Concerns of Bitcoin

• Lack of Regulation: Despite repeated judicial nudges, the government has not issued a clear legal framework for virtual currency.
• Potential for Misuse: Due to the absence of KYC/AML enforcement and its cross-border nature, cryptocurrency can be misused for illicit activities, including a digital form of Hawala.
• Threat to Financial Integrity: The unregulated market could jeopardize India’s efforts to curb black money and maintain capital controls.

India’s Cryptocurrency Landscape

• At present, India does not have any Law or provision which specifically deals with Cryptocurrency. India has not officially banned or allowed cryptocurrency trading.
• Regulatory Uncertainty: In 2018, the Central Board of Direct Taxes proposed a ban on cryptocurrencies, and the Reserve Bank of India (RBI) restricted banks from facilitating cryptocurrency transactions labeling it as a “macro-economic risk.”
  • This decision was overturned by the Supreme Court in 2020. 
• Taxation Policies: The Indian government imposed a 30% tax on income from transfers of virtual digital assets in 2022, along with a 1% tax deducted at source (TDS) on each transaction.
  • These stringent measures have dampened domestic enthusiasm for cryptocurrency trading.

What is Hawala?

• Hawala is an informal method of transferring money without any physical movement of cash. 
• It works outside traditional banking channels and is often used for money laundering, terror financing, and tax evasion.

How Bitcoin can be in Hawala?

• Anonymity: Traditional Hawala relies on trust and secrecy.
  • Bitcoin allows pseudonymous transactions that are hard to trace, mimicking Hawala’s secrecy.
• Cross-Border Transfers: In traditional Hawala, money doesn’t physically cross borders; balances are settled informally.
  • With Bitcoin, a person in one country can send Bitcoin to a counterpart in another country, who can convert it into local currency and deliver it to the intended recipient—mirroring the Hawala model.
• Quick Transfers: Unlike traditional remittances that take days and charge fees, Bitcoin transactions can be near-instantaneous and low-cost, making it attractive for illicit transfers.