The foundation of financial consumer protection legislation, such as licencing for money transmission, is the idea that your money would be held by someone else as part of a service, like payment. Consumers encounter new opportunities as well as risks and obstacles with each improvement in payment in payment technology, not all of which are immediately apparent. It is crucial to remember that one of the reasons innovation happens is in response to consumer demand; new strategies are frequently (though not always) developed to fill a need or offer a new benefit. In addition, it is crucial to keep in mind that regulations has the ability to hinder both competition and innovation if it is not established in an inclusive manner.
This was unquestionably the case with the advent of e-money, which raised fresh issues including information disclosure and the variety of legal framework, to name a few. Some of these difficulties are already becoming apparent in the context of stable coins, such as the ambiguity of redemption of rights and the schemes supporting the valuation; Before central bank digital currencies (CBDCS) or stable coins are introduced to the general public, through consideration of proper consumer protection is required, assuming that consumer trust is essential for acceptance. The balance can be accomplished by looking at all the options available to customers and comparing the risks and rewards that are present in the pertinent context.
In the prehistoric era, individuals traded products and services among two or more people using the barter system, Because of these obvious shortcomings, the barter system was no longer widely used. When individuals realised this, the currency underwent number of changes: The first official currency was created in 110B.C., followed by the introduction and use of gold-plated florins in Europe in 1250 A.D., and the widespread use of paper money worldwide between 1600 and 19.
As all forms of modern money are governed by governments, they include paper money, coins, credit cards, and digital wallets. Then the cryptocurrencies started gaining popularity ago, in 2008 with the introduction of Bitcoin by Satoshi Nakamoto as foremost a digital currency decentralized and not controlled by government.
WHY DO WE USE CRYPTO CURRENCY?
A coded string of data representing a unit of currency is what is known as crypto currency; As one of the most effective and unpredictable forms of alternative digital currency discovered in the modern period, cryptocurrency is organised and monitored through peer-to-peer networks called blockchains. Its name derives from the fact that it utilises encryption to authenticate transactions. The most well-known virtual currency in use today is undoubtedly bitcoin; with this cryptocurrency, it is now able to purchase anything, make investments, trade stocks, and regrettably, use it illegally to acquire any goods or services on the so-called “Dark Web.”
WHICH NATIONS USES CRYPTOCURRENCY THE MOST?
Cryptocurrencies are expanding quickly around the world. Since millions of individuals worldwide have started investing in and utilising the various types of digital currency, there has been a growth in interest in cryptocurrencies and the number of global crypto owners; Litecoin, Ethereum, Bitcoin, and Ripple are a few of the well-known cryptocurrencies.
The ten nations with the higher rates of crypto adoption in 2022 are:
- The United States
As so many nations embracing new technology swiftly and realising their promise, 2023 has seen some modifications to the list once more. The list of countries with their respective populations is seen above.
INDIAN GOVERNMENT VIEWS ON CRYPTO
The government on November made it clear that it is keen on bringing in a regulation on cryptocurrencies, though it will not ban it. PM Modi took the cause of protection of consumers on November 13, 2019 coming down on cryptocurrencies, financial stability and consumer protection are the two main concerns for the Indian government. The legal status of crypto currency is in state of flux, as the Reserve Bank of India (RBI) issued several warnings against that they pose risks especially to youngsters.FM Nirmala Sitharaman: Regulatin said, it does not mean controlling of distributed leger technology, which has its goodness and potential.
TROUBLESHOOTING WITH CONSUMER PROTECTION
Regulators have addressed consumer protection and the issues that arise when blockchain-based digital currencies are used for payment in number of ways; Initial consumer protection frequently entails limitations or, in rare cases, outright bans on the use of such digital assets; Several regulators have warned consumers of the risks, as was evident in the rise of Bitcoin, A new set of issues, such as worries about criminal activity, environmental harm, and consumer protection, have emerged as a result of cryptocurrencies that governments must now deal with.
Illegal activities: cybercriminals have been taking over computer networks in recent years, gaining access to them, shutting them down, and then demanding payment to get them back up and running, frequently in cryptocurrency.
Volatility and lack of regulation: Due to the cryptocurrencies and DeFi enterprises rapid rise, billions of dollars worth of transactions are now being carried out in an area that is comparatively unregulated, raising questions about cybersecurity, fraud, and tax evasion as well as about the stability of the overall financial system.
Environmental damage: The mining of bitcoins requires a tremendous amount of energy; the network now uses more electricity than many nations.
FRAUDS AND SCAMS RELATED TO CRYPTOCURRENCIES
Tragically, cryptocurrency crime is on the rise; Among the cryptocurrency frauds are;
Fake websites: Scam sites with fake testimonials and cryptocurrency jargon that guarantee enormous returns as long as you keep investing. For instance; two Mumbai citizens, lose Rs 19 lakh to cryptocurrency cyber fraud; a doctor and a house wife were allegedly defrauded of Rs 6.23 lakh and Rs 13.10 lakh, respectively, by cyber fraudsters who asked them to invest in cryptocurrencies.
Depending on the agreements and local insolvency laws, customers may also suffer losses from insolvent crypto firms; For instance, in the event of a company’s bankruptcy, cryptocurrency users might not be given as much priority as the other creditors of the company, and they might have to wait in queue with all other unsecured creditors and suppliers to receive payment. In the present instance, Mt. Gox, one of the first failed crypto exchange, in 2014.
THE FRAMEWORK OF CONSUMER PROTECTION RELATING TO CRYPTOCURRENCY
The level of protection that a crypto investors would need is not covered by the existing consumer protection laws. The value of the stablecoin in the underlying reserve asset, though, in cases where the consumer assumes the risk, such publicity could deter widespread adoption, affect consumer confidence, and lead to large-scale withdrawals, further destabilising the stablecoin’s value. Consumers in India are increasingly using e-commerce, which has compelled lawmakers to address the absence of laws protecting the interests of investors and users of cryptocurrency; The new consumer protection act, 2019, which defined e-commerce and gave the union government the authority to take measures and lay foundation for consumer welfare.
CENTRALIZATION AND DECENTRALIZATION ENTITIES ARE BOTH CENTRALISED BY CRYPTOCURRENCY
Accountability and transparency from centralised entities, a company with people who interact with the public and is inherently accountable, These businesses must implement controls against money laundering and cybersecurity; From decentralised entities: asset custody always remains with the user, while transaction settlement is handled by the service. Regulation’s main objective is to protect consumers; To create a system that is equitable and beneficial to all participants, combining these two philosophies yields the best results.
It is crucial to carry out consumer education to reduce stablecoins potential negative effects on consumers and to promote their wider adoption beyond simply facilitating payments for cryptocurrency trading; Education about consumer rights and risks is necessary to ensure that the public is aware of both, to ensure a consistent and objective approach free of marketing influence, consumer education must be carried out by neutral and trusted parties.
Across products and jurisdictions, consumers of digital currencies do not have a uniform risk tolerance or profile. For business owners and users in the cryptocurrency industry, the temptation to regulate cryptocurrencies and the blockchain economy solely on basis of their financial viability, as opposed to their innovative potential, is a real danger; Some guiding principles for smart crypto regulation for lawmakers who want to advance policies that will support creativity, broaden economic inclusion for people of all income levels, and safeguard from harm.
The ability of consumers to make decisions that meet their needs without placing them at unnecessary risk will also depend heavily on consumer education. Millions of people around the globe are investing in and using cryptocurrencies, which is causing the market for them to keep expanding and growing; While the aforementioned nations are currently at the forefront of the adoption of cryptocurrencies, other nations will also continue to do so over the coming years as they adopt this cutting-edge method of exchange and payment.
Author(s) Name: Pogula Bhavani (Keshav Memorial Law College)