Crypto Regulation Challenge: Why Fitting Digital Assets into Traditional Legal Holes Remains a Square Peg Struggle
India’s crypto scene is booming. Indians top the world in crypto use, as per global indexes. Yet, there’s no clear law to guide it. The government warns about ‘stateless’ cryptos but loves blockchain tech. Crypto gains face 30% tax under income tax rules. It’s not banned after a top court ruling. Exchanges must report under money laundering laws. Still, the central bank eyes a possible ban, seeing risks to money control.
India’s Mixed Signals on Crypto
This push-pull creates confusion. Crypto is popular for trading, but lacks rules to protect users. High adoption means big trading volumes on exchanges. People hold Bitcoin as a store of value. But without solid laws, risks grow. This post kicks off a series on
Cryptos started with Bitcoin’s whitepaper by Satoshi Nakamoto. The goal? Cut out banks, use tech for trust. But anonymity opened doors to crime. No rules led to scams, hacks, and fake trades. Let’s break down the dangers.
Why Regulate Crypto? Key Risks Exposed
The case for rules is strong. Crypto’s dark side hurts everyday users. Here’s why oversight is needed:
1. Money Laundering and Scams
Crypto moves fast across borders. Fake names on wallets hide owners. This draws crooks. Early on, Silk Road dark web site used Bitcoin for drugs and illegal sales. US cops shut it down.
In India, scams hit hard. Enforcement teams probe cases like HPZ Token app. It promised mining profits but funneled ₹2,200 crore through fake accounts. Morris Coin ICO was a Ponzi – new money paid old investors. Bitconnect and MLM schemes duped thousands. No rules let fraud grow unchecked.
2. Hacks and Lost Funds
Exchanges store user crypto but lack bank-level safety. Mt. Gox in Japan lost 850,000 Bitcoins in 2014 – a huge crash. Later, Bitfinex, Coincheck, KuCoin faced big thefts.
India saw WazirX hack. Hackers, linked to North Korea, stole crypto worth ₹230 crore. Weak security means users lose savings overnight.
3. Market Tricks and Fake Volume
Traders pump prices with hype, then dump. Wash trading fakes activity – buy and sell to yourself. Bots like ‘Willy Bot’ on Mt. Gox placed fake orders. Studies show 70% of volume on some exchanges is fake. Newbies get burned.
These risks scream for rules. But how? Crypto doesn’t fit old boxes like money, stocks, or goods.
The Problem: Crypto’s Slippery Nature
Crypto acts like many things at once. It’s hard to pin down. Bitcoin is like gold – limited supply, traded on markets, held for value. But it’s digital, not physical, and never ‘used up’.
Some tokens look like stocks. ICOs raise cash with profit promises from teams. But they decentralize later, breaking stock rules that need ongoing company control.
Crypto also mimics money – store value, pay in some apps. Yet, no government backs it. This fluidity confuses lawmakers.
Global Lessons: How Nations Tackle the Puzzle
Countries try different fits. No one-size-fits-all.
USA: Patchwork Approach
US agencies grab what they can. IRS calls crypto ‘property’ for taxes. FinCEN sees it as ‘virtual currency’, making exchanges report like banks. SEC uses Howey Test for ‘securities’ if profit from others’ work. Wins in Terra/LUNA and Ripple cases. CFTC treats Bitcoin/Ether as ‘commodities’ for futures. Same asset gets multiple labels – flexible but messy.
UK: Focus on Use
UK sorts by role. Exchange tokens (Bitcoin) get basic anti-crime rules. Security tokens face full finance laws. Utility tokens for app use skip most. Courts say crypto is ‘property’ – ownable, transferable. Now in law.
Japan and Singapore: Balanced Paths
Japan calls them ‘crypto-assets’ – like property for payments, not legal money. Licenses exchanges. Singapore sees ‘digital payment tokens’. Regulates providers but skips money/stock labels unless needed.
Trend: Many see crypto as ‘property’ first. Easiest fit.
India’s Courts Weigh In
Indian judges struggle too. Supreme Court in Internet Association vs RBI said crypto isn’t just money, so RBI can’t fully ban. Surveyed world views: commodity, payment tool, funds – no single truth. But trading acts like money activity, open to RBI watch.
Madras High Court called it ‘property’ for trusts, but more than that. Case ongoing.
Crypto is a chameleon asset. Rules must match its roles to avoid gaps or overkill.
Path Forward for
India needs a smart framework. License exchanges for safety. Tax clearly. Fight crime via reports. Let innovation grow with safeguards. A dedicated crypto law could blend property rights, finance tools, and tech freedom.
High adoption is a goldmine. Rules can unlock it safely. Watch for RBI moves and new bills. Future posts dive into who regulates, how, and best models.
Stay tuned. Crypto’s
