Assignment

Crypto currency Regulation in India

Amity University Patna

For the partial fulfillment of the degree of B.A.LL.B.

Submitted by Submitted to

Name- Akshat Aryan Anupam Sinha

Topic- Crypto currency Regulation Faculty- Legal

Method

Enrolment – A46011123002. Amity University Patna

1
 Acknowledgement

I would like to express my gratitude to all those who have contributed to the successful

completion of this Legal method assignment, particularly in the exploration of topic crypto

currency Regulation In India that forms the crux of our study. This endeavour has been both

enlightening and challenging, and I am thankful for the support and guidance I have received

throughout the process.

First and foremost, I extend my appreciation to my professor Prof Anupam Sinha for

providing valuable insights, encouragement, and direction in understanding the complexities

of contract law. Your expertise has been instrumental in shaping my understanding of the

subject matter.

I am also indebted to my peers and classmates who have engaged in fruitful discussions,

exchanged ideas, and offered constructive feedback. Your collaborative spirit has enriched the

learning experience and broadened the perspectives presented in this assignment.

Lastly, I would like to express my gratitude to my friends and family for their unwavering

support and understanding during the demanding period of this assignment. Your

encouragement has been a source of motivation and strength.

In conclusion, this assignment has been a journey of intellectual growth and discovery, and I

am thankful for the collective efforts that have contributed to its successful completion.

Sincerely

Akshat Aryan

B.A.LL.B.[2023-28]

Enrolment number- A46011123002

2
 Introduction

Digital money called cryptocurrency is changing finance. Unlike regular money

made by governments, cryptocurrencies work on networks, not controlled by

governments. The word “cryptocurrency” comes from codes that keep these

digital things safe. Cryptocurrency is used for trading, and the records of who

has it are in a computer. No one group controls it, and the use of networks

makes business clear and safe.

Bitcoin was the first and is the most liked cryptocurrency. It started in 2009 and

altered money exchanges. Other cryptocurrencies have come since, each with

special things. Cryptocurrencies don’t need banks, which makes trading easier

and cheaper. People can use this digital money in lots of ways, from moving

money to making investments.

But people don’t all agree on what will happen to cryptocurrencies. People like

Bill Gates think they’re better than regular money. Some, though, like Warren

Buffet, worry that they are too risky and might help crooks. Cryptocurrencies

get riskier as they become more famous. Problems like quick changes in the

market, not clear rules, and things that make them unsafe are hard for both new

and old users.

3
In the end, cryptocurrency changes how we see and use money. Because it’s not

controlled by one group and is safe, cryptocurrencies open a door to easier

trading and clear money for everyone around the world. As this change

happens, knowing the basics of cryptocurrency is key for anyone getting into

this new way of doing money .

4
 Need to regulate crypto currency.

The need for cryptocurrency regulation stems from the unique challenges and risks associated

with this emerging asset class. Cryptocurrencies operate in a decentralized and borderless

environment, challenging traditional regulatory systems that are often limited to state

jurisdiction The decentralized nature of cryptocurrencies, the use of advanced cryptographic

techniques, and the rapid development of related technologies such as blockchain find a legal

mechanism to deal with this unique characteristic.

Regulation is necessary to protect investors, ensure transparency, curb illegal activities and

promote widespread adoption of digital assets. The legal framework can be adjusted to

provide the investigation and the terrorists and the terrorists’ sustenance etc. They can,

promote investment and increase market share. Trust, encourage companies to innovate with

blockchain technology, facilitate transactions within the blockchain, reduce systemic risk

through increased transaction control, and encourage integration by making cryptocurrencies

more accessible have got it

However, current cryptocurrency regulations in the US. Is poorly defined and constantly

changing. Federal agencies handle digital assets differently based on their assessment of

crypto attributes. Legislatures can also discuss it, and states can pass their own laws. The

Securities and Exchange Commission (SEC), the Commodity and Futures Trading

Commission (CFTC), and the Internal Revenue Service (IRS) each have different definitions

5
 Recent scams in Crypto currency

Cryptocurrency scams have been a significant concern in recent years, with fraudsters

constantly devising new methods to steal money from unsuspecting victims. Some notable

examples of recent crypto scams include:

1. **Bitconnect**: A well-known Ponzi scheme that promised returns on Bitcoin of up to

40% per month, requiring investors to exchange their Bitcoin for the platform’s native token.

The scheme eventually collapsed, resulting in significant losses for investors.

2. **Fake ICOs**: Initial Coin Offerings (ICOs) that are not genuine and have no

supporting technology or infrastructure. These scams often involve the creation of a new

cryptocurrency that exists only in name, with the purpose of raising funds from investors

without any intention of developing the cryptocurrency network.

3. **Phishing scams**: Scammers use emails or fake websites to trick victims into

providing sensitive information, such as private keys to their cryptocurrency wallets. Once

the hackers have acquired this information, they steal the cryptocurrency in those wallets.

4. **Pump and dump schemes**: Fraudsters artificially inflate the price of a

cryptocurrency through false information or hype on social media, encouraging traders to buy

the coins and drive up the price. Once the price has been inflated, the scammers sell their

holdings, causing a sharp decline in the asset’s value.

5. **Fake apps**: Scammers create fake cryptocurrency trading apps available for

download through Google Play or Apple Store, often mimicking legitimate platforms. These

fake apps can steal sensitive information or manipulate trading activities, resulting in

financial losses for users.

6
6. **Giveaway scams**: Scammers promise to match or multiply the cryptocurrency sent to

them, creating a sense of urgency and legitimacy. Victims quickly transfer funds in hopes of

an instant return, only to find out that the scammers have disappeared with their money.

7. **Cloud mining scams**: Companies that allow users to rent mining hardware in

exchange for a fixed fee and a share of the profits, but many of these companies are scams or

ineffective, resulting in financial losses for users.

These examples demonstrate the diverse range of crypto scams that have occurred in recent

years, highlighting the importance of staying informed and vigilant when engaging in

cryptocurrency transactions.

7
 Crypto status In India

The legality of cryptocurrency in India is a complex issue with evolving regulations.

Currently, cryptocurrencies are not considered legal tender in India, but they are also not

illegal, making them unregulated. The Reserve Bank of India (RBI) has clarified that virtual

currencies do not have any official backing and are not regulated by any governmental

authority.

In 2018, the RBI issued a circular prohibiting regulated entity, such as banks, from providing

services to individuals or businesses dealing in cryptocurrencies. However, this circular was

quashed by the Supreme Court in March 2020, stating that it was disproportionate and

unconstitutional. This landmark judgment provided relief to the cryptocurrency industry and

paved the way for the resumption of cryptocurrency transactions.

Despite the lack of specific regulations, the Indian government has introduced the

“Cryptocurrency and Regulation of Official Digital Currency Bill” with the aim of banning

private cryptocurrencies, establishing a regulatory authority, introducing an official digital

currency, and promoting blockchain technology. The bill is still under discussion and debate,

and its provisions have not yet been passed into law.

The central bank has expressed caution towards private cryptocurrencies but has shown

interest in exploring the development and issuance of a Central Bank Digital Currency

(CBDC). The RBI has conducted pilots and feasibility studies to assess the potential benefits

and risks of introducing a digital rupee.

In summary, while cryptocurrencies are not illegal in India, they are not recognized as legal

tender and lack specific regulations. The Indian government is exploring the creation of a

state-backed digital currency while banning private ones like bitcoin. The RBI has cautioned

8
against the risks associated with cryptocurrencies but is also considering the potential

benefits of blockchain technology and the development of a CBDC.

Five recommendations of crypto laws in India

9
Five potential proposals for crypto regulation in India:

1. **Comprehensive KYC and AML Requirements**: Implementing robust Know Your

Customer (KYC) and Anti-Money Laundering (AML) procedures for crypto exchanges

would be paramount. This would involve mandating stringent identity verification

processes for users, including verification of government-issued identification documents

and proof of address. Additionally, exchanges could be required to regularly update and

maintain customer records to mitigate the risks associated with illicit activities such as

money laundering and terrorism financing.

2. **Licensing and Regulation of Exchanges**: Introducing a licensing regime for crypto

exchanges would help ensure that they operate within a regulated framework. Exchanges

would need to obtain licenses from regulatory authorities, demonstrating compliance with

specified standards related to security, transparency, and operational resilience.

Regulatory oversight would be crucial in monitoring exchanges’ adherence to these

standards and taking enforcement actions against non-compliant entities.

3. **Taxation Guidelines**: Establishing clear taxation guidelines for crypto transactions

is essential to bring clarity to investors and tax authorities. This could involve

categorizing different types of crypto assets (e.g., cryptocurrencies, utility tokens, security

tokens) and prescribing specific tax treatment for each category. Taxation frameworks

could include provisions for capital gains tax on crypto investments, transactional taxes

on crypto trades, and reporting requirements for crypto income.

10
4. **Prevention of Illicit Activities**: Implementing measures to prevent illicit activities

in the crypto space is imperative for safeguarding the integrity of the financial system.

This could entail enhancing surveillance and monitoring mechanisms to detect and deter

activities such as fraud, market manipulation, and unauthorized fundraising through

Initial Coin Offerings (ICOs). Collaboration between regulatory authorities, law

enforcement agencies, and industry stakeholders would be crucial in addressing emerging

threats and vulnerabilities.

5. **Promotion of Innovation with Regulatory Clarity**: While imposing regulations, it’s

essential to foster a conducive environment for innovation in the crypto sector.

Regulatory clarity regarding the legal status of cryptocurrencies and blockchain

technology would provide certainty to entrepreneurs and investors, encouraging

responsible innovation and investment in the space. Regulatory sandboxes could be

established to enable startups to test new products and services within a controlled

environment, facilitating the development of innovative solutions while ensuring

compliance with regulatory requirements.

By implementing these proposals, India can establish a robust regulatory framework that

balances the objectives of consumer protection, market integrity, and innovation in the crypto

ecosystem.

Conclusion

11
In conclusion, the potential introduction of comprehensive crypto regulations in India holds

significant implications for the future of digital assets within the country. By embracing

measures such as stringent KYC and AML requirements, licensing and regulation of

exchanges, clear taxation guidelines, prevention of illicit activities, and the promotion of

innovation through regulatory clarity, India can establish a conducive environment for the

growth and development of the crypto sector while mitigating associated risks. Striking a

balance between fostering innovation and safeguarding against potential threats remains

paramount in formulating effective regulatory frameworks. Through collaboration between

regulatory authorities, industry stakeholders, and the wider community, India has the

opportunity to position itself as a leader in responsible crypto regulation, facilitating

economic growth, financial inclusion, and technological advancement in the digital age.

12
 References
WEBSITES

1. https://www.forbes.com/advisor/in/investing/cryptocurrency/
crypto-bill/
2. https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-
comprehensive-policies-to-protect-economies-and-investors
3. https://www.brookings.edu/collection/regulating-crypto-why-
how-and-who/
4. https://www.nerdwallet.com/article/investing/crypto-regulation
5. https://www.orfonline.org/expert-speak/the-g20-and-indias-role-
in-cryptocurrency-regulation

RESEARCH PAPER

1. Nikam, R.J. (2018). Model Draft Regulation on

Cryptocurrency in India. Hasanuddin Law Review,4(2): 146-
161

13