There are more than 100 million crypto investors in India, a much higher number than in any country in the world. The USA is in the second position with a count of 27 million investors, followed by Nigeria with 13 million investors. It is quite obvious that if our government comes out with any statement regarding crypto, then surely people may suffer from heart palpitations. A few days ago it was reported that crypto may be banned in India completely, but later our finance minister gave a statement that photos of the older crypto bill were being circulated on different social media platforms and a new bill is yet to come. The finance minister, though, added that crypto will not be allowed to be used as currency in India. The fact that the government will try to regulate it became quite clear when the finance minister said that cryptocurrency and new regulations of the Official Digital Currency Bill 2021 are under consideration of the cabinet for finalisation.
Firstly, to make a law on anything, defining that thing is important, but it isn’t as easy to define cryptocurrency. Cryptocurrency was founded in 2009 by a programmer or possibly a group of programmers under the pseudonym Satoshi Nakamoto. Bitcoin ushered in a new age of blockchain technology and decentralised digital currencies. Now the question is what actually is a cryptocurrency? Is it a currency or commodity that you can buy and trade or is it an asset in which you can invest with the hope that the value of your investment would grow in the future and you will get a decent profit, as with investment in property. This may be the reason why many countries regulators use the term crypto assets.
Need of regulation
The government says that cryptocurrencies and Bitcoin are used for money laundering for funding criminal activities and for tax evasion as well. The basic idea or foundation behind cryptocurrencies is decentralisation. Today, every government monitors the monetary system of its country through its central banks, but contrary to this, Bitcoin and cryptocurrencies are so decentralised that they are uncontrollable for the authorities, and quite obviously that is why the government is not in favour to give up their control. In an exceptional event on 3 May 2021, the largest oil pipeline system in the USA was targeted by a ransomware attack by hackers. They named it “Colonial Pipeline”. They shut down the entire pipeline for a few days and asked for Bitcoins in ransom as these hackers believed that Bitcoins are anonymous and can’t be traced, so they planned to accept the payment and leave without any fuss. Unfortunately within some weeks, they were traced and the US recovered 2.3 million dollars worth Bitcoin paid in the “Colonial Pipeline” ransom. It was known for the first time that crypto and Bitcoin are no more anonymous to countries like the USA as they have enough technological resources to track them down. The same, however, cannot be said for other countries in the world, and if we talk about money laundering, according to the report of the Enforcement Directorate of India, Rs 40 billion was laundered outside India in the last year using cryptocurrencies. Money laundering attacks by hackers and terror financing are legit concerns. These are cited as reasons for regulation.
Crypto in other nations
In most countries, Bitcoin and cryptocurrencies through legal aren’t legal tenders, which means they can’t be used as currency but can be used for other purposes. It is legal to buy, sell, and use them as assets. For example, Bitcoin is legal in the USA and it is taxed as property. In countries like Germany, even banks are permitted to buy and sell cryptocurrencies. The European Union does not charge any VAT or GST on crypto. Cryptocurrencies are treated as property in Australia and Capital Gains Tax can be levied on profits arising out of them. It is legal to trade in cryptocurrency and to hold them after buying but using them for banking as currency is illegal. In general, cryptocurrencies are accepted as digital assets and commodities.
China started instituting restrictions on crypto transactions that date back to 2013 when the People’s Bank of China restricted the ban on sanctioning and even participating in Bitcoin. Four years later, payment gateways allowing crypto were banned. However, 2022 seems to be the most restricted year for crypto in China, which banned crypto mining in June 2021 and eventually subjected the entire crypto space to something on the lines of a wholesale ban, restricting every activity within or outside Chinese borders. Experts believe that the Chinese government wants full control over everything as it is a sort of dictatorship and can’t bear the decentralisation design of cryptocurrencies. Contrary to this is El Salvador, the first country to use Bitcoin as legal tender alongside the US Dollar.
Crypto in India
The RBI first banned cryptocurrencies in April 2018, but this ban was legally challenged in court, and the Supreme Court in its landmark judgment struck down this ban in March 2020. The court held that the business opportunities from cryptocurrency exchanges are threatened by the ban and banning everything isn’t the solution. They accepted the negatives of cryptocurrencies as well, noting that they have the potential to be used for wrongful purposes but it does not call for a ban but proper regulations need to be framed instead.
In my opinion, following El Salvador would be quite extreme as it can pose an unexpected ris,k but steps taken by Europe or USA are quite reasonable. Also, the negatives of cryptocurrencies can be prevented through processes such as Know Your Customer. KYC establishes an investor’s identity and address through relevant documents such as prescribed photo id and address proof and in-person verification (IPV). KYC compliance is mandatory under the Prevention of Money Laundering Act, 2002, and Rules framed thereunder, read with the SEBI Master Circular on Anti Money Laundering Standards/ Combating the Financing of terrorism/ Obligation of securities Market Intermediaries.
Of course in the future, the potential of crypto innovation will increase, and so will increase the security of digital cryptocurrency transactions.

The writer is a student of Law at University of Kashmir

Tauqeer Zia ul Zeeshan