business in any state in the U.S.

The charges for Green’s alleged crimes of operating an unlicensed money transmitting business carries a maximum penalty of 5 years in prison and a $250,000 fine. Green is set to appear before the U.S district judge but the date has not been set.

Image via Shutterstock

IRS Sends Warning Letters to Prevent Crypto Owners from Evading Tax

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The Internal Revenue Service began sending warning letters out to cryptocurrency owners in the United States, announcing that taxpayers should be paying back taxes they owe or to file amended tax returns in regards to their cryptocurrency holdings.

These letters also served as a warning that they may have broken federal tax laws. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,” said IRS Commissioner Chuck Rettig. The announcement made by the IRS states that the letters are “educational letters” and by the end of August, more than 10,000 taxpayers will have received them.

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Coinbase has shared some of its data with the IRS under a federal–court order on around 13,000 client accounts. These clients were customers who had transacted $20,000 or more between 2013-2015. The data that was provided to the IRS included the client’s name, taxpayer identification number, and address.

Don Fort, the IRS Criminal Investigations Chief mentioned that the IRS plans on making public criminal tax-evasion cases that involve cryptocurrencies. It was also mentioned by the IRS that they will be issuing more legal guidance on cryptocurrencies in the near future.

Images via Shutterstock

UK Financial Conduct Authority: We Will Not Regulate Bitcoin and Ether

The British Financial Conduct Authority (FCA) has confirmed that they will not be regulating cryptocurrencies such as Bitcoin and Ether as it falls out of their perimeter.

The FCA first issued a finalized policy statement on digital assets titled “PS19/22: Guidance on Cryptoassets”. This policy statement update is in response to the feedback received from the previous policy statement issued in January. The objective of the final guidance is to bring more clarity on the regulation for the existing types of digital assets.

Bitcoin and Ether, which are considered major cryptocurrencies, are classified as “exchange tokens.” These exchange tokens are not backed by any central authority and are usually decentralized and primarily used as a means of exchange. The FCA has stated that they will not be regulating exchange tokens. However, Anti-Money Laundering regulations still apply.

Security tokens and utility tokens have been classified to fall under the regulatory perimeter and may be regulated as stated by the FCA. Security tokens that have features that provide rights and obligations to specific investments such as shares or debt instruments. Utility tokens, on the other hand, maybe regulated if they meet the definition of electronic money or a security token.

It was suggested in the statement that market participants should use the guidance as to the first step in understanding how they should treat cryptocurrencies. However, definitive judgments can only be made on a case-by-case basis.

Image via Shutterstock