Regulation
With WazirX under attack, calls for legal redress, regulations tighten | Company News
Following a $230 million theft from WazirX, a major cryptocurrency exchange in India, concerns have grown over users seeking legal recourse to get their funds back and calls for tougher regulation of the industry.
Last week, the cryptocurrency exchange confirmed a security breach on its platform, resulting in the theft of approximately 50 percent of its total assets. While WazirX called it a “force majeure event” beyond its control, the company said it is working to locate and recover the lost funds.
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However, recovering the money from a sophisticated hack of one’s platform may not be an easy feat, cryptocurrency industry executives and those close to the development said.
“Recovering stolen cryptocurrency is difficult because many of them are converted into other tokens and since cryptocurrencies are handled internationally, they can go to any exchange in any country. The upside is that transactions can be traced and in some past cases have even been recovered,” said Ashish Singhal, co-founder of CoinSwitch; a cryptocurrency exchange platform.
He explained that recovering funds after a cyber attack of this magnitude is a tedious process, as stolen funds can remain in a wallet for many years at a time.
Meanwhile, against the backdrop of the lack of regulatory environment for cryptocurrencies in India, it is becoming difficult to stop transactions involving stolen tokens.
“Even though it is traceable, you still can’t stop it from being used everywhere. That becomes the real problem, because there will always be a decentralized platform where these tokens can be converted from one to another, or from one wallet to another,” said Edul Patel, CEO of Mudrex, a cryptocurrency exchange.
Legal experts who monitor the industry believe that users who have lost their funds can appeal to national consumer protection laws.
“In terms of consumers, there is no specific law to rely on in this immediate cyber attack. But in any case, consumer laws would be applicable if there is any negligence on the part of WazirX, alleging that there was a deficiency in their services, further depending on the remedies sought by the customers under the Information Technology Act, 2002 or the Arbitration and Conciliation Act, 1996,” said Navodaya Singh Rajpurohit, Legal Partner, Coinque Consulting and Founder, Pravadati Legal.
On Sunday, WazirX announced a reward program to track down and freeze the stolen money.
The company has promised to reward those who contribute to the recovery with a reward set at 5% of the amount recovered under the program.
As of the time of going to press, the company has not responded to queries sent by Business Standard.
Meanwhile, with the upcoming Union budget, calls for greater regulatory clarity for the sector are becoming increasingly insistent.
“What should come out of all this is that we should have conversations about active regulation, making self-custody a real possibility for people, allowing decentralized exchanges to conduct transactions, which is one of the ways to protect a user’s money,” Mudrex’s Patel said.
Domestic cryptocurrency firms have previously suggested that regulating the sector may require the involvement of multiple agencies, given the looming deadline for developing a unified regulatory framework, Business Standard reported this month.
Industry players have said that creating comprehensive legislation through a single regulator before 2025 could be a complex and time-consuming task.
“This incident could potentially trigger regulatory changes in India. As of now, no regulatory body has taken the initiative to regulate cryptocurrencies in the country. While there is a Financial Intelligence Unit (FIU), its primary mandate is to prevent money laundering, not to tackle cyber attacks, which could limit its jurisdiction in this matter unless it is found in the investigation that money has been laundered through this cyber attack,” said legal expert Rajpurohit.