Blockchain, Cryptocurrencies and Indian Financial Regulation: Legal Challenges and Consumer Risks
Abstract
Blockchain technology has emerged as one of the most transformative innovations of the twenty-first century,
promising decentralisation, transparency, and immutability in financial transactions. In India, however, the
rise of cryptocurrencies has been accompanied by deep regulatory uncertainty, oscillating judicial
pronouncements, and significant consumer-protection concerns. The Indian financial regulatory system—
anchored in the Reserve Bank of India Act, the Payment and Settlement Systems Act, and the Securities
Contracts (Regulation) Act—was designed for centralised intermediaries, not distributed ledgers.
Consequently, blockchain’s promise of peer-to-peer value transfer challenges the very architecture of
traditional financial governance. The Covid-19 pandemic accelerated digital-payment adoption and
heightened speculative interest in crypto-assets, yet also exposed vulnerabilities such as fraud, cyber-attacks,
and volatile pricing. This paper analyses India’s evolving legal framework for blockchain and
cryptocurrencies, identifying tensions between innovation and regulation, and assessing the risks faced by
consumers in a largely unregulated environment.
The methodology integrates doctrinal and comparative analysis with policy review. It interrogates key
legislative proposals—the Cryptocurrency and Regulation of Official Digital Currency Bill (2021 draft), the
Digital Personal Data Protection Act (2023), and Reserve Bank of India circulars from 2018 onward—
alongside international standards such as the Financial Action Task Force (FATF) guidance and European
Union’s Markets in Crypto-Assets Regulation (MiCA). By mapping India’s legal responses against global
benchmarks, the study highlights inconsistencies and potential reform trajectories. Findings reveal that
India’s approach remains fragmented: while blockchain is encouraged for supply-chain, e-governance, and
identity applications, cryptocurrencies are viewed primarily as systemic threats. The lack of clear statutory
classification—whether cryptocurrencies are currency, commodity, or security—creates ambiguity for
taxation, accounting, and consumer protection.
promising decentralisation, transparency, and immutability in financial transactions. In India, however, the
rise of cryptocurrencies has been accompanied by deep regulatory uncertainty, oscillating judicial
pronouncements, and significant consumer-protection concerns. The Indian financial regulatory system—
anchored in the Reserve Bank of India Act, the Payment and Settlement Systems Act, and the Securities
Contracts (Regulation) Act—was designed for centralised intermediaries, not distributed ledgers.
Consequently, blockchain’s promise of peer-to-peer value transfer challenges the very architecture of
traditional financial governance. The Covid-19 pandemic accelerated digital-payment adoption and
heightened speculative interest in crypto-assets, yet also exposed vulnerabilities such as fraud, cyber-attacks,
and volatile pricing. This paper analyses India’s evolving legal framework for blockchain and
cryptocurrencies, identifying tensions between innovation and regulation, and assessing the risks faced by
consumers in a largely unregulated environment.
The methodology integrates doctrinal and comparative analysis with policy review. It interrogates key
legislative proposals—the Cryptocurrency and Regulation of Official Digital Currency Bill (2021 draft), the
Digital Personal Data Protection Act (2023), and Reserve Bank of India circulars from 2018 onward—
alongside international standards such as the Financial Action Task Force (FATF) guidance and European
Union’s Markets in Crypto-Assets Regulation (MiCA). By mapping India’s legal responses against global
benchmarks, the study highlights inconsistencies and potential reform trajectories. Findings reveal that
India’s approach remains fragmented: while blockchain is encouraged for supply-chain, e-governance, and
identity applications, cryptocurrencies are viewed primarily as systemic threats. The lack of clear statutory
classification—whether cryptocurrencies are currency, commodity, or security—creates ambiguity for
taxation, accounting, and consumer protection.