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Should India Regulate Cryptocurrency!!

What is Crypto Currency

Crypto currency is a virtual currency stored in Digital wallet. It is independent of any centralized system or authority. It means there's no centralized database to carry currency and hold transactions like it is just in case of Banks neither is it governed by any government, but holders of cryptocurrency themselves form a part of the database etching the transaction permanently.
  • CryptoCurrency is also referred to as Virtual Currency, Digital Currency. It derives its name Cryptocurrency from the fact that the each currency packets is encrypted. They can be bought online by mining or by using credit card through few companies which act like exchanges. There are different types of cryptocurrencies with major players being Bitcoin, Eutheruem.

  • Crypto Currency is emerging as a universal currency. It is just like a vast ocean into which other currencies like USD, INR, YEN, etc can get merged and also depart from the vast ocean on withdrawing from it. Which is equivalent to buying CryptoCurrency using other currenciesINR,USD etc) and selling those Crypto currencies to get equivalent value in intended currencies. CryptoCUrrency has become a standard currency using which currency holders can transfer money from one country to another without ever any intervention of any national or international Authority. Thus eliminating middlemen in international monetary transactions. In the current era Cryptocurrencies are virtual gold which is being mined and exploited without any regulation.

  • Though nations were resounding for a World currency common across all the nations, no single currency was ever finalized to be a global currency. US Dollar played the role of Reserve Currency in every Coomercial transactions. With advent of CryptoCurrencies in the present era and based on the trend it is setting, there is no doubt that it may soon become the World currency unanimously without United Nations(UN) ever declaring it.

Pros and Cons of Crypto Currencies

Cryptocurrencies are currently an asset to hold on to. Tesla, the biggest electric car manufacturer, has invested $1.5 Billion into Bitcoins. Cryptocurrencies if allowed can be legal tender too in future.
While cryptocurrencies seem to be unstoppable, there are a number of ways in which they can be abused. It is undisputed fact that criminals are the first ones to adopt latest technologies.
Money Laundering, Drug Trafficking, Terrorist Financing, Weapon Proliferation, Cyber Crime and Sanction evasion are some of the activities for which Virtual currencies are susceptible to misuse.

Regulation in India

Recognition and acceptance of Cryptocurrency in India experiences a period of inertia, similar to that of any emerging technology in India. As one of the world's most populated nations, there are dangers in introducing such major technological advancements. Another explanation for hesitancy is that the country's population's economic situation is not uniform, with increasing inequity.

Past stand on Cryptocurrencies

  • RBI, the Central Bank in India passed resolution that private virtual currencies are not backed by central ban
  • In 2017, two Public interest Litigations were filed with prayers contradicting each other
  • One was filed to ban transaction using cryptocurrencies. Other PIL was filed to regulate the use of them.
  • However, in 2018, RBS issues a circular to commercial institution and banks to refrain from dealing in VCs or to provide services to those entities dealing with them.
  • However this circular was challenged and Supreme Court in 2020 held that the ban was unconstitutional. This resulted in increase in VC transaction in India.
  • The government in 2021 has revealed its plan to ban all private VCs and introduce Sovereign Digital Currency. This is going to be the Central Bank Digital Currency (CBDC
  • With immense advancement in modes of payment the Indian Government must take immediate steps to regulate CryptoCurrencies and
  • When the Internet was first introduced, India was reluctant, and as a result, it was unable to fully exploit the country's talent pool. As a result, a large number of talented Indians have emigrated to other nations. Similarly, delaying regulation and recognition of cryptocurrencies by India may result in a loss of resources.
  • It is high time the cryptocurrencies are regulated and recognized. In order to extract the full potential of cryptocurrencies it must preferably done sooner than later.

Regulation in Other Countries

Several countries have been quick in accepting Cryptocurrencies where as few other countries are still unsure of its future
  1. USA
    US Laws are categorized as Federal Laws and state Laws. Federal laws are set of rules applicable throughout USA whereas each State has its own system of laws. Though Cryptocurrencies are not legal tender in US, some companies like Microsoft and Mastercard are accepting payment through Bitcoins which is a type of Cryptocurrency.

    Are federal or State laws applicable to Cryptocurrency in US?
    The Securities Act 1933 regulates offer and sale of securities.Under this Act, offering of securities must be registered with US, Securitites and Exchange Commission (SEC). Commodity Exchange Act, Investment Company Act 1940 and Investment Advisers Act 1940 govern investment Advisers to such funds.

    Federal Agencies like Financial Crimes Enforcement Network(FinCEN) requires Money and Banks Services Businesses (MBSs) to submit reports, keep records and verify identity of customers in transactions involving Virtual Currencies and Digital Assets with Legal Tender Status(LTDA).

    Stand of each state in USA regarding Virtual currencies differs. While California, Alabama and many other states have liberally accepted VCs, on the other hand laws in some states like Kentucky do not embrace Virtual Currencies with open arms
  2. Russia: Just like in India, Russia has not recognized Cryptocurrencies as legal tender nor as assets. Its use is still not regulated in Russia.
  3. Canada: Bitcoin has received friendly response while making sure that cryptocurrencies is not used for money laundering. However, cryptocurrencies are not legal tender in Canada too. However cryptocurrencies can be used to buy or sell goods or services on the internet. One can but and sell digital currencies in open exchanges.
  4. China: There is strict policy against cryptocurrencies by Banking systems in China. Government has cracked down on miners in the past.
  5. . UK: Europe is regulating cryptocurrencies by including cryptocurrency companies like exchanges within the scope of 5th Anti Money Laundering Directive. Government in UK has taken favorable stance towards Bitcoins. Tax regulations are applicable to Digital Currency.

Things to consider before regulating Cryptocurrencies

Governments must be careful neither to overregulate nor under regulate them as both overregulating and underregulating poses dangers to the society and its citizens. Hence regulation is a walk on the edge. Here are few factors to consider before regulating cryptocurrencies.
  1. Taxation:
    Should digital currencies be taxed as an assets, commodities or capital gains ? In the US it is treated like hybrid Asset. If it is security token, SEC will come into play, if it is commodity token then commodity commission will come into play. If it is stable coin then Federal Reserves will have a role to play[1].

    However what should be looked into is that there should be no double taxation as guarded under constitution.
  2. Anti-Money Laundering
    Countries across the globe have come up with rules and regulaions to include the firms dealing in these cryptocurrencies under their RADAR. Canada became the first country to regulate Ccryptocurrencies in the field of Anti Money Landering in 2014.In Singapore, crypto businesses operating in the country must obtain Licenses to comply with AML regulations.[2]
  3. Securities Laws
    What constitutes a security is that a financial asset which can be traded. But it is still not clear if cryptocurrencies fall into the category of assets without casting any doubt. Government may utilize the existing definition of security or may have to amend the existing laws to include cryptocurrencies into the definition of security.

Due to lack of regulations, there is enormous growth of crypto currencies. There are risks of over regulating. There is a misconception in the minds of authorities that the transactions of cryptocurrencies cannot be traced. This is a complete misconception as every transaction forms part of the currency packet.

Hence there is a need for educating authorities at every level to understand and prevent misuse of cryptocurrencies. People in India are currently hesitant to invest in cryptocurrencies as there is no regulation in place. However the recent announcement of its government to introduce Central Bank Digital Currency has given a ray of hope to those looking to invest into cryptocurrencies. The sooner its usage is regulated the better for the country.


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