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Designing India’s Pathway to Cryptocurrency: An in-depth policy overview

Updated: Feb 2, 2022


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The story began around 10 years ago when the global economy shook tremendously and everyone saw “The global financial crisis”. When everyone lost their trust in the financial system, one person named Satoshi Nakamoto came up with the idea of Bitcoin, the first cryptocurrency ever. Since then, cryptocurrency has never failed to make a headline in the news. Be it the market highs, new cryptos coming into the picture, or eminent personalities tweeting about it (Elon Musk, the first name that pops in our head).

A currency that now has a market capitalization of $2.3 billion with 300 million+ users worldwide still gets millions of people stuck at: “What is this currency? How does it work? Where do you get it? Can we use it in India? etc.”

From defining cryptocurrency, advantages and disadvantages to should India ban or not ban crypto, this paper attempts to solve the ambiguity around the newly evolving cryptocurrency.

1. What is Cryptocurrency?

In simple words, cryptocurrency is a digital currency where the transaction between two parties is not governed by a central authority, rather the peer-to-peer transaction is registered using blockchain technology. Let us understand this using an example, suppose that you want to buy a smartphone from a shop. Currently, you can purchase the commodity by multiple financial channels such as payment in cash, Internet banking, EMI loans, credit cards or debit cards, and also other virtual payment methods like UPI Transfer and e-wallets. The transaction between you and the seller is only considered valid because at the core of this transaction lies the Indian Rupees, which is validated by a governing body, in this case, the Reserve Bank of India.

But if the same transaction would have taken place using a cryptocurrency, they would not rely on the Reserve Bank of India, you will be able to buy that phone using a transaction of cryptocurrency between you and the seller. The cryptocurrency holds value based on community involvement (supply and demand) and the transactions are validated through complex mathematical algorithms. Here is a simple flowchart on how this transaction will look like in terms of blockchain technology:-

Fig. 1 Source:

2. What are the Key Features of Cryptocurrency?

3. The Evolution of Cryptocurrency

Fig. 3 Source: Forbes

4. What are the applications of Cryptocurrency?


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5. What are the different types of Crypto Currencies?

Source: emerald

Source: cryptoslate

6. How is cryptocurrency different from gold & fiat currency?

What makes crypto different and better from the conventional means of transaction is represented in the following table. (The detailed rationale is in Annexure1)

Clearly, the cryptocurrency appears to be a winner in the race of fighting currencies. Maximum security, durability, divisibility, and ease of transactions is something that it solves for. However, when looked upon a bit closely, environmental impact is still a cause of concern. Given the enormous amount of CO2 emissions that happen in one single transaction of bitcoin is worrisome. Over the years, as the circulation would increase, it does not sound like a sustainable solution. Also, while decentralization of the currency seems to be a major selling point of the currency, it comes with its own repercussions. Basically, there is no one to regulate or monitor and no one could possibly anticipate what might happen tomorrow.

7. How is everyone dealing with this new phenomenon called Cryptocurrency?

Different countries around the world have responded to this subject of the cryptocurrency very differently. However, based on our analysis, we have identified 3 main routes taken

  1. Legal, Adopted, or Encouraged (security and regulatory norms defined by govt.)

  2. Partially Regulated (sectoral banning/in the process of regulation)

  3. Illegal or Banned

Source: bitcanuck

Financial institutions and private entities too have shown increasing optimism towards accepting cryptocurrency.

8. Where does India currently stand in this Cryptocurrency wall of fame?

India has ~30% of the population as a youth (18-35 age) who are tech-savvy and also moving towards achieving financial literacy. The newly evolving cryptocurrency has piqued interest among this bracket of people due to its decentralized, extremely secure, and IT nature. There are around 1.5 crore Indians holding over 1500 crores worth of crypto assets, trading over 15 exchanges currently (as of May’ 21).

But, the major question still stands: Is crypto legal in India?

Well, there is a history to that explained as follows:

Source: cis-india

While trading in cryptocurrency in India is legal and it has continued to appreciate it in the pandemic times when relief fund was received in crypto payments, the government's final stance on the subject is yet to be finalized. Further sections will explore the regulatory stances taken by India and various other countries.

9. What are the key challenges of Cryptocurrency in India?

In 2019, an Inter-Ministerial Committee (“IMC”) constituted by the Ministry of Finance, Government of India released a report dated 28 February 2019 analyzing issues related to virtual currencies (“IMC Report”, “Report”). The objective of the IMC was to examine the regulatory and policy framework around monitoring virtual currencies/ cryptocurrencies and recommending suitable measures to handle issues of governance in this domain. In essence, the IMC recommended a law to ban cryptocurrencies in India and proposed a draft bill titled “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019” (“Cryptocurrency Bill”). The proposed bill criminalizes carrying on any activity connected with cryptocurrencies in India, including mining, buying, selling, or storing cryptocurrency, and the use of cryptocurrency as a means of raising funds or for investments. Criminal sanctions proposed by the bill may include the imposition of a monetary fine up to INR 25,00,00,000 or imprisonment of up to 10 (ten) years. The primary reasons highlighted by the IMC to justify its approach may be categorized in the following manner:

PART A: Underlying Technology Challenges

Blockchain and Ledger Technology

  • Scalability and Transaction Speed: The IMC Report states that there are challenges concerning the scalability of blockchain technology in terms of validation speed and transaction volume. The report claims that in a permissionless transaction involving Bitcoin, it takes up to ten minutes for a block to be created and added to the blockchain.

  • Interoperability and Integration: The Report highlights potential practical challenges around introducing distributor ledger technology (“DLT”) at scale into India’s financial system. A primary concern in this regard being introducing interoperability among different versions of DLTs, and excessive costs involved in integrating DLTs into the existing legacy infrastructure for fiat currency.

Management and Governance of Technology

  • Cyber Security: The Report highlights concerns around cybersecurity, given that the technology involved in the trade of virtual currencies is nascent and still evolving. It cites the case of the Decentralised Autonomous Organisation’s attack on Ethereum to flag its concerns around smart contracts from a security perspective.

  • Governance of Decentralised System: The Report notes that historically, the financial sector in India has depended on central authorities to regulate various aspects of the market and ensure effective governance. However, with a decentralized ledger system, particularly permissionless DLTs, departing from a centralized governance infrastructure might pose challenges.

Key Management: The keys associated with a recording or changing a transaction are susceptible to theft or loss (in case of death etc). In such instances, the digital assets/ virtual currencies could become irretrievable. The loss of a private key, analogous to a password, of a virtual currency wallet could mean that the amount held in the wallet is lost permanently.

PART B: Commercial and Legal Challenges

Customer Risks

  • Pseudo-anonymity and Risk of Fraud: The Report mentions concerns around rising frauds in the case of virtual currencies, particularly targeted towards unsophisticated consumers. It also highlights certain shortcomings in the design of virtual currencies making them susceptible to inherent vulnerabilities. For instance, miners can collude to earn more revenue by “forking”, a currency, or changing the programming protocol to benefit themselves.

  • Irreversibility of Transactions: Transactions are irreversible, and if a wrong transaction is made, there is no method of redressal.

Economic Risks

  • Lacking Inherent Value and Highly Speculative: One of the major concerns heavily discussed across the Report is the fact that, unlike the fiat currency, cryptocurrency is highly speculative and the rampant booms and busts in their valuation have caused significant losses to customers. Such high volatility potentially makes them unfit to be used as a form of currency.

  • Massive Storage and Processing Power Requirements: The Report’s reliance on the bank for International Settlements’ Cryptocurrencies: Looking Beyond The Hype report highlight the fact that mining of virtual currencies may require crippling levels of storage and processing power, making it infeasible for a country like India.

Legal Risks

  • Due-diligence against Money Laundering and Terrorism Financing: In the case of large-scale adoptions within the financial system, DLTs need to comply with certain customer due diligence requirements, particularly laws on Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT). Since permissionless DLTs do not disclose the identity of the members within their network, it may become difficult for permissionless DLTs to comply with such AML/ CFT regulations.

  • Lack of Adequate Cross Border Transaction Regulations: Central authorities in India will not be able to regulate the money supply in the economy if non-official virtual currencies are widely used, as these are decentralized. This in turn restricts the regulator’s ability to stabilize the economy. In addition, cross-border transactions with non-official virtual currencies can violate limits on the inflow and outflow of money prescribed under foreign exchange regulations, particularly since transactions using DLTs are irreversible.

A review of the IMC Report and proposed Cryptocurrency Bill indicates inadequate foresight regarding actual enforcement of the proposed ban, which may drive businesses engaged in such crypto-assets underground, thereby making it even harder for enforcement agencies to track their activities. The Report itself takes note that despite a regulatory crackdown and firewalls set up in China banning cryptocurrency exchanges, trading in cryptocurrencies continues in China with many traders resorting to using virtual private networks to sidestep the regulatory ban and trade on overseas platforms.

The Report’s suggested ban is based on the observation that cryptocurrencies cannot be used as legal tender. However, it fails to consider other possible uses of cryptocurrencies for India, including but not limited to, tokens that represent an investment similar to traditional securities or other types of investment.

Notably, the IMC Report was published a month after the G20 Osaka Summit 2019 wherein the G20 leaders jointly re-affirmed that crypto-assets do not pose a threat to global financial stability and acknowledged that instead there is a pressing need for standard-setting bodies to monitor the developments and remain vigilant to the emerging risks. Considering that the cryptocurrency industry and the underlying technology on which it is based is still evolving, what is important from a policy perspective is to assess different approaches that may be considered to regulate such currencies to leverage the market potential of such cryptocurrencies, while at the same time keeping in mind the consumer interest and financial stability at a macro level. Towards this, the following sections of this paper seek to dive deeper into the regulatory measures undertaken by different countries across the global landscape to improve the monitoring and accountability framework without adopting an outright ban on virtual currencies.

10. How are other countries dealing with challenges that arise due to cryptocurrency?

Since their inception, cryptocurrencies have been the center of attraction, both in the negative and positive light. A discussion about the same has been prevalent and already touched upon in the study. While torchbearers of orthodox financial institutions profess their inherent issues around decentralization, the proponents of new-age technology have had an optimistic stance around the revolution that cryptocurrency has the potential to bring about in almost every field of life. While every technology or every novel idea per se has its fair share of criticism and skepticism, let’s go over a few practical issues which can be solved through cryptocurrencies, speaking highly of the advantages of the technology.

  1. For countries whose economies have borne the brunt of inflation above the nominal value of 5-7% (we are talking about multimillion percentages. Eg- Zimbabwe, Venezuela, Argentina), such distributed technology would help in avoiding traditional dependence on fiat currency.

  2. Countries that have officially accepted foreign currencies as their own (El Salvador is the most recent and prime example, having accepted bitcoin as legal tender) would be less affected and hence less wary of the policy changes in the currency’s home country.

  3. Countries that have a busy import-export business needing a frequent cross-border dues clearance would be served better in cryptocurrency as they would be able to do away with the charges associated with each transaction.

  4. The fact that there can be only so many bitcoins in circulation makes it an investment asset worth a fortune and substantiates popular comparisons that crypto is to virtual what Gold is to real.

  5. Added to these are the various technical aspects of blockchain, the blueprint for cryptocurrency, which add all the more to the needs and benefits of the adoption of cryptocurrencies.

Based on the research done, we have selected the following countries from a rich pool which will help us understand the scenario for countries that have accepted cryptocurrency.

*Internet Penetration – We understand that the basic infrastructure required for any activity related to cryptocurrency trading or mining requires internet access to the citizens of the country. Hence, we have considered internet penetration to be a relevant rationale for the selection of the countries for the case study. Internet penetration % has been computed as the % of the population that has access to the internet from the entire population

* WEF scoring – The scores have been taken from the global competitiveness report 2020, of the world economic forum. The scores represent the performance of countries on economic transformation policy to upgrade infrastructure to accelerate the energy transition and broaden access to electricity and ICT (Information Communication Technology).

11. The Advantages of Cryptocurrency

For the countries that have accepted cryptocurrency in some way, this matrix enlists the advantages cited by the government or the regulatory bodies.

From the matrix above, it can be comfortably inferred that the countries counted in the effect of cryptocurrency on the FinTech space and the improved speed of transactions through such platforms as a great positive for weighing their decision on the acceptance of the technology.

The following section gives key insights about the three groups of study and the cases of the six countries which form a part of these three groups.

1. Countries with Substantial Regulations

This group includes the countries with complete or substantial laws and statutes in place to regulate cryptocurrency in the field of taxation, legal tender, securities trading, anti-money laundering, business licensing, and exchange incorporations. The bucket consists of the United Kingdom, Singapore, Indonesia, Australia, Finland, Germany, Netherlands, Japan, Switzerland, and more such countries.

Singapore, for example, has continued to look at bitcoin as a technology of the future, attempting to leverage it with a pragmatic view of regulations and laws. Having installed Bitcoin ATMs, the island nation has tried taking massive strides towards the naturalization of cryptocurrencies in the economy. Prevention of anti-social financing has been taken care of through due diligence and strict reporting requirements. Besides, an Omnibus Act (July 2020) has been realized which would scrutinize the conduct of crypto businesses.

We also have Australia, which in its efforts to become a haven for blockchain developers, has brought in the ‘National Blockchain Roadmap’ in 2020 to incorporate the role of researchers and strategists at being better equipped about the technology. Regulations around the registration of exchanges and anti-money laundering help at keeping terror financing at bay and safeguards the citizens’ interests. Besides, there are numerous laws and extensions to the traditional regulations aiming at taxation, securities, etc.

2. Countries with Partial Regulations

This group consists of those countries around the globe that have maintained partial or moderate regulations for cryptocurrency, with regulations that curb/challenge the use of cryptocurrency only to certain industries or sectors. Besides, this bucket also includes those countries which are on their way to pass resolutions or laws which would eventually limit/regulate the use and legality around cryptocurrencies, indicating a positive approach. The countries in this bucket include Canada, the USA, Brazil, Nigeria, France, Argentina, and South Africa.

The Federal government of the USA has had a largely adaptive approach towards cryptocurrency and efforts have been continuously made from an administrative point of view. The state governments have been given a fair amount of autonomy in regulating cryptocurrency in their jurisdiction. To help the citizens make the most out of the technology, the USA has kept no restrictions for inherent crypto processes like mining or cross-border exchange transfers. However, checks have been put up to prevent anonymous transactions with a criminal motive and to maintain a strict legal bound around processes like taxation.

Similarly, Brazil has had a very pragmatic stand in favor of cryptocurrency, putting forward a few needed regulations like taxation on capital gains through crypto trading which ranges from 15% to 22.5%. Apart from that, to curb anti-social activities, a thorough reporting of crypto assets is needed. Laws that aim at defining cryptocurrency as an economic instrument and define the regulations around its possession, transfer, and exchange have been at the center stage for Brazil.

3. Countries with No Regulations

This group consists of those countries which have not set any regulations around cryptocurrency and have maintained a speculative stance in its context. However, these countries have allowed for individual transactions through cryptocurrency as the citizen’s choice. However, these countries too, are of the opinion to embrace cryptocurrency in some shape or form as it is believed to be a technology to stay and radically impact the future. The countries in this bucket include Mauritius, Hungary, Mexico, Belgium, Luxembourg, Spain, Norway, and Cyprus.

Hungary has been wary of blockchain technology but this doesn’t make them averse to the technology. The country has been looking into making concrete regulations for cryptocurrency. Though there are no laws currently, the government has been using taxation as a means to check the circulation of crypto till they come up with new laws/modifications in the existing ones. In this context, various government stakeholders have been collaborating in a workgroup to introduce laws on taxation, reporting, anti-money laundering, etc. and the country is on the path to giving a greater significance to the technology.

Belgium too, though with no concrete laws in place, has been optimistic at exploring the multitude of possibilities that cryptocurrency and the technology of blockchain can open up. With no direct laws yet, the government has been extending the existing laws to the instances of the transaction, for example, Anti-Money Laundering Directive, Payment Service Directive, etc., wherever applicable.

12. Mitigating risks through Regulations

As we have seen before, the countries face various regulatory and technological risks concerning cryptocurrency. The countries which have implemented regulations have attempted to mitigate such risks and find a solution. The below matrix provides an overview of the solutions suggested and recognized by them.

13. Mauritius - Demystifying the pathway for India to follow

The government of Mauritius, during the early years of cryptocurrency, kept the cryptocurrency market largely unregulated, with no direct laws around the legality of crypto mining or transactions. However, the President of Mauritius intended to make Mauritius the hub of blockchain technology, the ‘Ethereum Island’. Thus began the shaping of concrete public, administrative and financial policies dictating every aspect of cryptocurrency. These laws and regulations were framed as a means to attract foreign businesses as well as to promote indigenous technology enthusiasts to explore cryptocurrency and blockchain technology as a whole.

On March 1, 2019, the Mauritian FSC introduced the Financial Services (Custodian Services (Digital Asset)) Rules to regulate the licensing and operations of custodian services. These Rules treat custodians as financial institutions and subject them to the requirements under the money laundering and counter-terrorism laws. The Rules also impose various conditions on custodians to safeguard the interests of people, ranging from capital reserve requirements to infrastructure security for on-site storage of digital assets.

Mauritius also recognized digital assets as a possible asset-class for investment by sophisticated and expert investors, funds, sophisticated and professional collective investment schemes. Though in their early stages, these Rules might go a long way for the country. India, being culturally and geopolitically similar to Mauritius, can aim to have these Rules as its guiding light while venturing into crypto regulations.

14. Recommendations

  1. On 14th May 2021, The committee members of the Blockchain and Crypto Assets Council (BACC), part of the Internet and Mobile Association of India (IAMAI), we’re speaking at a virtual conference on “Evolving Crypto Regulatory Framework - Developments in India and Singapore” on Friday. They suggested that India should follow the Singapore model to regulate cryptocurrency. Singapore had proactively taken measures to prevent nefarious activity without impending technology innovation, which India could learn from.

  2. The Regulatory authorities of the above-mentioned countries have tended to focus not on the central protocol but rather on intermediaries providing services relating to cryptocurrencies. This safeguards the core ideology behind cryptocurrency and blockchain technology and also mitigates the risks posed by this revolutionary technology.

  3. To secure retail investors from risky crypto- derivatives and other crypto-based securities, many countries have established or are in the process of establishing laws to regulate crypto derivative products that are listed and traded only on Approved Exchanges, which are subject to regulatory requirements and supervisory oversight. But they do not extend the regulation of crypto-derivative products beyond Approved Exchanges. As that would confer misplaced confidence in these highly volatile products, and lead to a wider offering of such products to retail investors. These approved exchanges have clear rules governing trade and post-trade activities. Such products could also potentially have a stabilizing influence on crypto token prices as they provide two-way hedging opportunities for investors.

  4. To protect the customers and users of cryptocurrency, the Singapore regulatory authorities have passed a law requiring a service provider to segregate customer assets from its assets. This will augment current powers that allow the authorities to require digital payments token service providers to safeguard customer money from loss in the event of insolvency.

  5. Many countries have launched campaigns and released manuals on how to avoid being cheated or inadvertently used as mules to carry out money laundering activities, thus increasing public awareness.

  6. To mitigate the risk of money laundering and fraud, Singapore has passed a regulation to conduct Oversight on entities based in Singapore conducting crypto business outside of Singapore. This implies that virtual asset service providers will have to ensure that their overseas operations meet the same regulatory standards as their Singapore operations. That way, such service providers will come under the regulatory ambit of the authorities even if the money does not flow through Singapore.

India always has the example of Mauritius to take heart and inspiration from. The spirit of promoting technology is exhibited in the fast-track introduction and implementation of thorough policies encompassing multitudes of sectors- be it administration, defense, finance. With the Financial Services (Custodian Services (Digital Asset)) Rules passed by the Mauritian government, the country has ensured that technology-oriented entrepreneurs thrive comfortably, simultaneously providing clear safeguard to the interests of the citizens.

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Meet The Thought Leaders

Shatakshi Sharma is a public policy advisor, has been a management consultant with BCG and is Co- Founder of Global Governance Initiative with national facilitation of award- Economic Times The Most Promising Women Leader Award, 2021 and Linkedin Top Voice, 2021. Prior to graduate school at ISB, she was Strategic Advisor with the Government of India where she drove good governance initiatives. She was also felicitated with a National Young Achiever Award for Nation Building. She is a part time blogger on her famous series-MBA in 2 minutes.

Naman Shrivastava is the Co-Founder of Global Governance Initiative. He has previously worked as a Strategy Consultant in the Government of India and is working at the United Nations - Office of Internal Oversight Services. Naman is also a recipient of the prestigious Harry Ratliffe Memorial Prize - awarded by the Fletcher Alumni of Color Executive Board. He has been part of speaking engagements at International forums such as the World Economic Forum, UN South-South Cooperation etc. His experience has been at the intersection of Management Consulting, Political Consulting, and Social entrepreneurship

Akshar Madhavaram is a Mentor at GGI and a Program Manager at Central Square Foundation. Previously worked as an Associate at EY Parthenon where he worked on various growth strategies, market entry strategies, and due diligence projects with a key focus on the education sector and in collaboration with various organizations across the globe. He graduated from the Indian Institute of Technology Delhi with a B. Tech degree in Engineering Physics. He is a big-time philosophy nerd, fascinated by philosophers such as Socrates, Arendt, Sartre, and Nietzsche.

Meet The Authors (GGI Fellows)


Anubhav Deep is a 2021 B.Tech (Hons.) graduate from IIT Kharagpur, majoring in Metallurgical and Materials Engineering. He is an avid reader and is currently working as a Product Manager at ICICI Bank. He brings with himself an early and diverse exposure to leadership roles owing to his experience at the institute and has worked at the confluence of Finance, Strategy and Consulting through his stints in the startup space and seasoned firms. He is a passionate Basketball player and has a profound liking for taking the stage as an orator.

Manvi Agarwal is currently an MBA student at IIM Lucknow. She has completed her graduation from Shri ram College of Commerce in Economics. She worked with Arete Advisors as an analyst in the healthcare sector. She holds 2 years of experience in projects like go-to-market, due diligence and business planning. She enjoys reading, cycling and baking for her refreshment.

Naman Gupta is currently working as an Associate at Samagra. He has completed his graduation in Engineering from Manipal University, post which he joined the Young India Fellowship Program at Ashoka University (Batch of 2019). Naman is a part of the board of directors at Gramiksha, an NGO running its education-based initiatives in 6 cities around India. He is also the founder and host of the podcast “Aaj Kal Ke Bachhe” where he is changing the perspectives around generation Z. Previously, he has worked in startups and MNCs in various capacities.

Pujitha is an incoming MALD student at The Fletcher School. She has previously worked as an M&A lawyer at Khaitan & Co. and Trilegal respectively, and has over three years of experience in advising foreign clients re their investments in an array of sectors in India ranging from e-commerce to fintech and payments. In her free time, she enjoys drawing, exploring new music and yoga.

Dhruv Goyal is currently working as a consultant in Ernst & Young in Mergers and Acquisitions with over 4 years of due diligence experience. He has been involved in marquee deals across industries such as pharmaceutical, agriculture, ed-Tech, manpower and financial services. He is a Chartered Accountant and a commerce graduate from H.R. College of commerce and economics. He is a graphic designer, a football enthusiast and a cinephile

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14. ANNEXURE 1- Gold vs Fiat Currency vs Cryptocurrency

14.1. Environmental Impact:

  • Gold mining alone generated 81000 kg of CO2 in 2018. Recycling is another important part of the process which emits CO2 in the process. In all, the environmental footprint of using gold as a currency doesn’t portray a sustainable picture at all.

  • Triggered by the proof of work concept, Bitcoin alone generates 64180 kg of CO2 annually which is comparable to Serbia and Montenegro. Every transaction on average produces 873 kg of CO2, equivalent to ~19 lakh VISA transactions and 1.5 lakh hours of watching Youtube.

  • In comparison to the other two types of currency, this figure might seem optimistic however it is misleading for 2 reasons:

1. It is unsustainable in the long run due to reliance on fossil fuels

2. The numbers might depict a scale effect, given that the volume of transactions taking place in bitcoin compared to those in fiat/gold is way lesser due to recency.

Note: The CO2 emissions of bitcoin have been shown as a proxy to cryptocurrency due to the availability of reliable data sources. Also, bitcoin makes up to 44% of the total market cap of cryptos, hence can be considered as a suitable one.

14.2. Security

  • Gold has been involved in theft and institutional frauds over the years.

  • Fiat currency is highly vulnerable when it comes to theft, transactional and institutional fraud as history suggests

  • Anonymity and a complex IT system, make it relatively difficult to indulge crypto in any fraudulent activities

14.3. Durability

  • Since gold is a highly inactive metal, the rate of deterioration of assets in the form of gold is really low

  • Fiat money exists in the form of paper currencies which can easily be torn, burned, or otherwise rendered unusable

  • Since cryptocurrencies exist only in a digital format, they are not susceptible to physical wear and tear

14.4. Divisibility

  • Since gold is a physical asset it cannot be divided further after a certain limit.

  • Since Fiat money is issued and controlled by a central authority, it is not divisible post the lowest unit of denomination

  • Due to their digital nature, cryptocurrencies like bitcoin are divisible up to 8 decimal points

14.5. Ease of Transaction

  • Driven by low divisibility, the acceptance of gold as a payment alternative is low

  • Can be easily used to make purchases as it is defined as legal tender, no individual can refuse to accept it as a means of payment.

  • Payment in crypto is analogous to digital payment systems. More than 18000 businesses worldwide now accept payment in crypto.

14.6. Centralization of the currency

  • Gold is a centrally issued store of value. Mining permits have to be collected from the government

  • Fiat money, also the legal tender is issued by the Reserve Bank of India

  • Cryptocurrency mining/trading doesn’t require a due permit from any authority

14.7. Risks associated with the currency

  • Due to gold’s centralized nature, the price fluctuations can happen only up to a certain extent

  • Due to fiat’s centralized nature, the price fluctuations can happen only up to a certain extent. In case of dire situations, the central bank intervenes to moderate the fluctuations

  • Driven by its decentralized nature, fluctuations in crypto’s value are completely dependent on market forces. It also runs the risk of large private companies manipulating the market forces, hence leading to higher volatility

Source: ResearchGate


15.1. Group 1

We have selected Singapore and Australia for our case study after considering the internet penetration, WEF scores, and overall development of the country.

15.1.1. Singapore

The statement was given by Singapore's Deputy Prime Minister Tharman Shanmugaratnam in an interview, most accurately sums up Singapore's attitude towards cryptocurrencies: "We will continue to encourage experiments in the blockchain space that may involve the use of cryptocurrencies. Some of these innovations could turn out to be economically or socially useful. But equally, we will stay alert to new risks."

Payment – Cryptocurrencies are yet not accepted as legal tender in the country. Being classed as property, Bitcoin and other cryptocurrencies can be legally bought in Singapore from Bitcoin ATMs (there are currently 8 Bitcoin ATMs), exchanges, and some banks (DBS)

Taxation – The Inland Revenue Authority of Singapore (IRAS) is responsible for the tax collection of the country. No tax is payable on the income from trading cryptocurrencies since there is no concept of capital gains tax in the entire country. No GST is applicable on the transfer of all cryptocurrencies except ‘stable coins’ such as USDT (that is denominated in any fiat currency or with a value pegged). Profits coming from operations that mine/trade virtual assets in exchange for money are subject to Income-tax (Approx 17% on net profits).

Licensing - In January 2020, the Payment Services Act (PSA) came into effect to regulate cryptocurrency payments and exchanges. The PSA uses the term "digital payments token" to refer to virtual currencies. Any person carrying out a digital payment token service has to obtain a payment institution license unless exemptions apply. A standard payment institution license applies to companies with payment transactions up to $3million per month and a major payment institution license has to be obtained by companies with payment transactions that exceed $3million per month.

Exchange Registration - Only an approved exchange (Approval under Securities and Future Act) or a recognized market operator can establish or operate. These approved exchanges are subject to regulatory requirements and supervisory oversight.

Securities – Trading cryptocurrencies on approved exchanges are legal. To curb the risk of crypto-derivative products, MAS (Monetary Authority of Singapore) regulates only those products which are listed and traded on Approved Exchanges. They do not extend the regulation beyond the approved exchanges as it will confer misplaced confidence in these highly volatile products and lead to a wider offering of such products to retail investors. In May 2020, MAS released a new Guide to Digital Token Offerings, it requires compliance with all the requirements under the SFA including preparation of a prospectus following the SFA and registration of the offer (Initial Coin Offerings) with MAS.

Anti-money laundering – To curb financing of terrorism and money laundering MAS has released a separate notice stating that the DPT service providers are required to follow certain measures such as -customer due diligence, monitoring of customers' transactions for signs of money laundering and terrorism financing, screening of customers against relevant international sanctions list by the United Nations, maintain detailed records of customers activities and out in place a process to report suspicious transactions to MAS. The Code of Practice released by the Association Cryptocurrency Enterprises and Start-ups Singapore (ACCESS) also seeks to help crypto businesses put in place robust AML/CFT measures.

Others – In July 2020, MAS Proposed an Omnibus Act, the new proposed legislation will allow MAS to issue prohibitory orders against crypto businesses in case of misconduct.


Payment - Cryptocurrencies, digital currencies, and cryptocurrency exchanges are legal in Australia. Cryptocurrencies are yet not used as legal tender and are treated as property.

Taxation – Cryptocurrencies are treated as property and hence capital gains tax is applicable on transactions by individuals. If the transaction is part of a business, the profits made on disposal will be assessable as ordinary income and not as a capital gain. A capital gains tax (CGT) event occurs when you dispose of your cryptocurrency. The disposal can occur when on-sell or gift cryptocurrency, trade or exchange cryptocurrency, convert cryptocurrency to fiat currency, or use cryptocurrency to obtain goods or services. GST double taxation.

Exchange Regulation - In 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) announced the implementation of more robust cryptocurrency exchange regulations. Those crypto regulations require digital currency exchanges (DCE) operating in Australia to register with AUSTRAC. A registration helps gain the consumer’s confidence and protect the country from adverse manipulation to benefit crime. Registered entities are required to implement a process to identify and verify their customers. They will also have to monitor and report suspicious activities taking place on their platform.

Securities - The Corporations Act, Australia's main securities legislation, operates on a technology-neutral basis and has not been changed to specifically accommodate (or prohibit) virtual currencies. Instead of establishing a clear regulatory perimeter for virtual currencies, The Australian Securities and Investments Commission (ASIC) has guided how existing securities legislation could apply to crypto-assets. The provisions of the securities legislation shall apply to the asset and its handlers if they are classified as ‘Financial Product’. ASIC has provided certain parameters based on which the classification can be made. Where a virtual currency is a financial product, any platform enabling consumers to buy or sell the virtual currency may constitute a financial market, and the entities that offer them must hold Australian Financial Services (ASF License ).

Anti-money Laundering - All DCE providers with a business operation located in Australia must register with AUSTRAC and meet AML/CTF compliance and reporting obligations. The regulations help DCE providers implement systems and controls that can minimize the risk of criminals using them for money laundering, terrorism financing, and serious financial crime, including cybercrime. Australia was among the first countries in the world to introduce AML/CTF regulation for DCEs.

Others – The Australian government has released a ‘National Blockchain Roadmap’ in 2020 which sets out a strategy for governments, industry, and researchers to capitalize on opportunities and address challenges. It also proposes signposts towards a blockchain-inspired future.

15.2. Group 2

We have selected the USA and Brazil for our case study after considering the internet penetration, WEF infrastructure index, and overall development of the country.

15.2.1. United States of America

The USA has had its states have their independent say on the regulations around bitcoins for their particular areas. However, the Federal government has a welcoming approach to the use of cryptocurrency, with a main focus on the administrative implications. Some of the states like Wyoming, recently passed a bill exempting cryptocurrencies from property taxation, becoming the most crypto-friendly jurisdiction in the States. Another state, Colorado, passed a bipartisan bill promoting the use of blockchain for government record-keeping. Two other states have taken steps to legalize Bitcoin as a payment option for taxation purposes. Arizona has pledged to become the first U.S. state to start accepting taxes in cryptocurrency. Simultaneously, some other governments like that of New York have put up stricter regulations while exploring the various grounds on which crypto can prove useful.

Securities - The SEC generally has regulatory authority over the issuance or resale of any token or other digital assets that constitute a security. Under U.S. law, a security includes “an investment contract” which has been defined by the U.S. Supreme Court as an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. It has thus passed the law, classifying digital currencies as securities, subject to Securities Laws. Thus, processes such as an ICO need prior registration with the SEC and the “coins” can be sold only to “accredited investors”.

Sales Regulations - The sale of cryptocurrency is generally only regulated if the sale (i) constitutes the sale of a security under state or federal law, or (ii) is considered money transmission under state law or conduct otherwise making the person a money services business (“MSB”) under Federal law. In addition, futures, options, swaps, and other derivative contracts that refer to the price of Bitcoin or another virtual currency that is considered a commodity, are subject to regulation by the CFTC under the Commodity Exchange Act.

Anti-Money Laundering - Cryptocurrency has been classified as an MSB and is regulated by FinCEN under the Bank Secrecy Act. An MSB is required to conduct a comprehensive risk assessment of its exposure to money laundering and implement an anti-money laundering (“AML”) program based on such risk assessment. FinCEN regulations require MSBs to develop, implement, and maintain a written program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities.

Taxation - Cryptocurrency is to be taxed as a property and not currency, and thus would need detailed bookkeeping of transactions and possessions while filing for taxation. The taxation would be done on the monetary gains. Any realized gains on virtual currency held for more than one year as a capital asset by an individual are subject to capital gains tax rates. Any realized gains on virtual currency held for one year or less as a capital asset by an individual are subject to ordinary income tax rates.

Others - Mining of cryptocurrency has no legal restrictions, Border restrictions do not exist and cross-border transactions can take place, reporting requirements have no laws around them.

15.2.2. Brazil

The official statements of CVM put forward the alignment of Brazil in a crisp manner- “CVM seeks to stimulate entrepreneurship and the introduction of technological innovations in the securities market whenever aligned with investor safety and market integrity.” So, the country has had a welcoming stance simultaneously being cautious of the new technology and looking to mitigate the risks around it.

Sales Regulations - Based on the characteristics of the transaction, cryptocurrencies may be classified as securities as per Brazilian law, though there’s no concrete law for the same. Besides, the Initial Coin Offering (ICO) for any cryptocurrency needs prior registration and approval from the CVM.

Payment - Cryptocurrency is not considered as a legal tender as per Brazilian law but subjects to the agreement between the parties, the use of cryptocurrency for purchase/sale of goods or services has been allowed.

Taxation - The Brazilian Federal authorities consider cryptocurrency as a Financial instrument and hence liable to be taxed. Individuals are obliged to pay income tax on any capital gains obtained with the disposition of cryptocurrencies, provided that the total value of cryptocurrencies disposed of during any given month exceeds BRL 35,000.00. Tax rates vary from 15% to 22.5%.

Reporting Requirements - The Brazilian government directive states that the possession of cryptocurrency has to be reported as “Other Assets” while making the declarations for Income Tax. The specific reporting obligations outlined in Normative Instruction No. 1,888/19 consist of the following:

  1. Legal entities and individuals must report, every month, data concerning any transactions carried out by them whenever the monthly value of such transactions exceeds BRL 30,000.00 (in a single transaction or a series of transactions).

  2. On the other hand, Exchanges must report, also every month, all transactions carried out on their platforms in the relevant month, regardless of their amount.

Others - There are no border restrictions on transactions, no laws against or for mining, no government laws for promoting or testing cryptocurrency (however, one-third of projects which received government nod for technological innovation used blockchain), and no restrictions on ownership. Besides, there are no provisions around the anti-money-laundering programs for the threats associated with cryptocurrency.

Laws En Route - Two laws were on way (as of April 4th, 2019)- the first dictating the issuing, possession, and circulation of cryptocurrencies, especially Bitcoin. The second law aims at defining cryptocurrencies, clarifying that they are not securities, and allowing cryptocurrencies to be freely issued, transferred, and used.

15.3. Group 3

Based on the chosen parameters of selection, Mauritius and Belgium were selected as the representative countries for the case study.

15.3.1. Hungary

The National Bank of Hungary (MNB) has been constantly warning the citizens against the use of cryptocurrency as there are no laws to safeguard their interests from the risks of decentralized technology. However, this doesn’t make them crypto-adverse as the government of Hungary has been in constant deliberation for concrete regulations so as the technology can be embraced in its full capacity.

Although the central bank discourages the indulgence of cryptocurrencies, there have been no concrete regulations against the transactions. Currently, bitcoin is not a legal tender.

The earlier taxation rate of 30.5% on earnings through cryptocurrency, especially bitcoin, was halved in April 2021 to cope with the COVID-19 pandemic. Although this came in the wake of a pandemic, the decision seems to be here to stay as the government’s perception about the revenues through crypto is very bullish.

There are no laws on AML, Sales Regulation, etc. but the government does not prohibit transactions of cryptocurrency. However, to act as a behavioral shield to the risks, even the transactions on crypto platforms are taxable by the government.

Hungary is currently looking into regulating crypto instruments, and the central bank, the tax authority, the finance ministry, and other authorities have set up a joint workgroup to evaluate legal, economic, law enforcement, money laundering, and other aspects of cryptocurrencies to introduce more detailed regulation.

15.3.2. Belgium

The Belgian government has also taken an optimistic outlook for blockchain technology and looks forward to exploring the opportunities around this new technology. However, the NBB and the FSMA of Belgium have been analyzing the risks associated with cryptocurrency and warn their citizens of the volatility of prices resulting in financial losses apart from the non-regulated aspects of the technology.

Depending on the activities being performed using cryptocurrency, they can be classified under the licensing requirements for issuing or transferring, etc. Similarly, the marketing rules, when applied, extend the Anti-Money Laundering Directive, Payment Service Directive, etc to be applied as the case be. However, there are no direct laws.

There is no taxation law in place in Belgium for cryptocurrency as it does not have a place under either a financial instrument or a property. However, a tax rate of 33% is applicable if there is evidence of speculative transactions for monetary gains. Such cases of capital gain need to report the same as a professional income or miscellaneous income for taxation.

Although investing in cryptocurrencies as such is not prohibited by the AML Belgian Act, transactions in cryptocurrencies whereby funds are paid from or on the bank accounts of the investors fall under the abovementioned scrutiny and any unusual activities need to be further investigated by the bank.

There are no regulations around crypto mining, no border restrictions, and no obligations of reporting requirements.

15.3.3. Mauritius

The government of Mauritius has a positive outlook towards cryptocurrency and blockchain technology in general, evident from the President’s announcement of his intention of starting the Mauritius Blockchain Center of Excellence (the MBCE) by January 2018, though it’s still a work in progress. However, the Bank of Mauritius, the central bank of the country, has maintained a speculative stance warning the citizens to explore cryptocurrency with caution.

Till 2019 there weren’t any laws currently for providing safeguards for cryptocurrency and blockchain users, addressing the associated issues of hiding assets, taxation, and anti-money laundering.

With the Regulatory Sandbox Licensing Scheme, the government wanted innovators to come up with their business ideas from places where there exists some hindrance due to legal framework. This had been done to attract investments in the FinTech space as the country aspires to be known as “Ethereum Island”.

There were no laws or provisions to safeguard the citizens from the risks associated with cryptocurrency but the BoM warned the citizens of the risks.

Come April 2019, and the Mauritius government in its efforts to realize the ambitions of being considered a hub of blockchain technology passed the Financial Services Rules, 2019.

Governance - The Rules describe clearly that the custodian of such a business should have adequate internal controls and adopt strategies, policies, processes, and procedures following principles of sound corporate governance and risk management.

Disaster Recovery and Business Continuity - In the event of system failure, there should be measures to maintain appropriate disaster recovery facilities, with geographic segregation and equivalent security installations as its primary place of business if such a primary place of business becomes inoperative, ensure business continuity and client asset protection.

Security infrastructure - All digital assets should be properly stored. A secured physical infrastructure, including but not be limited to guarded access to the facilities with restricted admittance to authorized staff only, vault storage with dual key requirements, and an uninterrupted closed-circuit television system has to be made available.

Miscellaneous Rules - There are also rules around reporting requirements, key storage, outsourcing of core functions.

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