Cryptocurrency In India - Impertinence To Competition Law
Author: LawSphereX
Category: Technology, Cyber & Privacy
Published:
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CRYPTOCURRENCY IN INDIA: IMPERTINENCE TO
COMPETITION LAW Sreenidhi M, School of Law, SASTRA Deemed University, Thanjavur, Tamil Nadu.
ABSTRACT
The author through this deductive study and interpretation bring to the forefront the application of Competition Law in the unregulated world of virtual currency. Though having risen to popularity rather quickly, the usage and workings of a such a currency in our nation remain to be outside the scope of law. The author begins by explaining in layman’s terms what cryptocurrency is in the eyes of the law and how this phenomenon functions on a daily. The paper proceeds into the history and application of Competition Law in India delving into the relevance and purpose of the Competition Act of 2002 and the powers and functions of the Competition Commission of India, an authority with the power to interpret and exercise the provisions of the previously mentioned statute.
Concluding the paper with what is the matter in question – Can Competition Law apply in the sphere of crypto assets as they would other economic assets? The author answers in negative while substantiating the same with 2 methods of determination of liability and bringing to light a lesser known but predominant flaw in the system and nature of cryptocurrency i. e. , the opacity effect.
1 The inner workings of virtual currency
Cryptocurrency can be defined as an alternative form of payment arising out of encryption codes. Cryptocurrency is not fiat money but rather virtual currency. Any information or code or number or token generated in digital form through cryptographic means will qualify as Virtual Digital Asset and includes non-fungible tokens (NFTs) under the scope of the Income Tax Act. A blockchain precisely refers to a distributed ledger technology that stores information in blocks on several nodes without the control of a central authority or the interference of intermediaries. To understand the workings of a cryptocurrency lets refer to the workings of what is referred to as the largest cryptocurrency in circulation, Bitcoin. Cryptocurrencies maybe of fixed supply or unlimited supply.
Bitcoin’s supply is fixed at 21 million meaning that once the total value of 21 million coins are mined no more can be mined of the same meaning no more transactions are further added to the blockchain. Users enter into transactions in cryptocurrency facilitated by the use of exchange platforms. Details of these transactions are gathered together by miners or nodes and these miners are in constant competition with each other to gather transactions, adding them to the Blockchain in a process known as mining. To add a block to the Blockchain requires the miners to solve a complex mathematical puzzle. Each puzzle produces a value which is referred to as the hash. It summarises the connection between all transactions in the block and links the new block to the block immediately preceding it in the blockchain. Through this process of mining the miners maintain the Blockchain.
For their efforts, miners are rewarded with a set number of coins from the fixed
21 million and more the miners more the value of the currency.
User transactions are not final until they have been recorded on the Blockchain via the mining process. Once a block is added to the Blockchain it cannot be altered without leaving a public trace thus highlighting another one of the most attractive features of the visual currency, transparency. A change to a Blockchain will be effective only if a majority of the miners signal their acceptance (by competing to add blocks to the Blockchain containing the transaction).
2 Competition Law in India and its Purpose
In India, the statute in force is the Competition Act of 2002. It is one piece of legislation that aims to defend consumer interests from anti-competitive behaviour, foster and sustain market competition, safeguard consumer interests, and guarantee other market participant’s freedom. Earlier, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), was in force but has now been replaced. The major reason for passing this legislation was to make sure that market competition operates as intended. It was made to ensure that customers have access to a broader variety of goods all at reasonable costs. The act promotes entrepreneurship and productivity, increases customer choices and helps in reducing prices and enhancing the quality. While understanding the purpose of this Act, the author would like to show light on some of the main features of the Competition Act.
Firstly, the Act prohibits any agreement involving two or more firms or individuals to maintain market competition and serve the public interest. It also deals with dominance-abuse prohibition stating that any firm abusing its dominant position in the market shall be penalized1. The act forbids agreements between businesses or individuals that harm competition bringing under the scope of a civil offence. With regard to mergers and acquisitions, the Commission will only the same if it is established that they do not undermine market competition. Competition Law is also informative in nature therefore in order to provide clarity and avoid misunderstandings between competitors, a business must notify the CCI of any interactions that are likely to harm market competition prior to engaging in such an agreement.
This feature leads us to what is probably the most significant feature of the Competition Act of 2002, i. e. , the Competition Commission of India. The Competition Commission of India (CCI) is a tribunal exercising jurisdiction over any case require interpretation and application of Competition Law as is in force in India. It consists of the Chairman, and six members all of whom are appointed by the Central Government. The most important concept with regards to the topic in hand that the author would like to emphasise on is that Competition Law in India was framed keeping in mind the involvement of human element while providing relief. The same was made prominent in the case of Samir Agarwal v. ANI Technologies2, wherein the CCI has held that algorithmically determined
1 M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited
prices do not lead to collusion or cartelisation within the meaning of Competition law. Notably, every process involved in the functioning of a blockchain is algorithm based which will certainly create a quandary for the Indian competition watchdog.
3 Issues to Competition Law
The author would like classify the issues cryptocurrency poses to Competition Law under two broad heads: Characterisation of Dominant Position and Attribution of Liability. The definition of a relevant market is a tool to set the boundaries of competition between firms by taking into account their material and geographical dimensions but in the field of crypto, the very task of setting boundaries can prove to be herculean. Blockchain tends to pose questions as to what exactly is a dominant position. Decentralised organisations like blockchain are not legal entities giving rise to more questions such as “can a non-entity hold a dominant position? ” “Can a monopoly be created without a monopolist? ” and finally but possibly the most important is that if a blockchain is determined the dominant player in a market, which of the users would be considered to hold said dominant position?
For the simple purpose of imposing liability, liability for anti-competitive practices is pined on the heads of the dominant players based on their characterisation. For the purpose of this paper, the author would like to deal with two methods of determining such dominance and liability. The first theory of liability would be to consider that each blockchain would hold a dominant position in and of themselves. Were this to be the case, all the users of said dominant blockchain would have to be considered co-holders of the position. This theory, though, tends to negate the very purpose for which dominance is ascertained, i. e. , to prevent the occurrence of anticompetitive practices. Therefore, this practice would deem to be illogical and would in fact reduce incentive to partake in the mining of blockchains.
The second method would be to assess Blockchains and their market power on the type of applications that run on the same. In layman’s terms the market power would be assessed in comparison with other digital products or services and potentially with non-digital assets. i. e. , in the same way online sales would be placed in the market of general sales which in turn would include physical sales. Such a characterisation would make it possible to pin liability on only those users who participated in the anti-competitive practice. Yet, the biggest challenge to this method is the question of which elements to take into consideration. In its Google decision, the court noted that the European Commission used market shares by volume as a proxy for several reasons. “First, market shares by value cannot be computed because general search services are provided free of charge to the user.
Second, despite its best efforts, the Commission has been unable to obtain precise and verifiable values regarding the Revenue Per Search (“RPS”) of the main general search services. Third, advertisers look at usage shares when deciding where to place their search advertisements”3. While assessing geographical reach in a relevant market, applications focusing upon local markets tend to bring about the need for case by case analysis when compared to those competing on international levels.
3.1. The Opacity Effect
One of the most attractive qualities that one would even say the very reason for the attractiveness of cryptocurrency is its transparent nature. Cryptocurrency is one way to create an agreement of trust between two persons with no reason to trust one another. Transactions on a crypto currency platform can be easily viewed by all users on a blockchain platform and this inherent transparency is said to reduce the occurrence of anti-competitive practices and reduce the occurrence of the same. But preventing 100 percent ability to eradicate anti-competitiveness in the field of cryptocurrency is a lesser known concept called the opacity effect. What the common public fails see are two other features of virtual currency.
All the transactions in a blockchain are encrypted and further most users of the same are under the cover and protection of pseudonyms including the creator of Bitcoin himself. This means that while the presence of the transactions in itself are available the nature and purpose of the same are far from revealed making the interactions between users unknown to outsiders and making them opaque and such opacity further growing stronger with regards to private blockchains. This effect tends to cause several effects first and foremost being depriving the CCI of the opportunity to recognise offences under the Act and take them suo-moto and inability of the
3 [Schrepel T., 2019: 275].
tribunal to derive such information adds to its incompetency on the matter. The author at this instant would like to reemphasise on the inability of the Commission to deal with problems beyond human intervention thus holding the same as another repercussion of the opacity effect. Finally, this would prove to be a cause for lack of provisional mechanism to assert and recognise potential anti-competitive concerns will be yet another barrier in noticing and resolving concerns emanating from the use of blockchain4.
4. Conclusion
On 7th March, 2023, the Government of India announced that issues pertaining to cryptocurrency and crypto assets shall be dealt with under the provisions of PMLA or the Prevention of Money Laundering Act. This further directs jurisdiction over cryptocurrency matters directly under the above mentioned provisions thus also making the matter fall clearly outside the scope of Competition Law and the jurisdiction of the CCI. Thus, the author would like to conclude that without determining dominance through an evaluation of market power and ascertainment of liability, the force of Competition Law and its expertise fails to achieve its purpose. The paper thus proves that evaluating the market power of a blockchain creates new challenged.
One such problem that takes the forefront in this issue is the lack of central power which is needed to urge the majority of blockchain users to adopt change, this feature greatly mitigating the idea of power thus highlighting further the impertinence of Competition Law as is being practiced today in the sphere of crypto assets as it would other economic assets.
4 Plasser India v. Harbour Sales Private Limited, Case No 45 of 2019.
Bibliography
i. https://competitionlawblog.kluwercompetitionlaw.com/ ii. The Challenges of Blockchain Technology to Competition Law by Christophe S. Hutchinson iii. https://www.cci.gov.in/ iv. https://indiankanoon.org/ v. https://blog.ipleaders.in/