TOPIC:

REGULATION OF CRYPTOCURRENCY AND CENTRAL

BANK DIGITAL CURRENCY (CBDC)

UNDER THE GUIDANCE OF

PROF. RIMA HORE

SUBMITTED BY

Mayank Tiwari
ROLL NO: A044
SAP ID: 81022019050
BBA.LLB 3RD YEAR
 What is Cryptocurrency ?

Starting with this year's tax year, all firms may be required to disclose their crypto currency assets,
as well as any gains or losses resulting from the transaction, in accordance with the latest changes
to Schedule III of the Companies Act of 2013. It is also advisable that holders of digital currency
keep track of what they own, as well as any deposits or advances made during the trading period.
Despite the lack of regulation, it appears that India is attempting to make crypto FX less volatile
and risky for its citizens in spite of the fact that it is still in its infancy.

How does cryptocurrency work?

Transactions in bitcoin are recorded on a blockchain, which is a decentralised public ledger that
currency holders can amend. The process of creating cryptocurrency units entails employing
computer processing power to solve mathematical problems. Users can also buy currencies
through brokers, which they can then store in encrypted wallets and use as they like.

Cryptocurrency owners' only physical asset is their cryptocurrency. You can move a record or a
unit of measurement between persons without involving a trusted third party using a specific
key. But when comes to financial applications, cryptocurrency and blockchain technologies,
which have been around since 2009, are still in their prime, with much more to come.
 Examples of Cryptocurrency

 Bitcoin:

After being created in 2009, Bitcoin was the first cryptocurrency and is now the most widely
traded. The currency was established by Satoshi Nakamoto, who is widely thought to be a
pseudonym for an individual or group of people whose true identity is unknown.

 Ethereum:

Ethereum is a blockchain platform with its own money, Ether (ETH), which is also known as
Ethereum. It was founded in the year 2015. It is the second most extensively used cryptocurrency
after Bitcoin. This money is comparable to bitcoin, but it has moved faster to develop new
innovations, such as faster payments and more transaction-friendly processs.

 Ripple:

Ripple was founded in 2012 as a distributed ledger technology. Not only can Ripple be used to
track cryptocurrency transactions, but it can also be used to track other types of transactions. Its
creators have collaborated with a number of banks and financial institutions.To separate
themselves from Bitcoin, non-Bitcoin cryptocurrencies are referred to as "altcoins."

Legalization and regulation of cryptocurrency in India :

Unlike most established economies across the globe, India is an emerging economy which has
mostly followed the path of established ones. Different service providers are now permitted to
trade in cryptocurrency in India. A circular issued by the Reserve Bank of India (RBI) on April 6,
2018 declared that residents will not be allowed to trade cryptocurrencies for a number of reasons,
including concerns about consumer protection, fair competition, and money laundering. In
contrast, the Supreme Court permitted transactions in virtual currencies, which appeared to give
virtual currencies a boost. According to the Supreme Court, the Reserve Bank of India circular
stands overturned in Internet and Mobile Association of India v. Reserve Bank of India.

Crypto currency can be used to pay for goods and services, and the Reserve Bank of India should
be in charge of regulating it. Moreover, since the RBI is the financial agency in charge of
safeguarding the public's money, it has the authority to prohibit the use of cryptocurrencies.
Although virtual currencies were outright banned, it was said that the RBI should have enacted
appropriate restrictions rather than outright banning them. Since there is no legislation governing
crypto currencies in India, they are both legal and illegal.

The Reserve Bank of India is presently drafting the Cryptocurrency and Regulation of Official
Digital Currency Bill, 2021, to be able to govern all non-public cryptocurrencies whilst
additionally bolstering the criminal framework for the advent of a "respectable virtual forex." The
authorities can even introduce a virtual forex subsidized with the aid of using the imperative bank,
to be able to be much less unstable than modern cryptocurrencies. Because digital currencies can't
be taken into consideration fiat forex because of their instability, the authorities has elected to
broaden its very own digital forex. While it's miles unsure what could be labeled as non-public
forex and what's going to be prohibited, the Reserve Bank of India has issued a public caution
approximately the risks of crypto currencies. What could the results be?

Starting with this year's tax year, all firms may be required to disclose their crypto currency assets,
as well as any gains or losses resulting from the transaction, in accordance with the latest changes
to Schedule III of the Companies Act of 2013. It is also advisable that holders of digital currency
keep track of what they own, as well as any deposits or advances made during the trading period.
Despite the lack of regulation, it appears that India is attempting to make crypto FX less volatile
and risky for its citizens in spite of the fact that it is still in its infancy.
 Central Bank Digital Currency (CBDC)

In her annual budget statement on February 1, Nirmala Sitharaman advocated for the use of digital
currencies in the coming year. The recent boom in private cryptocurrencies has been replaced by
the advent of central bank digital currencies (CBDCs). Over a year ago, the central bank revealed
its desire to introduce a digital currency. India has been considering imposing regulations on the
burgeoning cryptocurrency industry, which might jeopardise macroeconomic and financial
stability by serving as a conduit for money laundering, fraud, and terrorist financing. With a
market capitalization of around 400 billion rupees ($ 5.34 billion), India has an estimated 15 to 20
million crypto investors.).

" Because there are numerous concerns, we are proceeding with caution and attention. The greatest
threats to the CBDC are cyber security and counterfeiting. RBI governor Shaktikanta Das told
local media last week that CBDC's wholesale and retail models were in progress. CBDC may
become legal tender, issued in digital form by the central bank, like paper currency and
interchangeable with any other currency. Likewise, each regular banknote is assigned a unique
number, just as RBI's digital currency will be. However, the appearance will differ.

CBDCs can enhance payments systems globally in a cost-effective and real-time manner,
according to the central bank. Experts point out that India will be a major player on the global
stage when the CBDC goes into effect later this year. Furthermore, China, as well as Japan, has
developed the most advanced method of deploying bitcoin as a global currency since 2014. As of
January, the Federal Reserve has launched a study on issuing a digital dollar, but has not yet
reached a decision.

.
What will the CBDC of the RBI look like?

The Finance Bill outlines the anticipated framework. A proposal suggests that CBDCs be treated
the same as bank notes. As a result, the CBDC should be a currency in every sense except that it
might be a form of currency. The proposed change will likely answer other questions. RBI's
CBDC is not motivated to issue currency notes because currency notes do not pay interest.
Sveriges Riksbank, Sweden's central bank, is the most prominent opponent, which claims that a
non-interest-paying CBDC limits monetary policy by essentially imposing zero interest rates on
all interest rates in the economy.

How it will be different from Indian real rupee?

An The CBDC operates in a way that has been misunderstood. When conducting a transaction
using internet banking or the Unified Payments Interface, one can tell the difference between a
regular rupee in a bank account and a digital rupee, or CBDC.

example can be found in the Bahamas. The Bahamas' Central Bank is slated to introduce its new
CBDC, the Sand Dollar, in October 2020. Mobile apps and physical credit cards can both be used
to access encrypted digital wallets, or e-wallets, where Sand Dollars are stored. Users are enrolled
via their own apps by authorized agents. CBDC participation is based on a per-unit basis.
TThe basic e-wallet tier comes with a $500 holding limit and a $1,500 monthly transaction cap. At
this level, no government-issued ID is necessary. Tier-I electronic wallets, on the other hand, are
unaffiliated with any bank accounts. Bank accounts can be linked to Tier II e-wallets. They have a
$10,000 monthly transaction restriction and a $8,000 holding limit. At these facilities, you must
have a government-issued photo ID to enrol.

Bank accounts hold Bahamas dollars. Electronic wallets hold Sand Dollars. It is possible,
however, to transfer them between tiers providing the user is willing to surrender their anonymity.
Physical currencies and digital currencies are both fungible, so they should be classified similarly
on the RBI's balance sheet, with the digital currencies falling under the liabilities heading on the
liabilities side, and fully backed by foreign securities or gold.

CONCLUSION

The fluctuation rate of virtual currencies is unbounded, unlike traditional investments. Volatility is
extreme, and even the tiniest influence can influence them. Even so, it has been attracting
investors from around the world and has paid them a substantial return on their investment. The
citizens of various countries are worried that this is just another hoax designed to defraud them of
significant amounts of money. In order to stabilize the market and deliver appropriate market
signals, nations are always attempting to regulate the market.

By creating cryptocurrency currencies, the idea was to establish a decentralised currency system
that would be unaffected by banks, financial organizations, or governments.This monetary system
was created to serve a reason, but that goal may be jeopardised if countries begin to regulate it.
Furthermore, if central banks pursue the development of their own virtual currencies, the
decentralised nature of the system may be compromised. As a result, while drafting new
legislation, governments all around the world must consider these issues. The system needs to be
far more stable so that citizens do not lose money while also not meddling with or managing
market activity.