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Bitcoin and Legal Concerns

What is Bitcoin?

Bitcoin is a cryptocurrency, or a virtual currency, that uses rules of cryptography for regulation and generation of units of currency. Bitcoin was the first of what have become known as “cryptocurencies”. It is commonly called a decentralised crypto currency

What is an ICO?

An initial coin offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture. An ICO is used by startups to bypass rigorous and regulated capital-raising processes required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, often Bitcoin or Ethereum.

Legality of Bitcoin


No specific law or regulation.

The Reserve Bank of India (RBI) has so far issued three notifications pertaining to bitcoin and other virtual currencies (VC). In all these, starting December 2013, the RBI has cautioned users, holders and traders on the risk of these currencies and clarified that it has not given any licence or authorisation to any entity or company to operate such schemes or deals. In a December 2013 notification, the RBI said, “The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.” Other than cautioning the public, the RBI hasn’t taken any regulatory stance on virtual currencies yet.

Furthermore, in April 2018 RBI decided that with immediate effect, entities regulated by the Reserve Bank of India shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs.

The Income Tax Department, under Section 133A of the Income Tax Act, is conducting surveys at major Bitcoin exchanges across the country for gathering evidence for establishing the identity of investors and traders, transactions undertaken by them, identity of counterparties, related bank accounts used, among others on suspicion of alleged tax evasion.


The U.S. Treasury classified bitcoin as a convertible decentralized virtual currency in 2013. The Commodity Futures Trading Commission, CFTC, classified bitcoin as a commodity in September 2015. As per IRS, bitcoin is taxed as a property.

In September 2016, a federal judge ruled that “Bitcoins are funds within the plain meaning of that term.


Bitcoin is legal in Mexico as of 2017. It is to be regulated as a virtual asset by the FinTech Law.


Private parties can hold and trade bitcoins in China, regulation prohibits financial firms like banks from doing the same.

There are currently no laws, rulings, or announcements from regulatory bodies such as the People’s Bank of China (PBoC) or the Ministry of Industry and Information Technology (MIIT) on the legality of Bitcoin and its trading.


 In 2017, the country’s government officially recognized bitcoin as a method of payment.


Bitcoin ATMs are banned here. Taiwan but bitcoins can be purchased at over 6000 convenience store kiosks. Regulators have warned the public that bitcoin does not have legal protection, “as the currency is not issued by any monetary authority and is therefore not entitled to legal claims or guarantee of conversion


The Monetary Authority of Singapore (MAS), the country’s de facto central bank, has clarified that cryptocurrencies are “not a legal tender” in the country, MAS stated: “The Monetary Authority of Singapore advises the public to act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies.”

United Kingdom

As of 2017, the government of the United Kingdom has stated that bitcoin is unregulated and that it is treated as a ‘foreign currency’ for most purposes, including VAT/GST.

The Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation.

United Arab Emirates (UAE)

On 1 January 2017, the UAE Central Bank published the “Regulatory Framework For Stored Values and Electronic Payment Systems”. This was for adoption of digital payments across UAE, but the Regulations contained the following statement which caused some concern among the cryptocurrency community in the UAE:

“D.7.3. Provisions for Virtual Currencies – All Virtual Currencies (and any transactions thereof) are prohibited”

On 1 February 2017, the Governor of the UAE central bank, issued a statement saying that “these regulations do not cover ‘virtual currency’” and “these regulations do not apply to bitcoin or other cryptocurrencies, currency exchanges, or underlying technology such as Blockchain.”

The local website has stated that in UAE, the residents will soon be able to make cash withdrawals from their cryptocurrency accounts at ATMs

Legal Concerns

Money Laundering and Tax Evasion

Transactions that occur through the use and exchange of these crypto currencies are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. The anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money.

Fraud and Unauthorised Access

 Many people across India and other countries are being taken for a ride by fraudsters. The prime reason for this is lack of knowledge about crypto currencies and the greed to earn a quick buck. It is always better to consult a professional who has expertise in these matters before getting into crypto currencies.

On August 24, 2016, a federal judge in Florida certified a class action lawsuit against defunct cryptocurrency exchange Cryptsy and Cryptsy’s owner. He is accused of misappropriating millions of dollars of user deposits, destroying evidence, and is believed to have fled to China.

On December 6, 2017, more than $60 million worth of bitcoin was stolen after a cyber attack hit the cryptocurrency mining platform NiceHash (Slovenia-based company). According to the CEO Marko Kobal and co-founder Sasa Coh, bitcoin worth $64 million USD was stolen, although users have pointed to a bitcoin wallet which holds 4,736.42 bitcoins, equivalent to $67 million.

There have many such incidents in the year 2018.

Dark Markets

Cryptocurrency is also used in controversial settings in the form of online black markets, such as Silk Road. The original Silk Road was shut down in October 2013 and there have been two more versions in use since then; the current version being Silk Road 3.1.

The way forward

No one really knows what will become of crypto currencies. But, the underlying technology ‘Blockchain’ has many application and future for the same looks promising.

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