RESEARCH PAPER

Topic: Exploring the legal dimensions of Cryptocurrency adoption in Banking

Subject: Optional Paper 1; Banking Law

Submitted To: Mrs Anurupa Chetia

Co-Authored by:

AARYAN MURALIDHAR GAGANA S

4TH YEAR BBA.LLB 4TH YEAR BA.LLB “B”

42320341002 42320231035
ABSTRACT:

The legal aspects of cryptocurrencies are examined in this article. Based on blockchain

technology, cryptocurrencies first appeared in 2009 and have since seen a sharp increase in

popularity worldwide. Public relations have to be regulated and supervised by the

government because of the new field that cryptocurrency has established. Considering that

cryptocurrencies have features in common with non-documentary securities, money, and

products, determining their legal status is a significant difficulty. Legislative bodies must

decide whether to incorporate cryptocurrencies into already-existing legal categories or create

new ones specifically designed to address their distinct economic characteristics. This study

examines how cryptocurrencies operate and are issued, examines global regulatory

frameworks, and examines how different nations have approached determining the legal

status of cryptocurrencies. Based on this research, the study provides conclusions and

suggestions.

KEYWORDS: Cryptocurrency, legal framework, blockchain, currencies, banking sector.

INTRODUCTION:

Cash has always dominated the financial system in the world in which we live. However, the

development of money and the methods by which transactions are conducted has accelerated

due to the quick advances in technology. From the era of metal coins, fast-forward to 2009,

when the world was first exposed to the idea of cryptocurrencies.

A completely new economic system has emerged as a result of the growth of

cryptocurrencies in 2009 one in which asset trades take place without the use of
intermediaries or centralized financial institutions like banks. Rather, a distributed ledger

system—basically, a network of separate computers that oversee and precisely record

transactions using cryptographic technology (blockchain)—ensures the security and

reliability of transactions between participants.

Similar to every novel advancement in society, cryptocurrencies pose noteworthy obstacles

for governments concerning the requirement of lawful supervision of swiftly changing

interpersonal connections. This entails striking a balance between the interests of different

stakeholders and safeguarding the security of the nation and its people, particularly in light of

the growing emphasis in strategic planning on developing a blockchain-based digital

economy1.

Policymakers are wary of the possibility that cryptocurrencies could be used to support illicit

operations like money laundering, drug trafficking, or terrorism financing, regardless of their

regulatory stance. They also acknowledge that there are insufficient consumer and investor

safeguards, since local monetary authorities do not offer much in the way of deposit

insurance for cryptocurrency holders. The combination of possible advantages and

macroeconomic hazards begs significant concerns about the factors that impact a

government's willingness or inability to embrace cryptocurrencies.

Numerous scholarly works have examined cryptocurrency in great detail, covering a wide

range of topics including financial and economic implications, legal issues, pros and

downsides, usage incentives and obstacles, and transaction security. Studies that clarify the

legal characteristics of cryptocurrencies, which are necessary to talk about their legal

regulation, are scarce, though. Establishing regulations for the issuance and circulation of

cryptocurrencies requires an understanding of the category in which they fall legally. Sales of

cryptocurrencies would be liable to value-added tax if they were considered commodities,

1
https://www.researchgate.net/publication/377287372_Cryptocurrencies_And_Banking_System_In_India_-
A_Conceptual_Analysis
and barter regulations would apply to bitcoin swaps for products. Like stock exchanges,

cryptocurrency exchanges would require governmental license if they were considered

securities or financial instruments. Thus, it is crucial to make clear the legal status of

cryptocurrencies.

1. Definition of the legal nature of cryptocurrency in different countries

There are two possible methods for determining whether cryptocurrencies are legal:

1) Handling it in the same way as current regulated businesses, like commodities, foreign

exchange, or non-documentary securities. This strategy entails modifying existing laws to

take into account the special qualities of cryptocurrencies while keeping these pre-existing

categories in place.

2) Including the idea of "cryptocurrency" as a brand-new, independent subject of law in

legislation. This strategy would need the drafting of entirely new laws pertaining to

cryptocurrencies, recognizing their essentially unique legal status.2

The majority of nations in the world are now actively attempting to control cryptocurrency

transactions, with an emphasis on taxation, licensing, and the avoidance of money laundering

and the funding of terrorism. Nonetheless, a lot of countries are unsure about how to regulate

cryptocurrencies because they don't have a firm position on the matter. 3

According to S. A. Timofeev, until digital rights, currencies, and contracts are explicitly

recognized as elements of civil law, efforts to control legal concerns pertaining to

cryptocurrencies are futile. In civil transactions, cryptocurrencies are usually categorized

under the current frameworks of regulated items. For example, in accordance with tax

2
https://bits.media/news/pozitsiya-stran-mira-po-regulirovaniyu-kriptovalyut-na-fevral-2018-goda
3
Voronkov N S 2017 International turnover of quasi-monetary units: problems of the legal regulation Legal
Paradigm 16
principles set by authorities in nations such as Canada and Singapore, the Australian Taxation

Office (ATO) has classified digital currency as a commodity instead of currency 4.

ATO regulations from December 17, 2014 state that bitcoin transactions are subject to the

same tax implications as barter arrangements. According to the ATO, the sale of bitcoin is

not regarded as a financial service for tax reasons, nor does it qualify as money or foreign

currency5.

In January 2018, Stephen Poloz, the Governor of the Central Bank of Canada, offered an

alternative viewpoint regarding the legal status and characteristics of cryptocurrencies. He

emphasized that while cryptocurrency transactions were not explicitly prohibited, authorities

and government agencies were clearly taking a cautious stance, especially in the Russian

Federation. The Bank of Russia decided that it was too soon to permit the usage and

exchange of cryptocurrencies and any related financial products. This cautious approach

limited the servicing of transactions involving cryptocurrencies and their derivatives and also

applied to organized trades as well as settlement and clearing infrastructure within the

Russian Federation.

the actual rights regime to an intangible like this, however, is not without its difficulties.

A report on the legal status of digital currencies and the regulation of related transactions was

produced in February 2016 by the Commonwealth Working Group on Virtual Currencies in

the UK. The Financial Action Task Force (FATF), an organization that fights money

laundering, provided a definition of virtual currency that was accepted in the report.

According to this definition, virtual money is any electronically tradeable digital

representation of value that serves as a store of value, a unit of account, or a medium of

exchange but is not recognized as legal tender in any country. This definition effectively

4
https://iopscience.iop.org/article/10.1088/1755-1315/272/3/032166/pdf
5
E L 2016 Cryptocurrency as a new juridical phenomenon Society and Law 3 (57) p 193-197
sums up the core of cryptocurrencies by emphasizing their function as a tool for accumulation

and omitting their use as a mode of payment.

2. Cryptocurrency as a new object of the legal regulation

Many characteristics and uses of cryptocurrencies are highlighted by the above-discussed

viewpoints. Given its inherent worth, which is determined by the costs of production such as

the utilization of computer processing power and large electricity prices, cryptocurrency can

be seen as a commodity on the one hand. But, as cryptocurrencies have a fixed value and

validate the owner's right to receive a specific quantity of money, they might also be

categorized as uncertificated securities.

Nevertheless, there are aspects of cryptocurrencies that make them challenging to fully

define. If seen as a claim, for instance, it begs the issue of whom this claim may be made. If

the user is one party in a legal relationship, who is the other party? This function is carried

out by the system operator in electronic money systems; but, in decentralized cryptocurrency

systems, this person does not exist. Is a right of claim even possible in the absence of a

debtor? Before cryptocurrencies, there was a notion of value in a digital form, as

demonstrated by electronic money, which serves as a conventional currency storage system.

Electronic money, in contrast to cryptocurrencies, is secured by real, fiat currency and is not

backed by any asset. The only factors sustaining the value of cryptocurrencies are participant

acceptance and the laws of supply and demand in the economy. In addition, unlike traditional

money supply, participants contribute computer power to create new cryptocurrency units.

This distinctive feature emphasizes how challenging it is to locate cryptocurrency equivalents

within current legal frameworks. The peculiar and unique characteristics of cryptocurrency

should serve as the foundation for governing its use and determining its legal status.

Recognizing the existence of cryptocurrencies and the futility of banning them, nations must

also realize that this new subject of legal regulation will have some effect on all current social

relationships. Consequently, in order to establish the legal standards for cryptocurrency

regulation, taxes, and the licensing of associated activities, a fair and impartial methodology

is required to ascertain the nature and status of cryptocurrencies. According to V. K.

Shaidullina, "legitimizing the features of cryptocurrency will also enhance the effectiveness

of financial intelligence, as modern anti-laundering standards and recommendations can be

adapted to the characteristics of virtual currency."6

CRYPTOCURRENCY AND ITS POLICY ENVIRONMENT

Digital tokens specifically created for online peer-to-peer transactions are known as

cryptocurrency. A developer or developers using the pseudonym Satoshi Nakamoto created

Bitcoin, the most well-known and well-known cryptocurrency. To track ownership and

transactions, Bitcoin makes use of a decentralized public ledger. In order to verify ownership

and handle transfers, several "miners" must solve challenging cryptographic puzzles. This is

where the main innovation of cryptocurrencies lies. A bitcoin incentive is given to the first

miner to figure out the issue and validate the transaction.

Cryptocurrency was initially used as a means of payment. Cryptocurrencies have the ability

to reduce the cost of international transfers, particularly remittances, by using distributed

ledger systems that do away with middlemen. Lower transaction costs can increase financial

6
Marian, O. (2015). A conceptual framework for the regulation of cryptocurrencies. University of Chicago Law
Review, 82, 53–68.
accessibility and encourage financial development. Despite the fact that there is now a great

deal of ambiguity surrounding the value of cryptocurrencies, their promise of anonymity and

the elimination of middlemen fees makes them popular for use in payments. Investors started

using cryptocurrencies as speculative assets after they gained more popularity in the financial

sector. Cryptocurrencies were first exchanged on specialized exchanges, just like

conventional financial products. The most popular cryptocurrency, Bitcoin, is mostly used as

a speculative asset rather than an alternative currency, according to Baur, Hong, and Lee.

Users that trade cryptocurrencies using fiat currency such as dollars, euros, or yen or other

cryptocurrencies can purchase, sell, and swap them on exchanges where speculative trading

takes place. Right now, trading bitcoin is possible on more than 200 exchanges worldwide.

The US, the Republic of Korea, and Samoa are only a few of the nations with significant

exchanges.7

Different countries have different positions on the usage of cryptocurrencies even though

policymakers are aware of the hazards involved. While some nations have outright prohibited

cryptocurrencies, others have remained mute about their regulation. A thorough summary of

the legal and policy landscape pertaining to cryptocurrencies may be found in the Global

Legal Research Center (2018). While some nations, like Vietnam, Pakistan, and Nepal, have

explicitly banned cryptocurrencies, the majority of states neither actively regulate nor support

them. For cryptocurrency operations, several nations, including Australia, Japan, and Italy,

demand permission and registration. Meanwhile, using cryptocurrencies for payments is legal

in Mexico and the Isle of Man. Policymakers are approaching bitcoin cautiously because of

the ambiguity surrounding security, transaction legality, and the degree of investment and

consumer protection.

7
Nee, V., and Opper, S. (2009). Bureaucracy and financial markets. Kyklos International Review for Social
Sciences, 62:2, 293–315.
Lawmakers need to take into account extra policy and legal factors in nations where bitcoin

transactions take place. Notably, the anonymity of cryptocurrencies poses questions regarding

their possible application in illicit activities like tax fraud, drug trafficking, and financing of

terrorism. Thus, in order to address these problems, special regulations are frequently

introduced in addition to already-existing commercial laws.

The Republic of Korea, for instance, prohibits the use of anonymous bank accounts for

cryptocurrency trading, according to the Global Legal Research Center (2018). In an effort to

stop money laundering, the Korean government also requires banks to report any activity that

seems suspicious. The method used by Israel, where the Supervision of Financial Services

mandates licenses for financial asset service providers—including those handling virtual

currency—is another strategy highlighted in the paper. While cryptocurrency operations are

starting to be subject to licensing and registration requirements, they are still not outside the

purview of most governmental supervision, therefore consumers must engage in these

activities at their own risk.8

On the other hand, some legislators decide to apply current rules pertaining to commodities

or financial instruments rather than enacting new ones specifically for cryptocurrencies. The

Global Legal Research Center (2018) provides instances to support this methodology,

including Austria, which classifies bitcoin as a commercial asset falling under the larger

umbrella of intangible commodities.9

8
Shaidullina V K 2018 Cryptocurrency as a new economic and legal phenomenon Journal of the State University
of Management 2 137-142
9
Sidorenko E L 2016 Cryptocurrency as a new juridical phenomenon Society and Law 3 (57) p 193-197
Although the risks connected with cryptocurrencies are widely acknowledged, there are wide

differences in regulations regarding them. Politicians cannot ignore bitcoin as it grows in

popularity in the financial markets. Although numerous have issued cautions, not all have

acted to outlaw or control it. In essence, allowing people or businesses to interact with

cryptocurrencies at their own risk, the decision to not regulate cryptocurrencies is still a

policy choice.

4. CRYPTO CURRENCY AFFECTING THE BANKING INDUSTRY

A. Limited Obstacles To Entry

Unlike typical banking services, cryptocurrencies offer a more accessible entry point because

all you need to get started is a smartphone or wifi. It follows that those who are unable to use

traditional banking services because of financial or geographic constraints can nonetheless

interact with cryptocurrencies. For instance, using cryptocurrencies to convert BTC to USD

can save someone in a remote location without access to banks from having to make lengthy

trips.10

B. From Centralized To Decentralized Finance

The financial sector has long been controlled by traditional banking systems, which manage

risk, facilitate transactions, and uphold financial stability through a network of intermediaries.

On the other hand, the introduction of cryptocurrencies brings with it a completely new

strategy called decentralized finance (DeFi). Blockchains, which are distributed ledgers that

record transactions over a wide network of computers, are the foundation upon which

cryptocurrencies function. As a result, there is no longer a need for central authorities, and the

financial system is more transparent and open.

10
https://www.coindesk.com/policy/2022/08/11/indias-ed-probes-at-least-10-crypto-exchanges-on-money-
laundering-allegations-report
 C. Speed And Efficiency

Due to the complex web of middlemen involved, overseas transactions can take several days

to settle when using traditional bank transfers, which can be tedious and laborious. In

contrast, because blockchain technology is peer-to-peer, bitcoin transactions can be done

almost immediately and at a considerably reduced cost. This effectiveness has the power to

completely transform cross-border payments, making it easier for people and companies to

interact internationally. Imagine a time when transferring money to relatives overseas will be

as simple and quick as sending a text message.

D. Systems For Clearance And Settlement

Our financial infrastructure's design is largely to blame for the three-day average delay of a

bank transfer. Customers find this process inconvenient, and banks find it to be a major

logistical challenge. Moving money from one account to another is a straightforward bank

transfer, but before it can get there, it has to go through a complicated web of middlemen,

such as custodial services and correspondent banks. A wide range of traders, funds, and asset

managers are part of the extensive global financial system in which the two bank balances

need to be balanced.

E. Accessibility And Financial Inclusion

When it comes to entry barriers, cryptocurrency is less restrictive than traditional banks. A

large percentage of the world's population may be excluded from opening a bank account due

to the usual requirements of extensive documentation, a minimum balance, and proximity to

a physical branch11. This is particularly true in developing countries where access to

traditional financial services is restricted. On the other hand, all you need to build a bitcoin

wallet is a smartphone and an internet connection. Participation in the financial system by

11
https://www.wolfandco.com/resources/insights/how-cryptocurrencies-may-impact-the-banking-industry/
underbanked and unbanked groups is made possible by this, which may improve financial

inclusion and economic empowerment.

F. Fundraising

For entrepreneurs, obtaining venture funding can present significant challenges. In order to

swap a piece of their firm for financial investment, it frequently entails making

comprehensive presentations, going to a lot of meetings with possible partners, and having

lengthy discussions about equity and business valuation. By contrast, some businesses are

using public blockchains such as Ethereum and Bitcoin to raise money through initial coin

offerings, or ICOs. In an initial coin offering (ICO), projects offer tokens or coins—usually in

ether or bitcoin—in exchange for investment. Investors can directly wager on the project's

value and utilization because the tokens' value is theoretically linked to the blockchain

project's success.

G. Securities

Tracking ownership of assets such as stocks, loans, and commodities is necessary when

trading them. The financial markets of today do this by

 A convoluted network of brokers

 Exchanges

 Central security depositories

 Clearing houses

 Custodian banks

These organizations operate under an antiquated paper-based ownership system that is

unreliable, prone to fraud, and inefficient. For instance, you would normally make an order

through a stock exchange, which would match you with a seller, if you wanted to buy an
Apple stock share. In the past, this transaction would entail paying cash for a tangible share

certificate that proved your ownership.

The electronic execution of these transactions, however, significantly increases complexity.

We usually would rather not deal with the mundane management of assets, like processing

dividends, keeping records, or transferring certificates.

We therefore depend on custodian banks to safely hold our shares. To secure all of the

physical certificates, these custodians must rely on a trustworthy third party, though, as not

all buyers and sellers utilize the same custodian banks.

H. Challenges And Considerations12

While bitcoin presents a fascinating picture of the financial industry's future, there are

significant obstacles that must be overcome:

 Volatility: Due to their notoriously strong swings, cryptocurrency markets may be

considered high-risk investments by certain individuals.

 Regulation: The framework governing cryptocurrencies is currently being developed.

To safeguard customers and stop unlawful activity, regulations must be uniform and

unambiguous.

 Scalability: It might be challenging for current blockchain technologies to handle

high transaction volumes. Although scaling solutions are being developed, it is not yet

known if they are effective.

 Energy Consumption: Some blockchains use a proof-of-work consensus process,

which uses a significant amount of energy. The adoption of sustainable alternatives

must be more widespread.

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INDIAN LEGAL AND REGULATORY STAND IN CRYPTOCURRENCY

Legal Standing of Cryptocurrency in India

There is still disagreement among the judiciary, legislators, and Reserve Bank of India

(RBI) on whether cryptocurrencies should be accepted as legal tender in India. A

number of RBI circulars demonstrate India's lack of decisiveness. In addition, an Inter-

Ministerial Committee was established in India to investigate digital currencies. As a

result of issues with price manipulation, safeguarding customers against fraud and other

hazards, instability brought on by cryptocurrencies' decentralized design, and the

significant energy consumption involved, the Committee recommended a ban on virtual

currencies in its 2019 report.

1. Press Releases from Reserve Bank of India

The first sign of reluctance was a press announcement by the RBI on December 24,

2013, alerting holders, users, and traders of virtual currencies to possible financial

dangers as well as privacy and security issues. Among the dangers indicated for users

were13:

 Security Risks: The storage of virtual currencies in electronic wallets exposes them

to security risks such as password loss, hacking, and compromised access credentials.

 Lack of Regulation: Peer-to-peer payments using virtual currencies, such as Bitcoin,

are conducted without the supervision of a centralized regulatory body, and there is no

formalized system in place to handle customer complaints and disputes.

13
https://mca.gov.in/Ministry/pdf/ScheduleIIIAmendmentNotification_24032021.pdf
 Unclear Legal Status: Platforms that trade virtual currencies, such as Bitcoin, are

subject to financial hazards due to their unclear legal status, which exposes traders,

users, and holders.

 Illicit Use: Currencies, such as Bitcoin, are utilized for illicit purposes, which may

violate laws against money laundering and counterterrorism funding.

 Continuous Review: The RBI is now assessing the problems associated with using,

storing, and trading virtual currencies within the confines of the current legal and

regulatory system of the country

2. Inter-Ministerial Committee’s Proposed Bills

An Inter-Ministerial Committee (IMC) was formed by the Center on November 2, 2017,

and it drafted two bills. They were:

 The Crypto-Token Regulation Bill, 2018: This Bill which instead of outright

outlawing cryptocurrencies, suggested

a. To place limitations on those engaged in cryptocurrency-related activities because of

holes in the existing legal system.

b. Regulating brokers and exchanges of virtual currencies, permitting the buying and

selling of cryptocurrencies subject to restrictions.

 The Cryptocurrency & Regulation of Official Digital Currency Bill, 2019: The

second bill suggested outlawing the use of virtual money as acceptable form of
 payment. Furthermore, its goal was to outlaw the usage, purchase, exchange, and

dealing of cryptocurrencies inside the nation14.

It was suggested that the use of cryptocurrencies as a means of raising money, as a means of

investing, as a clearing, selling, and trading platform, as a payment system, as a medium of

exchange, and as a basis for credit be outlawed in the nation. In addition, the document

suggested creating a digital rupee that would function as legal money and included provisions

for penalties and offenses.

3. Judgement by the Supreme Court

A "Statement on Development and Regulatory Policies" was released by the Reserve Bank of

India (RBI) on April 5, 2018, instructing entities under its regulation to: (i) stop doing

business with or offering services to individuals or companies that deal in virtual currencies;

and (ii) break off any current connections with these entities. In a circular published on April

6, 2018, this prohibition was restated. A writ case was filed to challenge this prohibition by

the Internet and Mobile Association of India (IAMAI), which is the trade association for

digital and internet services.15

JUDGEMENT: The Reserve Bank Of India’s (RBI) consistent stance has not resulted in a

complete prohibition of virtual currencies in the nation, the Supreme Court (SC) noted; (i) the

RBI had not found any negative impact on its regulated entities from virtual currency entities

(VCEs) over the past five years or more; (ii) the Inter-Ministerial Committee, which initially

14
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247 > last seen on 21/09/2021
15
https://main.sci.gov.in/supremecourt/2018/19230/19230_2018_4_1501_21151_Judgement_04-Mar-
2020.pdf
proposed a legal framework including the Crypto-token Regulation Bill 2018, believed that

similar objectives could be achieved through regulatory measures.

According to the SC, the RBI needs to concentrate on the companies it regulates. The RBI

has not yet provided evidence that these organizations have lost money as a result of doing

business with virtual currency enterprises (VCEs). Citing State of Maharashtra v. Indian

Hotel and Restaurants Association, the Sup16reme Court underlined that proof of harm to

regulated companies must be based on factual data. The Supreme Court recognized that

although the RBI has extensive authority because of its significant economic role, these

powers can be used for both preventative and therapeutic purposes.

The SC pointed out that possessing power and using it are two different things. The Court

evaluated whether the RBI's actions were proportionate even though it acknowledged the

RBI's preemptive power. The RBI was unable to produce any evidence of harm caused by

virtual currency to its regulated firms. The Court determined that the RBI's restriction was not

proportionate as the RBI has not outlawed virtual currencies and the Indian government has

not made a decision despite multiple committees and contradicting draft bills. As a result, the

Court decided that proportionality justified overturning the RBI's circular prohibiting virtual

currencies.

Aftermath: Crypto in India

In India, there is no central body in charge of cryptocurrencies, and there are no set policies

or procedures for resolving disagreements over them. Consequently, there are dangers

involved with trading cryptocurrencies for investors.17

16
AIR 2013 SUPREME COURT 2582

17
https://www.ascionline.in/wp-content/uploads/2022/09/vda-guidelines-press-release-feb-23.pdf
The Indian Finance Minister, Nirmala Sitharaman, has heightened the discourse surrounding

the legality of cryptocurrencies in the nation by proposing a tax on digital assets. Although

the taxing of virtual currency has been welcomed by many as the first step towards its

recognition, the government has not yet issued an official statement regarding the legality of

Bitcoin or other cryptocurrencies in India18.

Although cryptocurrency is illegal, there isn't a complete ban on it in India, based on remarks

made by the governor of the Reserve Bank of India and other government representatives,

such as the finance minister. Although there is currently no regulation of cryptocurrencies,

the Union Budget 2022 included a 30% tax on earnings from them as well as a 1% tax

withheld at source, indicating some recognition and taxation of digital assets by the

government.

Cryptocurrency Bill: The Road Ahead

To control the rapidly expanding cryptocurrency business in India, the government

introduced the Cryptocurrency Bill 2021 in the Lok Sabha. Investment in the area has

increased recently, both domestically and internationally, especially during the COVID-19

pandemic.

Trading volumes are rising significantly on Indian cryptocurrency exchanges including

WazirX, CoinDCX, and Zebpay. The absence of regulation presents hazards even though the

government wants to protect aspiring business owners and investors. The government sought

to provide a legislative framework for cryptocurrencies by drafting the Cryptocurrency Bill in

18
https://incometaxindia.gov.in/communications/circular/circular-no-13-2022.pdf
2021. This law forbids all private cryptocurrencies, with a few exceptions to support the

underlying technology, and that the Reserve Bank of India (RBI) create an official digital

currency. Furthermore, earnings from virtual digital assets, or cryptocurrencies, are subject to

a 1% TDS and a 30% tax under the 2022 Union Budget.19

CONCLUSION:

Through the course of this research paper it can be concluded with utmost certainty that

cryptocurrency is a major technological development in the financial and banking

sector, and it is going to be present in the market for a long time. Just like how every

coin has two sides, every such new development comes with its own set of advantages

and disadvantages. Cryptocurrency is not an exception to this normal trend. It has its

benefits as discussed in the paper with respect to easy access and lesser mechanical

work involved as opposed to the traditional banking system. However, the

disadvantages again is profound with paramount risks of cyber safety and unauthorized

assets being prevalent at a large and unregulated scale.

However, the main aim of this paper was to delve into the legislative framework

existing in reference to cryptocurrency in various countries with particular focus on

India and the various challenges the policymakers face in respect of formulating laws in

relation to this aspect.

There a lot of factors that affect a country deciding to accept the cryptocurrency or

reject it. Factors like the financial literacy of most of the population, the country’s

resources in managing with such technological advancement, the impact on the

traditional banking system etc. Again, if the country decides to accept cryptocurrency

and tries to legalize it, the next challenges it faces it to formulate a policy that

19
https://www.thequint.com/tech-and-auto/tech-news/india-is-moving-to-replace-decades-old-it-act-with-
new-digital-india-act-and-data-governance-framework-rajeev-chandrasekar#read-more
holistically covers both present and the future challenges cryptocurrency is likely to

face.

India’s current stance over cryptocurrency is vague. It does not fully accept the

cryptocurrency and at the same time imposes tax on dealing with cryptocurrency. The

regulations given by the RBI, was again quashed by the Apex Court. Furthermore,

though two bills were enacted on the matter, those bills do not have any concrete

footing in the legal arena.

It becomes very imperative in the present scenario for India to take a firm stand and

formulate a well- thought of policy that can encapsulate the current trends of

cryptocurrency and safeguard the general public with respect to this. The infamous

Bitcoin scam in Karnataka is a testament to the fact that a policy is of utmost need. Not

just with the intention of protecting the public, but also to make use of the benefits of

cryptocurrency a policy is needed that can stay in harmony with our current banking

system as well.

Furthermore, India being such an important driving force in the world, taking a firm

stand pertaining to cryptocurrency will go a long way in the financial development of

the country.

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2. Hayes, Adam, Decentralized Banking: Monetary Technocracy in the Digital Age

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3. Department of Economic Affairs, “Report of the Committee to propose

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