Blockchain Technology: Prospects and Challenges

Money Laundering laws will now cover Cryptocurrency Trade


From UPSC perspective, the following things are important :

Prelims level: PMLA , Cryptocurrencies

Mains level: Regulation of illicit crypto trade


The government has imposed the Prevention of Money-laundering Act, 2002 on cryptocurrencies or virtual assets as it looks to tighten oversight of digital assets.

Central idea: The Prevention of Money-laundering Act, 2002, now covers various financial activities related to virtual digital assets, including exchanges between fiat currencies and digital assets, transfer and storage of digital assets, and provision of financial services related to the sale of digital assets by an issuer.

What are Cryptocurrencies?

  • Cryptocurrencies are digital or virtual currencies that use encryption techniques to secure and verify transactions and control the creation of new units.
  • They operate independently of central banks and financial institutions and use a decentralized ledger technology called blockchain to record transactions.
  • They can be used to make purchases, transfer funds, or as a store of value, and some are designed to facilitate specific use cases, such as smart contracts.
  • Bitcoin is the first and most well-known cryptocurrency, but there are thousands of others, including Ethereum, Ripple, and Litecoin.
  • Cryptocurrencies can be purchased on cryptocurrency exchanges or obtained through mining, a process in which computers solve complex mathematical problems to validate transactions and earn new cryptocurrency units as a reward.

Why regulate cryptocurrencies?

  • Consumer protection: Cryptocurrencies are highly volatile and can be subject to fraud, scams, and other forms of financial crime.
  • Preventing money laundering and terrorist financing: Cryptocurrencies can be used to anonymously transfer funds, making them potentially attractive to criminals and terrorists.
  • Systemic risk: Cryptocurrencies are not currently part of the traditional financial system, but they could potentially have an impact on it if they were to become more widely adopted.
  • Taxation: Cryptocurrencies can be used to evade taxes or hide assets. Regulation can help ensure that cryptocurrency transactions are properly taxed and that tax evasion is prevented.
  • Market stability: being highly volatile, regulation can help promote market stability and prevent excessive speculation or manipulation of cryptocurrency markets.

What is the recent move?

  • Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).
  • The move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers.

Recent regulatory moves

  • In the Budget for 2022-23, finance ministry had brought a 30% tax on income from transactions in such assets.
  • Also, to bring such assets under the tax net, it introduced a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold.
  • Gifts in crypto and digital assets were also taxed.

Back2Basics: Prevention of Money Laundering Act (PMLA)

  • PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for confiscation of property derived from money laundering.
  • It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering.
  • PMLA and the Rules notified there under came into force with effect from July 1, 2005.
  • The act was amended in the year 2005, 2009 and 2012.


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