Cryptocurrency & It’s Regulations


Dakshita Rathore

10/17/20237 min read


Using cryptography for security, cryptocurrency is a digital or virtual form of money. Cryptocurrencies, unlike conventional money issued by governments, are decentralized and frequently run on blockchain technology, a distributed ledger that keeps track of all transactions over a network of computers. Although Bitcoin is the most well-known cryptocurrency, thousands of others have unique characteristics and applications.

In recent years, cryptocurrencies have become much more well-known and famous for various reasons. They have benefits, including quick and affordable international transactions, enhanced financial inclusion for those without access to traditional banks, and the opportunity for speculation and investment. They also have the potential to revolutionize several non-financial areas, including voting systems, supply chain management, and more. However, these advantages also come with several hazards and difficulties, which is why cryptocurrency regulation is important. In order to ensure that the cryptocurrency market runs safely, somewhat, and in accordance with accepted legal and financial standards, the government must monitor and regulate it. The following are the main arguments in favor of cryptocurrency regulation:

  1. Consumer Protection: Protecting customers from fraudulent schemes and fraud is one of the main goals of cryptocurrency regulation. Initial coin offers (ICOs), Ponzi scams, and other unlawful practices abound in the cryptocurrency sector. Such frauds can be avoided through proper regulation, giving consumers a legal framework to pursue compensation in the event of fraud.

  2. Financial Stability: Financial stability may be at stake due to the volatility of bitcoin pricing. Investors may be impacted by sudden price drops, which could also result in systemic problems. Regulatory controls can lessen excessive price swings and protect the broader financial system.

  3. Compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML): Cryptocurrencies’ relative anonymity and ease of use for cross-border transactions has led to associations with money laundering and other illicit activity. AML and KYC procedures can be enforced by regulation, which makes it harder for criminals to use bitcoins for illegal activity.

  4. Taxation: Cryptocurrencies must be regulated to be liable to taxes, just like any other type of investment or source of income. This guarantees that taxes are paid relatively by all citizens and aids in government revenue collection.

  5. Investor Protection: The absence of investor safeguards in cryptocurrency marketplaces is well-known. Regulation can create security measures that can assist investors in recovering their funds in the event of theft or loss, such as insurance for cryptocurrency wallets and exchanges.

  6. Market Integrity: Laws can prevent market manipulation and encourage ethical trade. By guaranteeing that exchanges and market players follow moral and open guidelines, it improves the overall integrity of the cryptocurrency industry.

  7. Innovation and Development: In the Bitcoin space, responsible innovation can be stimulated by regulatory certainty. Regulators can foster a business climate conducive to the growth of lawful enterprises and attract talent and investment into the sector by establishing explicit norms and standards.

  8. Legal Recognition: Giving cryptocurrencies a legal foundation contributes to their legal legitimacy. Thus, more widespread adoption by people and organizations is encouraged.

  9. International cooperation: International cooperation is of utmost importance when regulating cryptocurrencies. Given their inherent global nature, it becomes imperative for countries to work together and establish a harmonized regulatory framework. Such collaboration not only prevents individuals from taking advantage of regulatory discrepancies in different jurisdictions (also known as regulatory arbitrage) but also helps tackle illicit activities that may seek refuge in regions with loose regulations.

  10. Risk Mitigation: Risk mitigation is of utmost importance in the regulatory framework for cryptocurrencies. Various mechanisms can be incorporated to address the risks inherent in the cryptocurrency landscape. These mechanisms aim to amplify the safety and security measures, ensuring that potential risks, such as exchange hacks, can be reduced.

In essence, cryptocurrency can be defined as a digital form of currency that comes with a range of advantages, but it is also accompanied by significant risks and challenges. The regulation of cryptocurrencies plays a crucial role in protecting consumers, ensuring financial stability, combating illegal activities, establishing taxation guidelines, providing investor safeguards, maintaining market integrity, fostering innovation, granting legal recognition, promoting international cooperation, and mitigating risks. It is of utmost importance that effective regulation strikes a balance between supporting innovation and safeguarding the public interest, especially in a rapidly evolving financial landscape. Cryptocurrencies have gained widespread attention due to their unique characteristics and potential benefits. However, it is crucial to acknowledge the risks associated with this digital form of currency. Therefore, implementing regulations is essential to address these risks and challenges. One key objective of cryptocurrency regulation is to protect consumers from fraudulent activities and scams.


The regulation of cryptocurrency in India is a complex and intricate area of law. It encompasses a range of regulatory actions, legal battles, and potential legislative interventions. To provide a comprehensive understanding of this subject from a legal standpoint, I will present an overview of the critical legal aspects involved. Cryptocurrency regulation in India has evolved, with various governmental and regulatory bodies taking different measures to address the challenges posed by this digital asset.


The legal position regarding cryptocurrency in India has evolved over the years, with notable milestones:

  1. Emergence (2009-2016): Around 2009, cryptocurrencies—of which Bitcoin was the original—started to take shape. Most nations, including India, at the time, had no particular legislation or rules governing cryptocurrencies. They were involved in a murky legal area.

  2. Increasing in popularity (2016–2017): During this period, bitcoin and other cryptocurrencies saw a notable increase in use. Increased public and regulatory attention resulted from the price and interest spike. Governments and financial organizations, therefore, began looking into ways to understand and regulate these digital assets in order to safeguard consumers and reduce risks.

  3. The Reserve Bank of India (RBI) and other regulatory bodies in India issued cautions between 2013 and 2017 regarding the potential hazards of cryptocurrencies. These alerts did not impose any legal limits; instead, they aimed to alert the public. It was imperative to create a safer environment for all parties involved by educating and informing people about the possible risks of transacting with cryptocurrencies.

  4. The demonetization of high-value currency notes in late 2016 spurred interest in cryptocurrencies as a modern alternative for financial transactions and investments.

  5. In April 2018, the Reserve Bank of India (RBI) issued a circular that effectively disabled regulated financial institutions from offering services to cryptocurrency-related businesses and individuals, dealing a severe blow to the cryptocurrency industry in India.

  6. In March 2020, the Internet and Mobile Association of India (IAMAI) mounted a legal challenge by filing a petition against the RBI circular, contending that it violated the constitutional rights of cryptocurrency entities. A Reserve Bank of India circular prohibiting the use of digital currency or cryptocurrencies in financial institutions was overturned by the Supreme Court. The Internet & Mobile Association of India (IAMA) contested the restriction, claiming it was appropriate for their line of business. State-issued fiat currency laws serve as the foundation for the ban. Several current rules, such as the Prevention of Money Laundering Act, apply to virtual currency transactions. Intermediaries using virtual currencies may be designated as reporting entities by the government.

  7. The RBI’s ban on virtual currencies was declared by the Supreme Court to be unreasonable and disproportionate because it interfered with lawful commerce and affected existing regulations. The decision emphasizes the necessity of a more thorough regulatory framework because transactions using virtual currencies are covered by current legislation.

  8. Reports emerged in early 2021 regarding a draft bill called the “Cryptocurrency and Regulation of Official Digital Currency Bill.” However, detailed provisions of the bill remained undisclosed, and it was not presented to the Indian Parliament.

  9. After 2021-In countries like the United States and the United Kingdom, cryptocurrency transactions are categorized as capital gains for taxation purposes. On the contrary, in Germany, these transactions are treated as private money, making them exempt from specific tax obligations. In contrast to the global norm, India has proposed to join a select group of nations in imposing a 30% tax on the transfer of digital assets, which encompasses cryptocurrencies and non-fungible tokens. This proposal is outlined in the Financial Budget of 2022. The Financial Budget of 2022 also outlines a 1% tax deduction at the source for payments related to the acquisition of virtual assets. Notably, there will be no deduction allowed for any expenses or allowances when calculating such income, except for the cost of acquisition. Furthermore, the Finance Minister, upon presenting the Financial Budget of 2022, disclosed that gifting a virtual digital asset would also incur taxation for the recipient. Additionally, any losses resulting from the transfer of digital assets would not be eligible for offset against other forms of income. While these proposed tax changes do not inherently legitimize cryptocurrency, they signify foundational steps toward the stringent regulation of digital assets in India.

  10. The regulatory landscape for cryptocurrencies in India continues to evolve. Various government agencies and regulatory bodies have been engaged in discussions regarding the potential implementation of regulations, shaping the legal framework for cryptocurrencies in the country.

Legal Challenges and Concerns:

Several legal challenges and concerns have emerged in the context of cryptocurrency regulation:

- Regulatory Uncertainty: The lack of explicit legal provisions governing cryptocurrencies has created uncertainty, making it challenging for businesses and investors to understand their rights and obligations.

- Consumer Protection: Cryptocurrency investments are subject to high volatility and fraud risks. Ensuring adequate consumer protection, including dispute resolution mechanisms, is a critical legal concern.

- Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT):** Regulators are keen on addressing the potential misuse of cryptocurrencies for illicit activities and ensuring that AML and CFT measures are adhered to by cryptocurrency businesses.

Opportunities and Benefits:

From a legal standpoint, the benefits of regulating cryptocurrencies include:

  1. Legal Framework: A comprehensive legal framework would provide clarity and legal certainty for businesses and investors.

  2. Promotion of Innovation: Regulatory measures can encourage responsible innovation, particularly in blockchain technology, which has applications beyond cryptocurrency.

  3. Investment Protection: Legal regulation can protect investors, potentially reducing the risks associated with fraud and scams.

  4. Future Outlook: The future of cryptocurrency regulation in India hinges on potential legislative action, evolving judicial interpretations, and regulatory decisions. Stakeholders are actively engaging with regulators to shape the legal landscape.


In the legal realm, cryptocurrency regulation in India has shifted from a banking ban to a more accommodating environment following the Supreme Court’s intervention. Developing a robust legal framework for cryptocurrencies remains a pressing concern, balancing the need for consumer protection anti-money laundering measures and fostering innovation. Legal clarity and effective regulation will be pivotal in shaping India's cryptocurrency ecosystem in the future.

(Edited & Posted By Iswari Legality Team)

Submitted By - Dakshita Rathore

Semester 5th (3 Year LLB)

Nirma university Ahmedabad