Published on: 3rd November 2025
Authored by: Duvvada Yathin Chowdary
Damodaram Sanjivayya National Law University
Abstract
The rapid growth of cryptocurrency and blockchain technology has generated both enthusiasm and concern within India. Policymakers face the challenge of encouraging innovation in areas such as fintech, governance, and supply chains, while addressing risks linked to volatility, consumer protection, monetary sovereignty, and illicit use. This article examines India’s evolving regulatory stance, beginning with the historical and legal background and the Reserve Bank of India’s early warnings. It then explores opportunities for blockchain applications, the risks associated with cryptocurrency markets, and the fragmented nature of India’s current regulatory measures, including taxation and enforcement under existing laws. Comparative perspectives from the European Union, the United States, China, and Singapore highlight different approaches to balancing innovation and oversight. The article concludes by outlining possible pathways for India, emphasizing the need for a comprehensive framework that distinguishes between different forms of digital assets, safeguards financial stability, and promotes innovation. The analysis underscores that India’s response will shape its role in the global digital economy.
Introduction
In 2022, India took a bold step by taxing cryptocurrency gains at 30%, instantly making headlines across the financial world. While this move signalled recognition of digital assets, it also ignited a debate: should India embrace crypto innovation or restrain it in the name of stability? As blockchain technology finds applications from the supply chain to the healthcare industry, the government faces a delicate task of regulating an industry that is both a promise and a peril[1]
In simple words, cryptocurrency is a digital currency that can be held by an individual in their digital wallet. It is a digital representation of a value that can be virtually stored and transferred. It is a system based on cryptographic proof, allowing any two willing parties to make a transaction directly with each other without any third party. Satoshi Nakamoto, the father of Bitcoin, paved the way for the first-ever cryptocurrency using blockchain technology[2]
India has begun to realise the importance and potential of cryptocurrency and blockchain technology as engines of innovation, such as in digital payments and fintech. The government remains cautious about completely legitimizing cryptocurrencies. The key concerns stated by the Reserve Bank of India and the Ministry of Finance include the risk that regulation can integrate volatile digital assets into the formal financial system, creating “systemic risks” to monetary stability. On the other hand, inaction or restrictive rules could limit innovation, slow down blockchain adoption, and push crypto activity into unregulated jurisdictions. This balancing act between fostering innovation and managing risk lies at the heart of India’s crypto regulation dilemma.[3]
This article examines India’s evolving approach to regulating cryptocurrency and blockchain technology, highlighting the tension between promoting innovation and addressing risks. It compares India’s stance with global practices and offers recommendations for a balanced approach. regulatory framework
Historical & Legal Background
India’s relationship with cryptocurrency has been marked by cycles of caution, prohibition, and partial acceptance. The Reserve Bank of India (RBI) first sounded the alarm in December 2013[4], issuing a public advisory warning citizens about the risks associated with virtual currencies, including volatility, security vulnerabilities, and the potential for misuse in money laundering and terror financing. The warnings were repeated in 2017 as crypto trading activity surged.[5]
In April 2018, the RBI moved beyond caution and imposed a banking ban prohibiting regulated financial institutions from providing services to businesses or individuals dealing in cryptocurrencies.[6] This effectively put down much of the domestic crypto industry, prompting a wave of litigation. In March 2020, the Supreme Court of India struck down the ban in Internet and Mobile Association of India v. Reserve Bank of India, holding that it was disproportionate and violated the constitutional right to carry on trade. This judgment revived crypto exchanges and gave investors temporary confidence, though regulatory uncertainty remained.[7]
Rather than introducing a comprehensive framework, the government opted for taxation as a regulatory tool. The Union Budget of 2022 announced a flat 30% tax on income from digital virtual assets, along with a 1% Tax Deducted at Source (TDS) on transactions. This marked the first formal recognition of cryptocurrencies in Indian law, though it simultaneously discouraged retail participation by imposing one of the harshest tax regimes in the world.[8]
Meanwhile, the RBI has pursued a state-backed alternative: the Central Bank Digital Currency (CBDC), launched in pilot form in late 2022. The government has also released draft proposals for a “Crypto Bill,” but no comprehensive legislation has yet been enacted. India’s current position thus reflects a mix of restrictive taxation, judicial intervention, and cautious experimentation with blockchain through a sovereign digital rupee.[9]
Innovation and Opportunities of Blockchain in India
Although much of the public debate in India has centered on cryptocurrency speculation, the underlying blockchain technology presents far broader opportunities. Blockchain, at its core, is a decentralized ledger system that ensures transparency, security, and immutability of records. For a country like India, with its large population, complex supply chains, and governance challenges, this technology holds transformative potential.[10]
In the private sector, blockchain has opened doors for fintech innovation, enabling faster cross-border payments, decentralized finance applications, and tokenized assets. India’s thriving startup ecosystem has already seen companies experiment with blockchain for remittances, peer-to-peer lending, and digital identity management. The technology also offers an opportunity to expand financial inclusion, particularly for unbanked and underbanked populations who can benefit from secure, low-cost digital financial services.[11]
Governmental and institutional use cases are equally promising. States such as Telangana and Andhra Pradesh have piloted blockchain solutions for land records and supply chain management, aiming to reduce fraud and corruption. The technology is also being explored for secure healthcare data management, transparent public procurement, and improving traceability in agriculture. These initiatives align with India’s broader “Digital India” mission, which seeks to leverage technology for inclusive growth and efficient governance.[12]
Beyond domestic applications, India’s global ambitions are also tied to blockchain adoption. By nurturing blockchain innovation, India has the potential to position itself as a hub for Web3 development and digital infrastructure, much like it has done in the IT services and fintech sectors. Striking the right regulatory balance, therefore, is not only about managing risks but also about ensuring India does not miss the opportunity to lead in the next wave of technological transformation.[13]
Risks and Concerns of Cryptocurrency
Cryptocurrency has raised significant regulatory concerns in India, primarily in the areas of financial stability, consumer protection, and national security. The Reserve Bank of India has, on multiple occasions, cautioned that the extreme volatility of digital assets threatens to destabilize the financial system and expose investors to disproportionate risks.[14] Episodes of sudden market crashes have resulted in considerable losses for retail investors, many of whom participate in trading without adequate knowledge of the associated complexities.[15]
The absence of a comprehensive regulatory framework further exacerbates these risks. Unlike traditional financial instruments, cryptocurrencies often operate in unregulated environments, creating space for fraudulent schemes, hacking incidents, and other forms of cybercrime.[16] The Ministry of Finance has also expressed concern that the pseudonymous nature of transactions makes cryptocurrencies attractive for money laundering, terror financing, and tax evasion. These apprehensions have been echoed by the Financial Action Task Force (FATF), which has urged jurisdictions, including India, to implement robust anti-money laundering (AML) and know-your-customer (KYC) standards for virtual asset service providers.[17]
In addition to financial and security risks, cryptocurrencies raise questions of monetary sovereignty. The Reserve Bank has observed that widespread adoption of private digital currencies could undermine its control over money supply and monetary policy, thereby weakening the role of the Indian rupee. This concern has provided a strong rationale for the introduction of the Central Bank Digital Currency (CBDC), which seeks to combine technological innovation with state oversight.[18]
India’s Current Regulatory Approach
India’s approach to regulating cryptocurrency and blockchain has so far been cautious, fragmented, and largely focused on taxation rather than comprehensive legislation. The most significant policy step came in the Union Budget of 2022, where the government introduced a 30% tax on income from the transfer of virtual digital assets, along with a 1% tax deducted at source (TDS) on transactions above a specified threshold. This framework, while intended to bring transparency to the sector, has also been criticized for discouraging legitimate trading activity due to its severity.[19]
In terms of legislation, no dedicated law governing cryptocurrencies has yet been enacted. The Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, which sought to prohibit private cryptocurrencies while enabling a framework for a state-backed digital currency, was never tabled in Parliament. Since then, the government has signaled that a more balanced approach is being considered, but successive drafts have not been made public. Instead, the Reserve Bank of India has advanced work on the Central Bank Digital Currency (CBDC), with pilot projects already underway.[20]
Regulatory agencies have, in the meantime, relied on existing laws to oversee the sector. The Enforcement Directorate (ED) has used the Prevention of Money Laundering Act (PMLA), 2002, to investigate exchanges suspected of facilitating illicit transactions. In 2023, the government also formally brought virtual digital asset service providers under the ambit of PMLA obligations, requiring them to maintain detailed records and report suspicious transactions.[21]
This piecemeal approach reflects the tension between recognizing innovation and guarding against risk. While taxation and enforcement provide interim oversight, the absence of a comprehensive legal framework continues to create uncertainty for investors, startups, and regulators alike.[22]
Comparative Global Perspectives
The regulatory treatment of cryptocurrency varies significantly across jurisdictions, reflecting different policy priorities and levels of risk tolerance. A brief survey of key global approaches provides useful context for India’s evolving stance.
In the European Union, the recently adopted Markets in Crypto-Assets (MiCA) Regulation seeks to harmonize rules across member states. MiCA establishes licensing requirements for crypto-asset service providers, sets disclosure standards for issuers, and introduces measures to safeguard consumer interests. The EU framework is notable for striking a balance between enabling innovation and ensuring regulatory oversight.[23]
The United States follows a more fragmented model, with federal agencies applying existing financial laws.[24] The Securities and Exchange Commission (SEC) has treated many tokens as securities, bringing them under strict compliance norms, while the Commodity Futures Trading Commission (CFTC) asserts jurisdiction over crypto derivatives. At the same time, the lack of a single comprehensive law has created uncertainty for businesses and investors.[25]
In contrast, China has taken a prohibitive approach, banning all private cryptocurrency transactions and mining activities. The government has justified the ban on grounds of financial stability, energy consumption, and social risks. Simultaneously, China has advanced rapidly in the development and rollout of its own central bank digital currency, the digital yuan, positioning itself as a global leader in state-backed digital finance.[26]
On the other end of the spectrum, Singapore has adopted a facilitative regulatory model. Through the Payment Services Act, 2019, it requires crypto service providers to register and comply with anti-money laundering (AML) and consumer protection standards. This clear legal framework, combined with active government support, has allowed Singapore to become a hub for blockchain innovation in Asia.[27]
These varied approaches illustrate the spectrum of possibilities available to India: from prohibition to cautious regulation to innovation-friendly facilitation. India’s challenge lies in tailoring a framework that protects its financial system while enabling it to participate in the global digital economy.
The Way Forward for India
India’s regulatory journey with cryptocurrency and blockchain remains at a crossroads. The government has so far relied on taxation measures, enforcement actions, and limited pilot projects, but this approach cannot substitute for a comprehensive legislative framework. As global examples demonstrate, clarity in regulation is essential both for investor protection and for fostering innovation.
The first priority should be the establishment of a clear legal definition of cryptocurrencies and digital assets. This would help distinguish between different types of tokens, such as payment tokens, utility tokens, and securities tokens, allowing regulation to be tailored rather than adopting a blanket approach. A framework modeled along the lines of the EU’s MiCA could provide uniform standards for disclosure, licensing, and consumer protection without stifling technological experimentation.
At the same time, consumer and systemic risks must remain central to policymaking. Robust anti-money laundering (AML) and know-your-customer (KYC) norms, already extended to virtual asset providers under the PMLA, should be enforced consistently to minimize misuse. The role of the Reserve Bank of India also remains critical, particularly in monitoring the impact of digital assets on monetary sovereignty. The ongoing pilot of the Central Bank Digital Currency offers an opportunity to channel public demand for digital money into a secure, state-backed framework.
Equally important is the need to foster innovation in blockchain applications beyond cryptocurrency. Pilot projects in land records, healthcare, and supply chains should be expanded, supported by regulatory sandboxes that allow controlled experimentation. Such an approach would ensure that India benefits from the broader digital economy while safeguarding against speculative excesses in cryptocurrency markets.
Ultimately, India’s challenge is not to choose between prohibition and free rein, but to design a balanced framework. Regulation that is too restrictive risks driving talent and capital abroad, while regulation that is too lenient risks destabilizing the financial system. A middle path, grounded in transparency, accountability, and innovation, offers the most sustainable way forward.
Conclusion
The debate on cryptocurrency and blockchain regulation in India captures the broader tension between technological innovation and regulatory prudence. On one hand, digital assets and decentralized technologies present opportunities for financial inclusion, efficient governance, and global leadership in the digital economy. On the other hand, they raise significant risks relating to volatility, consumer protection, monetary sovereignty, and misuse for illicit activities.
India’s current response, anchored in taxation and enforcement, has provided interim oversight but falls short of a comprehensive policy framework. Experiences from the European Union, the United States, China, and Singapore highlight that clarity of rules, consistency of enforcement, and openness to innovation are essential components of effective regulation.
Moving forward, India must strike a careful balance: building a regulatory structure that protects the integrity of its financial system while simultaneously encouraging innovation in blockchain-based solutions. Such an approach will determine whether India positions itself as a passive regulator or as an active shaper of the global digital future.
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