UNIVERSITY INSTITUTE OF LEGAL STUDIES,

PU, CHD.

INFORMATION TECHNOLOGY
PROJECT ON
BLOCKCHAIN AND CRYPTOCURRENCY

Submitted To:
Submitted by:
Dr. Amita Verma
Harry Punyani

B.com LLB Sem. X

Section C | 250/15

1
 ACKNOWLEDGEMENT

I take this opportunity to thank everyone who helped me out in completing this project work
directly or indirectly. I show a special token of gratitude towards our teacher Dr. Amita Verma
our IT LAW teacher, without whose guidance and support, it would have been pretty difficult to
complete this project. At the end I would also like to thank my parents for their endless support and
true guidance.

I acknowledge that without their help this project would not have been seen this day.

Harry Punyani

2
 TABLE OF CONTENTS
1. Introduction Pg 4-5

1. Blockchain and Cryptocurrency Pg 5-10

2. Cryptocurrency - Indian prospective Pg 10-16

4. Webliography Pg 17

3
 INTRODUCTION TO BLOCKCHAIN
The blockchain is a simple yet ingenious way of passing information from A to B in a fully
automated and safe manner. One party to a transaction initiates the process by creating a
block. This block is verified by thousands, perhaps millions of computers distributed around
the net. The verified block is added to a chain, which is stored across the net, creating not
just a unique record, but a unique record with a unique history. Falsifying a single record
would mean falsifying the entire chain in millions of instances. That is virtually impossible.
Bitcoin uses this model for monetary transactions, but it can be deployed in many other
ways.
Think of a railway company. We buy tickets on an app or the web. The credit card company
takes a cut for processing the transaction. Blockchains, not only can the railway operator
save on credit card processing fees, it can move the entire ticketing process to the
blockchain. The two parties in the transaction are the railway company and the passenger.
The ticket is a block, which will be added to a ticket blockchain. Just as a monetary
transaction on the blockchain is a unique, independently verifiable and unfalsifiable record
(like Bitcoin), so can your ticket be. Incidentally, the final ticket blockchain is also a record
of all transactions for, say, a certain train route, or even the entire train network, comprising
every ticket ever sold, every journey ever taken1.

But the key here is this it’s free. Not only can the blockchain transfer and store money, but it
can also replace all processes and business models that rely on charging a small fee for a
transaction. Or any other transaction between two parties.

Blockchain may make selling recorded music profitable again for artists by cutting out
music companies and distributors like Apple or Spotify. The music you buy could even be
encoded in the blockchain itself, making it a cloud archive for any song purchased. Because
the amounts charged can be so small, subscription and streaming services will become
irrelevant.
It goes further. Ebooks could be fitted with blockchain code. Instead of Amazon taking a
cut, and the credit card company earning money on the sale, the books would circulate in
encoded form and a successful blockchain transaction would transfer money to the author
and unlock the book. Transfer ALL the money to the author, not just meager royalties. You
could do this on a book review website like Goodreads, or on your own website. The
marketplace Amazon is then unnecessary. Successful iterations could even include reviews
and other third-party information about the book2.

In the financial world the applications are more obvious and the revolutionary changes more
imminent. Blockchains will change the way stock exchanges work, loans are bundled, and
insurances contracted. They will eliminate bank accounts and practically all services offered
by banks. Almost every financial institution will go bankrupt or be forced to change
fundamentally, once the advantages of a safe ledger technology without transaction fees are
widely understood and implemented. After all, the financial system is built on taking a small
cut of your money for the privilege of facilitating a transaction. Bankers will become mere

1 www.blokgreeks.com
2 https://www.globallegalinsights.com/blockchain-laws-and-regulations/india
4
advisers, not gatekeepers of money. Stockbrokers will no longer be able to earn
commissions and the buy/sell spread will disappear.

BLOCKCHAIN AND CRYPTOCURRENCY

The peer-to-peer network structure in cryptocurrency is structured according to the

consensus mechanism that they are utilizing. For cryptocurrency like Bitcoin and Ethereum
which uses a normal proof-of-work consensus mechanism (Ethereum will eventually move
on to Proof of Stake), all the nodes have the same privilege. The idea is to create an
egalitarian network. The nodes are not given any special privileges, however, their functions
and degree of participation may differ. There is no centralized server/entity, nor is there any
hierarchy. It is a flat topology.
These decentralized cryptocurrencies are structured like that is because of a simple reason,
to stay true to their philosophy. The idea is to have a currency system, where everyone is
treated as an equal and there is no governing body, which can determine the value of the
currency based on a whim. This is true for both bitcoin and Ethereum.Now, if there is no
central system, how would everyone in the system get to know that a certain transaction has
happened? The network follows the gossip protocol. Think of how gossip spreads.
EXAMPLE -Suppose Alice sent 3 ETH to Bob. The nodes nearest to her will get to know of
this, and then they will tell the nodes closest to them, and then they will tell their neighbors,
and this will keep on spreading out until everyone knows. Nodes are basically your nosy,
annoying relatives3.

 Who Will Use The Blockchain?

As a web infrastructure, you don’t need to know about the blockchain for it to be useful in
your life.
Currently, finance offers the strongest use cases for the technology. International
remittances, for instance. The World Bank estimates that over $430 billion US in money
transfers were sent in 2015. And at the moment there is a high demand for blockchain
developers.
The blockchain potentially cuts out the middleman for these types of transactions. Personal
computing became accessible to the general public with the invention of the Graphical User
Interface (GUI), which took the form of a “desktop”. Similarly, the most common GUI
devised for the blockchain are the so-called “wallet” applications, which people use to buy
things with Bitcoin, and store it along with other cryptocurrencies.
Transactions online are closely connected to the processes of identity verification. It is easy
to imagine that wallet apps will transform in the coming years to include other types of
identity management.
What is Blockchain good for
The blockchain network gives internet users the ability to create value and authenticates
digital information. What new business applications will result from this

1. Smart contracts
Distributed ledger technology enable the coding of simple contracts that will execute when
specified conditions are met. Ethereum is an open-source blockchain project that was built

3 supra note1
5
specifically to realize this possibility. Still, in its early stages, Ethereum has the potential to
leverage the usefulness of blockchains on a truly world-changing scale.
At the technology’s current level of development, smart contracts can be programmed to
perform simple functions. For instance, a derivative could be paid out when a financial
instrument meets a certain benchmark, with the use of blockchain technology and Bitcoin
enabling the payout to be automated.

2. The sharing economy

With companies like Uber and Airbnb flourishing, the sharing economy is already a proven
success. Currently, however, users who want to hail a ride-sharing service have to rely on an
intermediary like Uber. By enabling peer-to-peer payments, the blockchain opens the door
to direct interaction between parties — a truly decentralized sharing economy results.

3. Crowdfunding
Crowdfunding initiatives like Kickstarter and Gofundme are doing the advance work for the
emerging peer-to-peer economy. The popularity of these sites suggests people want to have
a direct say in product development. Blockchains take this interest to the next level,
potentially creating crowd-sourced venture capital funds.

4. Governance
By making the results fully transparent and publicly accessible, distributed database
technology could bring full transparency to elections or any other kind of poll taking.
Ethereum-based smart contracts help to automate the process.
The app, Boardroom, enables organizational decision-making to happen on the blockchain.
In practice, this means company governance becomes fully transparent and verifiable when
managing digital assets, equity or information.

5. Supply chain auditing

Consumers increasingly want to know that the ethical claims companies make about their
products are real. Distributed ledgers provide an easy way to certify that the backstories of
the things we buy are genuine. Transparency comes with blockchain-based timestamping of
a date and location — on ethical diamonds, for instance — that corresponds to a product
number.

6. File storage
Decentralizing file storage on the internet brings clear benefits. Distributing data throughout
the network protects files from getting hacked or lost.
InterPlanetary File System (IPFS) makes it easy to conceptualize how a distributed web
might operate. Similar to the way a BitTorrent moves data around the internet, IPFS gets rid
of the need for centralized client-server relationships (i.e., the current web). An internet
made up of completely decentralized websites has the potential to speed up file transfer and
streaming times. Such an improvement is not only convenient. It’s a necessary upgrade to
the web’s currently overloaded content-delivery systems.

7. Prediction markets

6
The crowdsourcing of predictions on event probability is proven to have a high degree of
accuracy. Averaging opinions cancels out the unexamined biases that distort judgment.
Prediction markets that payout according to event outcomes are already active. Blockchains
are a “wisdom of the crowd” technology that will no doubt find other applications in the
years to come.
The prediction market application Augur makes share offerings on the outcome of real-
world events. Participants can earn money by buying into the correct prediction. The more
shares purchased in the correct outcome, the higher the payout will be. With a small
commitment of funds (less than a dollar), anyone can ask a question, create a market based
on a predicted outcome, and collect half of all transaction fees the market generates.

8. Protection of intellectual property

As is well known, digital information can be infinitely reproduced — and distributed widely
thanks to the internet. This has given web users globally a goldmine of free content.
However, copyright holders have not been so lucky, losing control over their intellectual
property and suffering financially as a consequence. Smart contracts can protect copyright
and automate the sale of creative works online, eliminating the risk of file copying and
redistribution4.
Mycelia uses the blockchain to create a peer-to-peer music distribution system. Founded by
the UK singer-songwriter Imogen Heap, Mycelia enables musicians to sell songs directly to
audiences, as well as license samples to producers and divvy up royalties to songwriters and
musicians — all of these functions being automated by smart contracts. The capacity of
blockchains to issue payments in fractional cryptocurrency amounts (micropayments)
suggests this use case for the blockchain has a strong chance of success.

9. Internet of Things (IoT)

What is the IoT? The network-controlled management of certain types of electronic devices
— for instance, the monitoring of air temperature in a storage facility. Smart contracts make
the automation of remote systems management possible. A combination of software,
sensors, and the network facilitates an exchange of data between objects and mechanisms.
The result increases system efficiency and improves cost monitoring.
The biggest players in manufacturing, tech, and telecommunications are all vying for IoT
dominance. Think Samsung, IBM, and AT&T. A natural extension of existing infrastructure
controlled by incumbents, IoT applications will run the gamut from predictive maintenance
of mechanical parts to data analytics, and mass-scale automated systems management.

10. Neighbourhood Microgrids

Blockchain technologies enables the buying and selling of the renewable energy generated
by neighborhood microgrids. When solar panels make excess energy, Ethereum-based smart
contracts automatically redistribute it. Similar types of smart contract automation will have
many other applications as the IoT becomes a reality.
Located in Brooklyn, Consensys is one of the foremost companies globally that is
developing a range of applications for Ethereum. One project they are partnering on is
Transactive Grid, working with the distributed energy outfit, LO3. A prototype project

4 www.investopedia.com/cryptolaws/india
7
currently up and running uses Ethereum smart contracts to automate the monitoring and
redistribution of microgrid energy. This so-called “intelligent grid” is an early example of
IoT functionality.

11. Identity management

There is a definite need for better identity management on the web. The ability to verify
your identity is the lynchpin of financial transactions that happen online. However, remedies
for the security risks that come with web commerce are imperfect at best. Distributed
ledgers offer enhanced methods for proving who you are, along with the possibility to
digitize personal documents. Having a secure identity will also be important for online
interactions — for instance, in the sharing economy. A good reputation, after all, is the most
important condition for conducting transactions online.

Developing digital identity standards is proving to be a highly complex process. Technical

challenges aside, a universal online identity solution requires cooperation between private
entities and the government. Add to that the need to navigate legal systems in different
countries and the problem becomes exponentially difficult. An E-Commerce on the internet
currently relies on the SSL certificate (the little green lock) for secure transactions on the
web. Netki is a startup that aspires to creatSSL standard for the blockchain. Having recently
announced a $3.5 million seed round, Netki expects a product launch in early 2017.

12. Anti-money laundering (AML) and know your customer (KYC) practices have a
strong potential for being adapted to the blockchain. Currently, financial institutions must
perform a labor-intensive multi-step process for each new customer. KYC costs could be
reduced through cross-institution client verification and at the same time increase
monitoring and analysis effectiveness.
Startup Polycoin has an AML/KYC solution that involves analyzing transactions. Those
transactions identified as being suspicious are forwarded on to compliance officers. Another
startup, Tradle is developing an application called Trust in Motion (TiM). Characterized as
an “Instagram for KYC”, TiM allows customers to take a snapshot of key documents
(passport, utility bill, etc.). Once verified by the bank, this data is cryptographically stored
on the blockchain.

13. Data management

Today, in exchange for their personal data people can use social media platforms like
Facebook for free. In future, users will have the ability to manage and sell the data their
online activity generates. Because it can be easily distributed in small fractional amounts,
Bitcoin — or something like it — will most likely be the currency that gets used for this
type of transaction.
The MIT project Enigma understands that user privacy is the key precondition for creating
of a personal data marketplace. Enigma uses cryptographic techniques to allow individual
data sets to be split between nodes and at the same time run bulk computations over the data
group as a whole. Fragmenting the data also makes Enigma scalable (unlike those
blockchain solutions where data gets replicated on every node). A Beta launch is promised
within the next six months.
8
14. Land title registration

As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more

efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as
costly and labor-intensive to administer.

15. Stock trading

The potential for added efficiency in share settlement makes a strong use case for
blockchains in stock trading. When executed peer-to-peer, trade confirmations become
almost instantaneous (as opposed to taking three days for clearance). Potentially, this means
intermediaries — such as the clearing house, auditors and custodians — get removed from
the process.
Numerous stock and commodities exchanges are prototyping blockchain applications for the
services they offer, including the ASX (Australian Securities Exchange), the Deutsche
Börse (Frankfurt’s stock exchange) and the JPX (Japan Exchange Group). Most high profile
because the acknowledged first mover in the area, is the Nasdaq’s Linq, a platform for
private market trading (typically between pre-IPO startups and investors). A partnership
with the blockchain tech company Chain, Linq announced the completion of it its first share
trade in 2015. More recently, Nasdaq announced the development of a trial blockchain
project for proxy voting on the Estonian Stock Market.

CRYPTOCURRENCY - INDIAN PROSPECTIVE

In India, over the past few years, the use of technology, including blockchain, to fuel
financial transactions has boomed significantly.  Such development has not gone unnoticed
by most regulators such as the Reserve Bank of India (“RBI”) (Indian Central Bank) which
has reacted, for the most part, favourably.  Whilst the present government has supported
innovation to promote a digital or cashless economy, cryptocurrency still remains an outlier.
The RBI took notice of the use of cryptocurrency in open markets around 2013 and has
since responded by cautioning users, holders and traders of the use of “virtual currency”
while remaining silent on the legality of its use, including in 2017.  Similarly, other
regulators, such as the Enforcement Directorate and Income Tax Department, have been
swift in their actions to shut down businesses associated with cryptocurrency by conducting
raids under the guise that the use of cryptocurrency was in violation of foreign exchange and
anti-money laundering regulations5.
In light of the above, most entities dealing in cryptocurrency took a backseat in their
operations from 2017 onwards, especially after the RBI prohibited cryptocurrency for
regulated entities, when global and as well local markets seemed to be moving towards an
economy being driven by technology.  In fact, while the Indian government remained silent
on the definition of “cryptocurrency”, it continued to support “pre-paid” instruments or
tokens issued by private players in exchange of products or services being offered on their
platform.  In fact, regulators have since supported the use of “blockchain”, demonstrated by
5 supra note 2
9
RBI’s Blockchain whitepapers in 2017 and 2019 deliberating upon the use of blockchain
while merely commenting on one such use of cryptocurrency as a medium of exchange to
secure transactions.
Pursuant to the previous finance minister’s budget speech in 2018, the government had
constituted an inter-disciplinary committee which included representatives from the RBI, to
examine: (i) the status of cryptocurrency in India and globally; (ii) the existing global
regulatory and legal structures governing cryptocurrency; and (iii) measures to address
issues relating to consumer protection and money laundering.
Despite the contents of the above report remaining confidential, per publicly reported news
sources, the government is moving towards a wholesale ban on the use of cryptocurrency.

Recent Media Reports about Blockchain

A recent Report by Bloomberg Quint suggesting that one to ten years of jail term to mine,
hold or sell cryptoassets may be implemented by the government; has only added to the
anxiety of the community. Though the complete report is not yet published by Bloomberg
Quint, however there are evidences to believe that the policy being drafted by the
Department of Economic Affairs, Ministry of Finance, perhaps in consultation with other
government departments like Reserve Bank, Ministry of Corporate Affairs etc, may indeed
have such provisions. 
Another Right to Information application filed by me in May 2019 suggested that : 
• Reserve Bank of India has no information about any such policy being drafted  /
Have not received or sent any communication from or to any other government
department / No RBI officer is involved in any such drafting of policy for blockchain
or cryptoassets.
This is despite the fact that RBI has pro actively cautioned users from dealing in Virtual
Currencies / CryptoAssets and has played a very active role in investor education &
protection in this matter since 20136. 
Though the Tech fraternity seems to have ignored the news terming it as clickbait / FUD
(Fear uncertainty Doubt) and having no legal substance till a communication is issued by
the authorised government in this matter, however other main stream media have shared the
news deeming it to be true  : Draft law proposes 10-year jail term for dealing in
cryptocurrency (Economic Times) 

What is World Governments doing for Blockchain entities

While every new contemporary technology comes with its own set of challenges yet any
technology if left unregulated has potential to negatively disrupt industries and damage
investor protection rights. 
Thereby efforts have been made by governments around the world to develop preliminary
regulatory frameworks to better regulate and tap the potential of this technology. Some
relevant regulations by Countries across the world :  
.
What does this petition seek to achieve ? 

6 www.bloomberg.com/report on cryptocurrency/
10
This petition is neither sponsored by any specific Blockchain or CryptoAsset Company /
Exchange / Group in any manner whatsoever nor has any compensation being received from
any one to initiate such petition. 
The purpose of this petition is to engage the blockchain community and the government in a
more democratic and engaging environment to accelerate the implementation of regulatory
framework regarding blockchain and CryptoAssets in India and relinquish the ambiguity
which has developed around it. 

Historic stance taken by the government

After the RBI circular dated April 6, 2018 (“Circular”), the dealing of cryptocurrency in
India today has been substantially blocked.  Through the Circular, the regulator banned all
RBI regulated entities (i.e., banks, financing institutions, non-banking financing institutions)
from dealing in cryptocurrency.  These entities were provided a three-month period within
which all accounts dealing with cryptocurrency had to be shut down.  Consequently, while
the RBI per se did not ban cryptocurrency, it chocked any financial dealing contemplated by
a buyer, seller or trader in cryptocurrency.
Other regulators, such as the Securities Exchange Control Board of India (“SEBI”) have
continued to remain silent on its stance on cryptocurrency.

Judicial approach to cryptocurrency

Several stakeholders have approached the judiciary by filing petitions before the Indian
Supreme Court in order to compel the government to provide clarity. 
The two primary petitions seeking to address the legality of cryptocurrency were filed by (i)
Vijay Pal Dalmia and Siddharth Dalmia through civil writ petition 1071 of 2017 on June 2,
2017 (“Dalmia Petition”), and (ii) Dwaipayan Bhowmick through civil writ petition 1076
of 2017 on November 03, 2017 (“Bhowmick Petition”).
The Dalmia Petition was filed against the Union of India (through the cabinet secretary),
Ministry of Home Affairs, Ministry of Finance and the RBI (“Respondents 1”), seeking an
order to direct Respondents 1 to “restrain/ban the sale/purchase of or investment in, illegal
cryptocurrencies and initiate investigation and prosecution against all parties which
indulged in the sale/purchase of cryptocurrency”.
The grounds for the stated petition, as available on public sources, was based on: (i) the
anonymous nature of cryptocurrency transactions which makes them well-suited for funding
terrorism, corruption, money laundering, tax evasion, etc.; (ii) production and introduction
of new cryptocurrency has been generated by private parties, without the intervention of the
government, and hence violating the Constitution; (iii) the use of cryptocurrency has been in
contravention of several laws such as FEMA and the Prevention of Money Laundering Act,
2002; (iv) ransomware attacks have occurred through the use of Bitcoin; (v) illegal
cryptocurrency provides an outlet for personal wealth that is beyond restriction and
confiscation; (vi) cryptocurrency exchanges have encouraged “benami” transactions and
made it difficult for government authorities to identify such transactions; and (vii) trading of
illegal cryptocurrency bypasses prescribed KYC Norms.

11
Pursuant to the above petition, the Bhowmick Petition was filed against the Union of India
through the Ministry of Finance, Ministry of Law and Justice, Ministry of Electronic and
Information Technology, SEBI, RBI, Income Tax Dept. (through its secretary) and the
Enforcement Directorate (through its joint director) (“Respondents 2”) seeking an
“issuance of direction to regulate the flow of bitcoins as well as requiring the constitution of
a committee of experts to consider prohibition/regulation of bitcoins and other
cryptocurrencies”.
The grounds for the petition, as available from public sources, inter alia include: (i) Bitcoin
trading/transactions, being unregulated, lack accountability; (ii) investigators can only track
Bitcoin holders who convert their bitcoins to regular currency; (iii) counterfeiting of
cryptocurrency is not an issue so long as the miners keep the blockchain secure; (iv) bitcoins
may be used for trade and other financial activities without accountability, having an effect
on the market value of other commodities; (v) conversion of Bitcoin into foreign exchange
does not fall under the purview of the RBI, making such transactions highly unsafe and
vulnerable to cyber attacks; (vi) presently, no regulator has the power to track, monitor and
regulate cryptocurrency transfers; (vii) cryptocurrency has the potential to support criminal,
anti-social activities, like money laundering, terrorist funding and tax evasion; and (viii) use
of cryptocurrency could result in financial implications if left unchecked.
Subsequent to the aforementioned petitions, industry participants such as Kali Digital had
filed writ petitions challenging the constitutionality of the Circular and reiterated the need
for clarity on regulation.  Other stakeholders, such as the Internet and Mobile Association of
India had also filed intervention applications in the Bhowmick Petition in order to draw
attention to the impact any regulation on cryptocurrency may have to their businesses.  It
had also challenged the RBI Circular as being unconstitutional and highlighted to the
Supreme Court on the hindrance to their businesses in light of the Circular.
While the above matters remain sub judice, the Supreme Court in February, 2019 provided
the Indian Government, a period of four weeks, to frame a policy on cryptocurrency, which
is still awaited.
There have been recent reports that the Government is looking to introduce a new
legislation on cryptocurrency and looking at introducing a jail term for “holding, selling or
dealing in cryptocurrency”, making it a “non-bailable” offence.  This, if affected, will
further impact the future of the cryptocurrency business in India.
Set out below are possible reasons for such a ban and the way forward for the
cryptocurrency business in India.

Possible reasons for the ban

RBI’s primary reason is to protect its investors, since cryptocurrency lacks any intrinsic
value and affords anonymity to its holder.  Per news reports, the RBI is determined to “ring-
fence gullible investors and lenders from scams, several of which have happened
internationally”.  Given the nature of trades, an imposition of know-your-customer
regulations does not per se assist in reducing the threat of fraudulent transactions since it
may be difficult to identify the original holder of cryptocurrency.
In fact, an anonymous holder possesses other problems, such as inadequate recourse
available in case of illegal activity, since an accused must be an “identifiable party” for the
judiciary to call upon and hold accountable for such illegal activity.  Therefore, while any
currency including fiat currency could facilitate illegal transactions and tax evasion,

12
cryptocurrency could go a step further and protect a party engaging in such activities,
rendering common holders vulnerable.
A commonly cited reason for distrust by governments/regulators that is associated with
investor protection is the lack of control exerted by central authorities over cryptocurrency. 
While rendering the banking system redundant may not immediately seem problematic,
regulators worry that an investor would have no recourse in the event a payment is hacked
or there is a failure of transfer of funds due to a technical glitch.  Further, the lack of a
banking system would also be alarming for most investors given that the system supports
immediate provision of funds as well as income through interest over funds already earned
by the investor.

Cryptocurrency distinct from prepaid instruments (“PPIs”)

In fact, the anonymous nature and lack of intrinsic value of cryptocurrency are the primary
distinguishing factors from “prepaid instruments”, the latter being completely legal and
regulated today.  Prepaid instruments and payment systems are regulated by the Payments
and Settlement Act, 2007 (“PSSA”) and RBI Master Directions on Issuance and Operation
of Prepaid Payment Instruments dated October 11, 2017 (“Master Directions”).  The intent
of the PSSA is to regulate prepaid instruments, i.e., payment systems that affect electronic
transfers.  The Master Directions define prepaid instruments as “payment instruments that
facilitate purchase of goods and services, including financial services, remittance facilities,
etc., against the value stored on such instruments”.  In fact, the regulations further specify
that these instruments may be loaded/reloaded with cash, by debit to a bank account, by
credit and debit cards, and other PPIs (as permitted from time to time).  The electronic
loading/reloading of PPIs shall be through payment instruments issued only by regulated
entities in India and shall be in INR only.  Based on the above, the instrument is merely
acting as a mode to transfer regulated currency, similar to a bank transfer.
Therefore, unlike cryptocurrency, whose value (if any) may be contingent upon its
demand/supply, pre-paid instruments do have an intrinsic value associated with them as well
as their holder being clearly identifiable7.

Alternative route: cryptocurrency as a deposit or security?

Given that cryptocurrency is often associated with speculation, one could explore whether
the acceptance of certain cryptocurrencies such as tokens could constitute a deposit or a
security.  The (Indian) Securities Exchange Board, unlike the RBI, continues to remain
silent on the subject, possibly since, in India, a security has been defined to include “shares,
scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like
nature in an incorporated company or body corporate”.  While, cryptocurrency may be
arguably marketable, it is not in the nature of shares, scrips, stocks, debentures, etc. issued
in relation to a body corporate.  However, should the regulator see scope in regulating
cryptocurrency and initial coin offerings akin to securities and initial public offerings,
similar to other overseas jurisdictions, the definition of a “security” may see revision.
Similarly, debt/deposits in India are associated with the repayment of money.  It is arguable
that the issuance of cryptocurrency could create a debt on the part of the issuer to the extent
that the consideration for the issuance is treated as a debt until cryptocurrency is transferred
to the purchaser. 
7 supra note 2
13
While the aforementioned regulations seem possible, the anonymity of the parties involved
in the transaction may continue to pose a hurdle to the regulation of cryptocurrency even as
a deposit or security.

Conclusion

While industry participants await the government’s decision on cryptocurrency and details
regarding the contours of a possible ban, most stakeholders argue that, like every “banned
activity”, the activity does not come to a halt but instead moves to jurisdictions permitting
such activity, as the Indian experience also suggests post-2017 after the RBI Circular.  On
the same basis, stakeholders are still trying to sensitise the Government about the potential
of disruptive technologies such as cryptocurrencies, capitalise on the burgeoning revenue
potential and work with the industry.
It has previously been reported that the RBI itself looked to launch a digital currency using
blockchain technology and, despite its discomfort with cryptocurrency, has promoted the
use of blockchain.  In light of this, even if the Government were to introduce a wholesale
ban on cryptocurrency in India, it is likely to be a regressive step, in turn also affecting the
growth and development of the nascent blockchain industry in India, which has shown
immense potential.  The devil being in the details, it will be useful to wait until the contours
of the proposed Indian cryptocurrency law are finalised.

LATEST REPORT ON CRYPTOCURRENCY AS ON (04/03/2020)

IN INDIA
The Supreme Court allowed banks and financial institutions from providing services related
to cryptocurrencies by setting aside the RBI’s 2018 circular which had prohibited them.
Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to
regulate the generation of their units and verify the transfer of funds, operating
independently of a central bank.

A three-judge bench, headed by Justice R F Nariman, said the Reserve Bank of India (RBI)
circular is liable to be set aside on the ground of “proportionality”.
“Accordingly, the writ petitions are allowed and the circular dated April 6, 2018 is set
aside,” said the bench, also comprising justices Aniruddha Bose and V Ramasubramanian.
“When the consistent stand of RBI is that they have not banned VCs (virtual currencies) and
when the Government of India is unable to take a call despite several committees coming up
with several proposals including two draft bills, both of which advocated exactly opposite
positions, it is not possible for us to hold that the impugned measure is proportionate,” the
bench said in its 180-page verdict.
The apex court delivered the verdict on pleas challenging the RBI circular.
According to the circular, the entities regulated by the RBI were prohibited from “providing
any service in relation to virtual currencies including those of transfer or receipt of money in
accounts relating to the purchase or sale of virtual currencies”.

14
The petitioner, Internet and Mobile Association of India (IMAI), had argued in the top court
that the RBI had banned cryptocurrencies on “moral grounds” as no prior studies were
conducted to analyse their effect on the economy.
It had contended that the RBI barred all the entities regulated by it from providing services
to any individual or business dealing in virtual currencies.
In 2013, the RBI in an advisory cautioned users, holders, and traders of virtual currencies,
including Bitcoins, about the potential financial, operational, legal, customer protection, and
security-related risks that they were exposing themselves to.
On July 3, 2018 while hearing IMAI’s plea, the top court had refused to stay the RBI
circular prohibiting banks and financial institutions from dealing with the cryptocurrencies
like bitcoin.It had sought response from the RBI, Finance Ministry and Union ministry of
Information and Technology on the plea8.

WEBLIOGRAPHY

1) www.investopedia.com/cryptocurrency seen on 10.03.2020

2) www.bloomberg.com/latest on cryptocurrency last seen on 11.03.2020

3) www.goballegalinsight.com last seen on 16.03.2020

8 www.bloombergquint.com/newscryptocurrency
15