Updated: Nov 3, 2021

This guest post is authored by Dr. Pralok Gupta (Policy Leader Fellow, School of Transnational Governance, European University Institute, Florence and Associate Professor, Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi) and Mr. Shreyansh Singh (Senior Research Fellow, Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi).


Cryptocurrency serves as a medium of exchange in the form of digital assets with decentralized control designed to facilitate transactions without the need for a central institution.[i] Crypto-currencies have no tangible existence, rather they are electronic signals and records that keep track of transactions mediated with the currency. This decentralized record-keeping is done through ‘blockchain’, which is a universal database of financial records ‘distributed’ across multiple nodes of a computer network (also called distributed ledger) that enables tracking of transactions and accordingly maintain individual crypto-currency balances.[ii] This record-keeping, done through distributed ledgers, prevents the double-spending problem, i.e., it ensures that the same digital asset is not spent more than once.[iii]

Cryptocurrency was developed as a response to the lack of trust in the regulatory authorities and intermediaries responsible for financial stability post the global financial crisis.[iv] This is indicated by the fact that the idea was first suggested by Satoshi Nakamoto (a pseudonym for unknown individual/group of individuals) who left a message in the code of the block with the first 50 bitcoins which read “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.[v] However, motivations to use cryptocurrency are multiple and not necessarily linked with the lack of trust. For instance, few other reasons for the increased usage and popularity of cryptocurrency are reduced transaction costs, relatively anonymous transactions and irreversibility of payments. In this context, it may be noted that cryptocurrencies are also generally associated with speculative transactions, illegal transactions, gambling and cross-border transactions.[vi] This is because they mostly remain beyond the regulatory control of the government or central banks. Additionally, regulatory frameworks may lag in coping with new technologies and thus making them more prone to illegal activities. In fact, it is also suggested that cryptocurrencies have further accelerated ransomware attacks.[vii]

Considering the potential risks of cryptocurrency for individuals and the stability of the banking and the financial environment in a country, various countries like Australia, Japan, UK, etc. have started regulating cryptocurrency transactions, though such regulations are still at the evolving stage. India, like other jurisdictions,[viii] has taken steps to secure the stability of its financial infrastructure and protect the interests of its citizens while the proper regulation of cryptocurrency is still pending.

This article discusses the legal developments pertaining to cryptocurrencies in India over the years including the Supreme Court’s stance on the issue. It also briefly outlines the regulations on cryptocurrency in other jurisdictions, and concluding remarks are provided based on the regulatory developments in India and other countries.


Given the complex nature and utility of the technology, cryptocurrency presently witnesses regulatory overlap between multiple institutions in India. In 2013, the Reserve Bank of India ("RBI") warned the users, holders and traders of cryptocurrency about the associated risks involved.[ix] Subsequently, RBI again cautioned the users and issued its second advisory in 2017.[x] An inter-disciplinary committee was set up in April 2017 to study the impact of cryptocurrencies and come up with recommendations to regulate them.[xi] RBI issued a third advisory in December 2017 reiterating its concerns,[xii] and the Ministry of Finance issued a statement clarifying that virtual currencies ("VCs") are not legal tender.[xiii]

In the 2018-19 Budget speech, the Finance Minister said that the government does not consider cryptocurrency as legal tender or coin, and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.[xiv] However, it was also stated that the government would explore the uses of blockchain, the encrypted data structure on which cryptocurrencies are built.[xv]

Then in April 2018, the RBI issued a circular declaring that the RBI regulated entities (banks, NBFCs, payment system providers, etc.) are barred from dealing and providing services related to cryptocurrency or VCs.[xvi] A writ petition challenging the circular was filed before the Supreme Court, which was clubbed with other related petitions for hearing before a three-judge bench in Internet and Mobile Association of India v. Reserve Bank of India (2018).[xvii] Meanwhile, in 2019, a committee set up by the Ministry of Finance submitted its report recommending a ban on cryptocurrency in India and suggesting the creation of a digital Rupee.[xviii] Amidst the legal uncertainties pertaining to cryptocurrency, the Supreme Court answered three important questions in the context of the legality of cryptocurrency after analysing developments in other jurisdictions, international organisations and domestic legislations, in March 2020. The first question before the Apex Court was whether VCs are ‘money’ or not since the petitioners in the case had argued that VCs were ‘just goods/commodities’ and therefore, the RBI had no authority to regulate the transfer of goods between private entities. To this, the court responded stating that “if an intangible property under certain circumstances can act as money, then RBI can take note of it and deal with it”.

The second question was whether the RBI is within its authority to regulate matters related to virtual currencies. It is to be kept in mind that the RBI circular barred its regulated entities from dealing with and providing services related to VCs. This in effect meant that VCs could not be converted to fiat currency and that the link of VCs with India’s economy was severed. The court clarified that RBI can regulate or prohibit “anything that may pose a threat to or have an impact on the financial system of the country” and therefore, RBI was well within its rights to safeguard “public interest, interests of depositors and interests of the banking policy”.

The third question was whether the said RBI circular was in violation of the constitutional right to carry on trade or profession under Article 19(1)(g). The court held that entities/individuals who buy or sell VCs as a mere hobby and those who engage in trading in VCs cannot claim the protection under Article 19(1)(g) because they could still engage in trading ‘crypto-to-crypto’ pairs or use the VCs to make payments for the purchase of goods or services to those who are accepting payments in VCs within India or abroad. The only businesses that can invoke Article 19(1)(g) are cryptocurrency exchanges that suffered due to the circular.

Nonetheless, the Supreme Court struck down the circular because RBI failed to show ‘proportional damages’ suffered by its regulated entities in dealing with cryptocurrency exchanges and since RBI also failed to explore alternative less stringent measures to remedy the problem.[xix] After this judgement, trading in cryptocurrencies increased in India. Government agencies and the RBI also started exploring alternative ways such as allowing for experiments and adopting a calibrated approach to cryptocurrency regulations.[xx] In February 2021, the central government had revealed its plan to bring a new bill on cryptocurrencies (‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’) in the Parliament’s Budget session.[xxi] The Bill aimed to prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an official digital currency/central bank digital currency ("CBDC"), but could not be introduced as planned. The government intends to take inputs from various stakeholders, and hence, it may take some time before this bill gets introduced in the Parliament.

In March 2021, the Ministry of Corporate Affairs ("MCA") released a notification and made it mandatory for companies to disclose any dealings and/or holdings in cryptocurrency or VCs in their balance sheet.[xxii] Then on May 31, 2021, the RBI released a notification clarifying that the banks and other regulated entities may continue to carry out due diligence processes for transactions in VCs as per guidelines on Know Your Customer ("KYC"), Anti-Money Laundering ("AML"), Combating of Financing of Terrorism ("CFT") and obligations under Prevention of Money Laundering Act, 2002 ("PMLA") and Foreign Exchange Management Act, 1999 ("FEMA").[xxiii]


Responses by the authorities and the regulators in various jurisdictions are largely incoherent. While cryptocurrency remains largely unregulated and governed partially by anti-money laundering instruments in multiple countries of the European Union ("EU"), the European Court of Justice ("ECJ"), in a decision, held that transactions to exchange a bitcoin with currency or with other cryptocurrency and vice versa is supply of services but is exempt from value-added tax ("VAT") in all EU member states.[xxiv]

In Australia, cryptocurrency transactions are taxed and are governed under AML and Counter-Terrorism Financing ("CTF") framework.[xxv] China has launched its own digital currency (Digital Yuan) controlled by its central bank, i.e., the People’s Bank of China and has made all other cryptocurrencies illegal.[xxvi] In Japan and the UK, cryptocurrency exchange businesses are regulated and taxed.[xxvii] South African Reserve Bank has repeatedly warned its citizens of various risks associated with the use of cryptocurrency[xxviii] and the South African Revenue Services has asked the taxpayers to declare cryptocurrency income as part of their taxable income.[xxix]

Therefore, it could be said that there is no universal approach to the regulations of cryptocurrency in other jurisdictions. Most of the countries that have started regulating cryptocurrency have been adopting a calibrated approach to such regulations. With respect to CBDCs, the developments in most jurisdictions are still at an exploratory and experimental stage.[xxx] However, at this juncture, it can be reasonably concluded that a lack of proper regulation renders the future of digital currency volatile, characterized by frequent fluctuations in its values.[xxxi]


In the past few years, the cryptocurrency market has been very bullish. Considering the high returns on cryptocurrency assets, various firms have started investing in these assets. As these investments could affect small investors as well as the financial stability of the country at large, it is pertinent that the regulatory framework for cryptocurrency should be put in place at the earliest. The MCA notification to disclose any dealings in cryptocurrency or VCs in their balance sheet is a welcome step in this direction. However, the future of virtual currencies is still uncertain in India pending the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

The Finance Minister recently stated that India’s crypto bill is ready and the government has taken inputs from industry stakeholders to prepare the document. It is to be seen when the Cabinet can take it up and consider it so that the government can move it.[xxxii] It is expected that once this Bill becomes an Act, the private digital currencies will be banned in India and there will be an Indian official digital currency backed by the RBI. Till then, crypto investors will continue to face uncertainty while dealing with cryptocurrencies, which will eventually lead to high volatility in cryptocurrency trading.

Endnotes: [i] Antony Lewis, The Basics of Bitcoins and Blockchains: An introduction to Cryptocurrencies and the Technology that powers them 14-28, (Mango publishing 2018). [ii] Aaron Kumar & Christie Smith, Cryptocurrencies-An introduction to not-so-funny moneys, Reserve Bank of New Zealand Analytical Note Series, 2017, https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Analytical%20notes/2017/an2017-07.pdf. [iii] Harrison Dent, International Trade Law Concerns With China’s Digital Currency: How Sovereign- Issued Stablecoin Can Destabilize International Trade, 51 Georgetown Journal of International Law 922 (2020). [iv] Shaikh Zoaib Saleem, The 2008 meltdown and the birth of Bitcoin, Mint, (Sep. 13, 2018), https://www.livemint.com/Money/YTYMYUD7dytGK5PGSpdRTN/The-2008-global-meltdown-and-the-birth-of-Bitcoin.html; Cryptocurrency a Response to Financial Crisis, Says CEO, The Wall Street Journal, (Jun. 14, 2016), https://www.wsj.com/video/cryptocurrency-a-response-to-financial-crisis-says-ceo/D28A8012-413F-447E-AA5A-F1911BA64FC3.html. [v] Benjamin Sherry, What is the Genesis Block in Bitcoin Terms?, Investopedia, (Apr. 6, 2021), https://www.investopedia.com/news/what-genesis-block-bitcoin-terms/. [vi] Aaron Kumar & Christie Smith, Cryptocurrencies-An introduction to not-so-funny moneys, Reserve Bank of New Zealand Analytical Note Series, 2017, https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Analytical%20notes/2017/an2017-07.pdf. [vii] Andrea Tinianow, Bitcoin Demand Drives $1.4 Billion Ransomware Industry In The U.S., Forbes, (Jul. 1, 2020), https://www.forbes.com/sites/andreatinianow/2020/07/01/bitcoin-demand-drives-14-billion-ransomware-industry-in-the-us/?sh=650c820232d8. [viii] See generally the regulations around the world Library of Congress, Regulation of Cryptocurrency Around the World, https://www.loc.gov/law/help/cryptocurrency/world-survey.php. [ix] Press release 2013-2014/1261, RBI cautions users of Virtual Currencies against Risks, Reserve Bank of India, (Dec. 24, 2013), available at https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247. [x] Press release 2016-2017/2054, RBI cautions users of Virtual Currencies, Reserve Bank of India, (Feb. 01, 2017), available at https://rbi.org.in/SCRIPTS/BS_PressReleaseDisplay.aspx?prid=39435. [xi] Government constitutes an Inter- Disciplinary Committee chaired by Special Secretary (Economic Affairs) to examine the existing framework with regard to Virtual Currencies, Press Information Bureau, (Apr. 12, 2017), available at https://pib.gov.in/newsite/printrelease.aspx?relid=160923. [xii] Press release 2017-2018/1530, Reserve Bank cautions regarding risk of virtual currencies including Bitcoins, Reserve Bank of India, (Dec. 5, 2017), available at https://www.rbi.org.in/commonman/English/Scripts/PressReleases.aspx?Id=2474. [xiii] Government Cautions People Against Risks in Investing in Virtual Currencies, Press Information Bureau, (Dec. 29, 2017), available at https://pib.gov.in/newsite/PrintRelease.aspx?relid=174985. [xiv] ¶ 112, Budget 2018-2019 Speech of Arun Jaitley Minister of Finance, Govt. of India (Feb. 1, 2018), https://www.indiabudget.gov.in/budget2018-2019/ub2018-19/bs/bs.pdf. [xv] Arup Roychoudhury, Panel on cryptocurrency expected to submit report within the next two months, Feb. 12, 2018, Business Standard, https://www.business-standard.com/article/economy-policy/panel-on-cryptocurreny-expected-to-submit-report-within-the-next-two-months-118021200023_1.html. [xvi] Press Release RBI/2017-18/154, Prohibition on dealing in Virtual Currencies (VCs), Reserve Bank of India, (Apr. 6, 2018), available at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243. [xvii] Internet and Mobile Association of India v. Reserve Bank of India, Writ Petition (Civil) No. 528 of 2018. [xviii] Report of the Committee to propose specific actions to be taken in relation to Virtual Currencies, (Feb. 28, 2019), https://dea.gov.in/sites/default/files/Approved%20and%20Signed%20Report%20and%20Bill%20of%20IMC%20on%20VCs%2028%20Feb%202019.pdf. [xix] Ibid. [xx] Sandeep Soni, Crypto startups heave sigh of relief for now with govt’s ‘calibrated’ approach towards cryptocurrencies, (Mar. 08, 2021), Financial Express, https://www.financialexpress.com/industry/sme/cryptocurrency-and-regulation-of-official-digital-currency-bill-bitcoin-price-in-india-nirmala-sitharaman/2208678/. [xxi] What is Cryptocurrency Bill 2021; how it will impact bitcoin investors, (Feb. 14, 2021), Business Today, https://www.businesstoday.in/latest/economy-politics/story/what-is-cryptocurrency-bill-2021-how-it-will-impact-bitcoin-investors-287533-2021-02-14. [xxii] Ministry of Corporate Affairs, Notification Dated March 24, 2021, available at https://www.mca.gov.in/Ministry/pdf/AccountsAmendmentRules_24032021.pdf. [xxiii], Press Release (VC), RBI/2021-22/45, Customer Due Diligence for transactions in Virtual Currencies, Reserve Bank of India, (May 31, 2021), available at https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12103&Mode=0. [xxiv] Case C-264/14, Skatteverket v. David Hedqvist, ECLI:EU:C:2015:718. [xxv] Michael Bacina, Tom Skevington, Will Fennel, First-step analysis: cryptoasset trading in Australia, Lexology, Dec. 15, 2020, https://www.lexology.com/library/detail.aspx?g=1b3f8da3-b659-4a12-80a9-f68f93f5ff5c; Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, Parliament of Australia, https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5952 (last visited Mar. 26, 2018), archived at https://perma.cc/3LS8-TZ5L; Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (Cth) sch 1 pt 2, https://www.legislation.gov.au/Details/C2017A00130, archived at https://perma.cc/892P-DQ5W; Rohan Pearce, Government Cracks Down on Bitcoin Money Laundering, Computerworld (Aug. 17, 2017), https://www.computerworld.com.au/article/626134/government-cracks-down-bitcoin-money-laundering/, archived at https://perma.cc/PW5D-U3SD. [xxvi] James T. Areddy, China creates its own digital currency, a first for major economy, The Wall Street Journal, Apr. 5, 2021, https://www.wsj.com/articles/china-creates-its-own-digital-currency-a-first-move-for-major-economy-11617634118. [xxvii] Library of Congress, Regulation of Cryptocurrency Around the World, https://www.loc.gov/law/help/cryptocurrency/world-survey.php. [xxviii] SARB, Position Paper on Virtual Currencies, Dec. 3, 2014, https://www.golegal.co.za/wp-content/uploads/ 2018/01/Virtual-Currencies-Position-Paper-Final_02of2014.pdf. [xxix] Press Release, South Africa Revenue Services, SARS’S Stance on the Tax Treatment of Cryptocurrencies, Apr. 6, 2018, http://www.sars.gov.za/Media/MediaReleases/Pages/6-April-2018---SARS-stance-on-the-tax-treatment-of-cryptocurrencies-.aspx. [xxx] Shehnaz Ahmed, Krittika Chavaly, A Central Bank Digital Currency for India: Proceeding with Cautious Optimism, Vidhi Centre for Legal Policy and Research, Working Paper, Mar. 31, 2021. [xxxi]For instance Anulekha Ray, Bitcoin Price Today Rises Above $40,000, First Time Since Mid-June. Elon Musk Effect?, News18, Jul. 28, 2021, https://www.news18.com/news/business/bitcoin-price-today-rises-above-40000-first-time-since-mid-june-elon-musk-effect-4016312.html. [xxxii]India's new crypto regulations are ready for the monsoon session of parliament, says the country's Finance Minister, Business Insider, Jul. 6, 2021, https://www.businessinsider.in/cryptocurrency/news/indias-new-crypto-regulations-are-ready-for-the-monsoon-session-of-parliament-according-to sitharaman/articleshow/84168068.cms.