Bitcoin Trading in India and Hawala: A Rising Parallel? – Supreme Court Remarks

1. The Supreme Court, during a bail hearing, observed that Bitcoin (cryptocurrency) trading in India resembles a sophisticated version of the hawala system.
2. The Court highlighted the lack of a clear regulatory regime governing virtual currencies in India.

What is Cryptocurrency?

1. Cryptocurrency is a form of digital currency based on blockchain technology and built using a unique software code.
2. Examples include Bitcoin, Ethereum, etc.
3. Blockchain is an open-source, decentralized public ledger that records transactions permanently across a computer network.
4. Key features of cryptocurrency:
   1. It is non-fiat, meaning it operates independently of government or central bank control.
   2. It has no intrinsic value, relying purely on market demand.

What is Hawala?

1. Hawala is an informal money transfer system used to move funds from one location to another using hawaladars (agents).
2. The system is trust-based and operates without actual cash movement, as debts are settled between hawaladars.
3. Transactions are off-the-record, with no formal documentation or bank involvement.

Why Are Cryptocurrency and Hawala Being Compared?

1. In blockchain networks, nodes (computers maintaining the network) function like hawaladars, operating through mutual trust and consensus.
2. Both systems facilitate fund transfer outside the traditional banking system, making them vulnerable to illicit use.
3. Both are considered unregulated and often unreported, making detection of misuse difficult.

Why Is Their Nexus Increasing?

1. Unregulated and Outside Banking Channels: Both systems operate outside conventional financial frameworks, attracting those seeking anonymity.
2. Lower Costs: Unlike banks, both systems avoid heavy commissions and currency conversion charges.
3. Lack of Transparency:
   1. Cryptocurrency records transactions anonymously on public ledgers,
   2. Hawala transactions are done in cash without paper trails.
4. Encryption and Passcodes:
   1. Cryptocurrency uses unique encryption keys for access,
   2. Hawala relies on shared passcodes between the sender and receiver for verification.

 

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