A

PROJECT REPORT

ON

The growth of cryptocurrency in india: its challenges & potential impacts on

legislation

For the partial fulfillment of the award of the degree of bachelor of

commerce (B.com vocational) lllrd Insurance principles and practice course
from Dr. Bhim
Ambedkar University. Agra

2022-2023

SUPERVISOR
SUBMITTED BY

Name: Devashish Chaturvedi Dr Meenakshi chawla

Class: B.COM Vocational assistant professor,

Insurane IIIrd year faculty of commerce
St john’s college,agra
Roll no: 2100030911079

Enrollment no: A-20135403

I
 ST. JOHN'S COLLEGE AGRA

FOUNDED 1850

CERTIFICATE

This is to certify that Mr. Devashish Chaturvedi student of St John's

College, Dr. Bhim Rao Ambedkar University, Agra, U.P. has completed

the Project on" the growth of cryptocurrency in india: its challenges &

potential impacts on legislation" This project is original and authentic and

it has been undertaken by him within the Stipulated time under my

guidance.

Coordinator Supervisor

Dr. Sanjeev Sharma Dr . Rachita sharma

II
 DECLARATION

I hereby declare that the entire project report on "The Contribution Of

Insurance In The Sports Sector Of India". This report is being submitted in
the partial fulfillment of the Requirements for the award of the degree of"
Bachelor of Commerce ( Vocational) "from St John's college -Agra

Devashish Chaturvedi

Bcom vocational Ill year

Roll no.2100030911079

Enrollment no. A-20135403

III
 ACKNOWLEDGEMENT

At the very beginning I am grateful to the almighty for keeping me blessed

throughout my research journey. I would like to take an opportunity to express my
gratitude for all those who have encourage me taking any carry out this project
work.

To start with, I express my sincere gratitude to my course coordinator Dr. Sanjeev

Sharma, supervisor Dr. Rachita Sharma, and special thanks to our honarable
teachers Dr. Meenakshi Chawla, Ms. Kajol Agarwal, Mr. Alex paul , Ms.
Rishika Agarwal for their constant support and guidance for successfully
completion of my project work.

I shall remain thankful to Dr. S.P Singh (principal) St John's college me to carry on
research work and valuable support.

Devashish Chaturvedi

Bcom vocational III year

St John's college Agra

IV
 Tables of content

CHAPTERS TOPICS PAGE NO

1. INTRODUCTION:

 HISTORY
 HOW DOES IT WORK
 TYPES OF
CRYPTOCURRENCY
 PROS AND CONS
 IMPORTANCE OF
CRYPTOCURRENCY

2. REVIEW OF LITERATURE

3. OBJECTIVE NO.1

 To study the legal

framework of Crypto
Currency in India.

OBJECTIVE NO.2

4. To study the types of crypto

currency and that are
implemented in different
platforms including crypto
currency in social network, in
social games loyalty points and
peer to peer networks.

5. CONCLUSION

REFERENCES AND
BIBLIOGRAPHY

V
 CHAPTER-1 INTRODUCTION

Cryptocurrency is a digital payment system that doesn't rely on banks to verify

transactions. It’s a peer-to-peer system that can enable anyone anywhere to send
and receive payments. Instead of being physical money carried around and
exchanged in the real world, cryptocurrency payments exist purely as digital
entries to an online database describing specific transactions. When you transfer
cryptocurrency funds, the transactions are recorded in a public ledger.
Cryptocurrency is stored in digital wallets.
Cryptocurrency received its name because it uses encryption to verify transactions.
This means advanced coding is involved in storing and transmitting cryptocurrency
data between wallets and to public ledgers. The aim of encryption is to provide
security and safety.
The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the
best known today. Much of the interest in cryptocurrencies is to trade for profit,
with speculators at times driving prices skyward

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 HISTORY

The history of cryptocurrencies dates back 1980s, when cryptocurrencies were

called cyber currencies. These coins started gaining in popularity more than a
decade ago, in 2008, with the introduction of Bitcoin. The cryptocurrency
mentioned earlier was created by an anonymous programmer or group of
programmers under the name Satoshi Nakamoto. Since the launch of the above-
mentioned cryptocurrency in 2009, cryptocurrencies have been all the rage. Over
the last several years, their popularity has only grown, with more and more people
investing in them. In 2008, Satoshi Nakamoto (a pseudonym) published a paper. It
outlined a system for creating a digital currency that didn’t require trust in any
third party. Satoshi Nakamoto’s paper practically launched the cryptocurrency
revolution. Its creator, Nakamoto, created the Bitcoin protocol in 2009, the same
year it launched as open-source software. In early 2010, it was the only
cryptocurrency in the market. Back then, its price was just a few cents. Over the
next several years, new cryptocurrencies entered the market, and their prices rose
and fell along with Bitcoin’s. Unsurprisingly, many people lost faith in
cryptocurrencies as an investment vehicle. Nevertheless, beginning in late 2017,
cryptocurrencies began to see unparalleled growth. As a result, the total market cap
for all cryptocurrencies reached $820 billion in January 2018 before crashing later
that month. In spite of this crash, the crypto market has seen steady growth
throughout.

Without a doubt, 2017 was full of exciting events. As the value of Bitcoin and
other cryptocurrencies skyrocketed, so did the number of schemes as well as scams
targeting crypto investors.

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OBJECTIVES OF CRYPTO CURRENCY

HOW DOES CRYPTOCURRENCIES WORK

TYPES OF CRYPTOCURRENCIES

PROS AND CONS OF CRYPTOCURRENCIES

IMPORTANCE OF CRYPTOCURRENCY

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 HOW DOES IT WORK

HOW DOES CRYPTO CURRENCY WORKS

Cryptocurrencies run on a distributed public ledger called blockchain, a record of

all transactions updated and held by currency holders.

Units of cryptocurrency are created through a process called mining, which

involves using computer power to solve complicated mathematical problems that
generate coins. Users can also buy the currencies from brokers, then store and
spend them using cryptographic wallets.

If you own cryptocurrency, you don’t own anything tangible. What you own is a
key that allows you to move a record or a unit of measure from one person to
another without a trusted third party.

Although Bitcoin has been around since 2009, cryptocurrencies and applications of
blockchain technology are still emerging in financial terms, and more uses are
expected in the future. Transactions including bonds, stocks, and other financial
assets could eventually be traded using the technology.

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-5-
 TYPES OF CRYPTOCURRENCIES

Bitcoin is considered the first cryptocurrency created, and other individual

cryptocurrencies are known as "altcoins" (a combo word derived from "alternative
coin"). It's difficult to say which cryptos are the best ones, but Bitcoin and some of
the largest altcoins out there are top-tier options because of their scalability,
privacy, and the scope of functionality they support.

COIN TOTAL MARKET VALUE*

Bitcoin (CRYPTO:BTC) $749 billion

Ethereum (CRYPTO:ETH) $313 billion

Tether (CRYPTO:USDT) $79.5 billion

Binance Coin (CRYPTO:BNB) $62.6 billion

USD Coin (CRYPTO:USDC) $53.2 billion

XRP (CRYPTO:XRP) $34.4 billion

Terra (CRYPTO:LUNA) $32.9 billion

Solana (CRYPTO:SOL) $28.5 billion

Cardano (CRYPTO:ADA) $28.4 billion

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Avalanche (CRYPTO:AVAX) $20.6 billion

There really isn't one "best" cryptocurrency since each has different features built
in based on what the developer designed it for. Here's an overview of some of the
most popular digital coins and how each is being used.

1. Bitcoin

Bitcoin is regarded as the first decentralized cryptocurrency using blockchain

technology to facilitate payments and digital transactions. Instead of using a central
bank to control the money supply in an economy (like the Federal Reserve in
tandem with the U.S. Department of the Treasury) or third parties to verify
transactions (such as your local bank, credit card issuer, and the merchant's bank),
Bitcoin's blockchain acts as a public ledger of all transactions in the history of
Bitcoin.

The ledger allows a party to prove they own the Bitcoin they're trying to use and
can help prevent fraud and other unapproved tampering with the currency. A
decentralized currency can also make peer-to-peer money transfers (like those
between parties in two different countries) faster and less expensive than
traditional currency exchanges involving a third-party institution.

2. Ether (Ethereum)

Ether is the token used to facilitate transactions on the Ethereum

network. Ethereum is a platform that uses blockchain technology to enable the

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creation of smart contracts and other decentralized applications (meaning the
software doesn't have to be distributed on app exchanges like Apple's
(NASDAQ:AAPL) App Store or Alphabet's
(NASDAQ:GOOGL)(NASDAQ:GOOG) Google Play Store, where they might
have to give a 30% cut of any revenue to the tech giants). Ethereum is both a
cryptocurrency (the actual coins are measured in units called Ether) and a software
development sandbox.

3. Tether

Tether is a stablecoin, or a currency tied to a fiat currency -- in this case, the U.S.
dollar. The idea behind Tether is to combine the benefits of a cryptocurrency (such
as no need for financial intermediaries) with the stability of a currency issued by a
sovereign government (versus the wild price fluctuations inherent with many
cryptos

4. Binance Coin

Binance Coin is available on the Binance cryptocurrency exchange platform, along

with other digital coins that are available for trading. Binance Coin can be used as
a type of currency, but it also facilitates tokens that can be used to pay fees on the
Binance exchange and to power Binance's DEX (decentralized exchange) for
building apps.

5. USD Coin

USD Coin is another stablecoin, and, like Tether, it is pegged to the U.S. dollar.
Also like Tether, USD Coin is hosted on the Ethereum blockchain. The idea behind
USD Coin was to create a "fully digital" dollar, one that has the stability of U.S.
fiat currency but doesn't require a bank account or that the holder live in a
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particular country. Rather than an investment, USD Coin is envisioned as everyday
money that can be spent with merchants on the internet.

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 PROS AND CONS OF USING CRYPTOCURRENCIES

TOPICS COVERED

Advantages OF CRYPTOCURRENCIES
disadvantages OF CRYPTOCURRENCIES

ADVANTAGES

1. PROTECTION FROM INFLATION:

Inflation has caused many currencies to urge their value to decline with time. At
the time of its launch, almost every cryptocurrency is released with a tough and
fast amount. The ASCII computer file specifies the quantity of any coin; there are
only 21 million Bitcoins released within the planet. So, because the demand
increases, its value will increase which might maintain with the market and, within
the long run, prevent inflation.

2. SELF-GOVERNED AND MANAGED:

Governance and maintenance of any currency is also a serious factor for its
development. The cryptocurrency transactions are stored by developers/miners on
their hardware, which they get the transaction fee as a gift for doing so. Since the
miners have become acquired it, they keep transaction records accurate and up-to-
date, keeping the integrity of the cryptocurrency and also the records decentralized.

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3. DECENTRALIZED:

A major pro of cryptocurrencies is that they are mainly decentralized. Many

cryptocurrencies are controlled by the developers using it and those who have a
significant amount of the coin or by a corporation to develop it before it’s released
into the market. The decentralization helps keep the currency monopoly free and in
restraint, so nobody organization can determine the flow and so the worth of the
coin, which, in turn, will keep it stable and secure, unlike fiat currencies which are
controlled by the Government.

4. COST-EFFECTIVE MODE OF TRANSACTION:

One of the most uses of cryptocurrencies is to send money across borders. With the
help of cryptocurrency, the transaction fees paid by a user are reduced to a
negligible or zero amount. It does so by eliminating the need for third parties, like
VISA or PayPal, to verify a transaction. It removes the requirement to pay any
extra transaction fees.

5. CURRENCY EXCHANGES FINISH SMOOTHLY:

Cryptocurrency can be bought using many currencies rather like the US dollar,
European euro, British unit of measurement, the Indian rupee, or Japanese yen.
Varied cryptocurrency wallets and exchanges help convert one currency into
another by trading in cryptocurrency, across different wallets, and by paying
minimal transaction fees.

6. SECURE AND PRIVATE:

Privacy and security have always been concerns for cryptocurrencies. The
blockchain ledger relies on different mathematical puzzles, which are hard to
decode. It makes cryptocurrency safer than ordinary electronic transactions.

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Cryptocurrencies are for better security and privacy, and they use pseudonyms that
are unconnected to any user account or stored data that might be linked to a profile.

7. EASY TRANSFER OF FUNDS:

Cryptocurrencies have always kept themselves as an optimal solution for

transactions. Transactions, whether international or domestic in cryptocurrencies,
are lightning-fast. It will be because the verification requires little time to process
as there are only some barriers to cross.

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DISADVANTAGES

1. ILLEGAL TRANSACTIONS:

Since the privacy and security of cryptocurrency transactions are high, it’s hard for
the government to trace down any user by their wallet address or keep tabs on their
data. Bitcoin has been used as a mode of payment (exchanging money) during
many illegal deals in the past, like buying drugs on the dark web. It has also been
used by some people to convert their illicitly acquired money to hide its source,
through a clean intermediary.

2. RISK OF DATA LOSS:

The developers wanted to make virtually untraceable ASCII documents, strong

hacking defenses, and impenetrable authentication protocols. It would make it
safer to position money in cryptocurrencies than physical cash or bank vaults. But
if any user loses the private key to their wallet, there is no getting it back. The
wallet will remain locked away along with the number of coins inside it. It might
result in the loss of the user.

3. POWER LIES IN FEW HANDS:

Although cryptocurrencies are known for their feature of being decentralized, the
flow and amount of some currencies within the market are still controlled by their
creators and some organizations. These holders can manipulate the coin for
enormous swings in its price. Even hugely traded coins are at risk of these
manipulations like Bitcoin, whose value doubled several times in 2017.

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4. BUYING NFTS WITH OTHER TOKENS:

Some cryptocurrencies can only be traded in one or some fiat currencies. It forces
the user to convert these currencies into one all told the most currencies, like
Bitcoin or Ethereum first and then through other exchanges, to their desired
currency. It can apply to just some cryptocurrencies. By doing this, the extra
transaction fees are added within the method, costing unnecessary money.

5. NO REFUND OR CANCELLATION:

If there is a dispute between concerned parties, or if someone mistakenly sends

funds to a wrong wallet address, the coin cannot be retrieved by the sender. It
might be utilized by many folks to cheat others out of their money. Since there are
no refunds, one can easily be created for a transaction whose product or services
they never received.

6. HIGH CONSUMPTION OF ENERGY:

Mining cryptocurrencies require plenty of computational power and electricity

input, making it highly energy-intensive. The main culprit during this is often
Bitcoin. Mining Bitcoin requires advanced computers and plenty of energy. One
cannot do it on ordinary computers. Major Bitcoin miners are in countries like
China that use coal to produce electricity. It has increased China’s carbon footprint
tremendously.

7. VULNERABLE TO HACKS:

Although cryptocurrencies are very secure, exchanges don’t seem to be that secure.
Most exchanges store the wallet data of users to figure their user ID correctly. This
data is often stolen by hackers, giving them access to lots of accounts.

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After getting access, these hackers can efficiently transfer funds from those
accounts. Some exchanges, like Bitfinex or Mt Gox, have been hacked within the
past years, and Bitcoin has been stolen in thousands and countless US dollars.
Most exchanges are highly secure nowadays, but there is always a possibility for a
further hack.

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 IMPORTANCE OF CRYPTOCURRENCY

People without access to banking institutions––or those who don't trust their
leaders––can use cryptocurrencies without the fear of censorship or confiscation.
The key to crypto's significance is its decentralization, meaning users don’t have to
rely on their local institutions and governments to interact with money. This
decentralized nature makes cryptocurrencies an incredible financial tool for much
of the world's population, especially those in less developed or authoritarian
financial environments.

It's also impossible to tamper with cryptocurrencies like Bitcoin since they don’t
have central authorities like the Federal Reserve calling the shots. People who hold
crypto in a wallet enjoy the benefits (and responsibility) of self-custody and
censorship resistance. These features can potentially give millions of people access
to capital that's difficult to inflate or confiscate.
Need of the study

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 CHAPTER-2

REVIEW OF LITERATURE

1. Conlon, Corbet,, and McGee, (2020) (TYPES OF

CRYPTOCURRENCIES) :- Examined a basket of cryptocurrencies such as
Bitcoin, Ethereum, and Tether during the COVID - 19 pandemic as safe
heaven investment. The data were collected from coinmetrics using their CM
reference rates. Bitcoin has the largest market capitalization and all
cryptocurrencies are examined in relation to the US dollar and different
indices. The time period for Bitcoin was selected from April 2010 through
April 2020. The time period for Ethereum was selected from August 2015
through April 2020. Finally, the time period for Tether was selected from
October 2014 through April 2020.

2. Shahzad, Bouri,, Roubaud,, Kristoufek, and Lucey, (2019) (IS BITCOIN

SAFE TO INVEST?):- Investigated if Bitcoin is a safe-haven investment
during turmoil and high fluctuations of the stock market and if the behavior
of changes is similar to or different from that of gold and the general
commodity index. They used as a methodology a bivariate cross-
quantilogram approach to define weak and strong safe heaven approach in
relation to a rollingwindow methodology. They focused on the lowest tails of
the normal distribution. The dataset used was from 19 July 2010 until 22
February 2018. They used daily spot prices for Bitcoin, ounce of gold, and
the S&P Goldman Sachs Commodity Index (S&P GSCI). In addition, they
used five Morgan Stanley Capital International (MSCI) stock indices: world,

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 developed, emerging markets, China, and the US. They used the CoinDesk
price index to represent the Bitcoin prices

3. Baur, Hong, and Lee, (2019) (STATISTICAL DATA OF BITCOIN):-

They used daily data between July 2010 and June 2015. They used the
WinkDex data as the daily exchange rate of Bitcoin to US dollar from the
WinkDex website (https://winkdex.com/). They used the excess returns of
Bitcoin over the 3 – month Treasury Bill rate. The assets that were used in
the analysis include US equities, precious metals, commodities, energy,
bonds and currencies. The data were downloaded from Bloomberg terminal.
They found that Bitcoin is uncorrelated with stocks, bonds and commodities
both in upward and downward market, which offer diversification benefits.
They concluded that Bitcoin is used as a speculative investment and not as a
currency and medium of exchange.

4. Duan. K, Huang.Y, and Mishra.T,(2021): SAFETY OF BITCOIN

DURING TURMOIL OF STOCK AND BOND ASSETS IN FIVE
MAJOR ECONOMIES DURING THE COVID-19 PANDEMIC:- The
dataset consists of panel data closing prices of Bitcoin, stock, and bond
covering the five major economies such as Australia, Canada, US, Europe
and UK. From a statistical point of view bitcoin show a negative and small
mean and high standard deviation or volatility in comparison with stock and
bond across the five market economies. The time series of all variables are
negatively skewed and leptokurtic across the five economies. The data for
Bitcoin are from Bitcoin Charts (bitcoincharts.com). Stock prices are
collected from Investing (Investing.com). Bond prices are proxied by the
bond index with maturity over 10 years and from S&P Dow Jones Indices
- 18 -
 database. The sample period is from 01 JUL 2019 to 09 JUL 2020 to test
financial turmoil due to the pandemic. The methodology that they applied is a
Bayesian panel VAR method to show interaction and heterogeneity across
country and region segmented markets. They examined the role of Bitcoin as
a safe heaven or as a diversifier during the pre-and post COVID-19 pandemic
crisis providing investors with important information whether to invest in
Bitcoin or not.

5. Gozbasi, Sahin, and Altinoz,(2021) (FACTORS THAT EFFECT THE

PRICE OF BITCON):- A safe haven investment is defined as if Bitcoin is
negatively correlated or uncorrelated with other asset or commodity. As one
of the characteristics of Bitcoin is its high volatility, they wanted to find if it
is suitable for investors. Chinese investors use bitcoin more frequently as a
safe haven investment. Specifically, they studied how commodities such as
gold and oil, the S&P 500 index, the volatility index and financial stress
index affect the Bitcoin prices. The data on the volatility and financial stress
indices were downloaded from the Federal Reserve Bank website, while data
for the rest of the variables were found from the investing.com database. The
methodology applied is the Autoregressive Distributed Lag (ARDL) model
based on the monthly data from the period 2010-2021.

6. Urquhart.A, Zhang.H,(2019) (BITCOIN CAN BE USED AS A HEDGE

OR SAFE HAVEN AGAINST SIX WORLD RATE CURRENCIES?):-
A hedge is defined as a financial asset that is negatively correlated with
another asset. They tested Bitcoin and currencies by using hourly frequency
since Bitcoin experiences large intraday volatility. The data was obtained
from www.bitcoincharts.com. They selected the Bitcoin price from the
- 19 -
 Bitstamp exchange since it is one of the largest Bitcoin exchanges. It is based
in the UK. They collected intraday Bitcoin data from 1st November 2014 to
31st October 2017. Hourly currency data was provided from Bloomberg for
the six currencies defined as the Australian dollar (AUD), Canadian dollar
(CAD), the Swissfranc (CHF), the Euro (EUR), the British pound (GBP) and
the Japanese yen (JPY).GBP has the highest mean return. In contrast, JPY
has the smallest mean return. Bitcoin showed high volatility. CHF is the most
volatile currency while CAD is the least volatile currency

7. Bouri, Molnar, Azzi, Roubaud, Hagfors,(2017) (CAN BITCOIN BE

USED AS HEDGE AND SAFE HAVEN AGAINST WORLD STOCK
INDICES, BONDS, OIL, GOLD, THE GENERAL COMMODITY
INDEX AND THE US DOLLAR INDEX?):- The market capitalization of
Bitcoin has increased sharply by the end of 2015, The stock market indices
that were used for the US, the UK, Germany, Japan and China respectively
are the S&P 500, FTSE 100, DAX 30, Nikkei 225 and Shanghai A-share. As
a proxy for world, European and Asia Pacific stocks, they used three regional
and international benchmarks from Morgan Stanley Capital International
(MSCI) indices.

8. Conlon, McGee, (2020) (BITCOIN SAFETY DURING THE COVID-19

PANDEMIC):- The dataset includes daily price data for the S&P 500 and
are downloaded from Thompson Reuters Eikon. Price data for Bitcoin were
obtained from Coinmetrics, using their CM reference rates. The whole period
under study was from July 2010 - March 2020. In addition, they studied a
one-year period from March 21st 2019 through March 20th 2020 and 2016-

- 20 -
 2020.The methodology applied was value at risk (VaR) and conditional value
at risk (CVaR), two measures of downside risk.

9. Corbet, Larkin, Lucey, (2020) (EXAMINED BITCOIN DURING THE

COVID-19 PANDEMIC):- They focused on the Chinese financial market
turmoil. They used dummy variables to analyze the contagion effects in the
price volatility of both the Shanghai and Shenzhen Stock Exchanges in
relation to Bitcoin. They used hourly data from 11 March 2019 to 10 March
2020 and more specifically daily returns to analyze the correlations between
Bitcoin , Dow Jones Industrial, West Texas Intermediate, WTI, and gold. The
database used is Thomson Reuters Eikon. They found increased correlation
between Chinese markets and WTI. The values range is from 0.091 to 0.485,
while the correlation between Chinese markets and gold, which was negative
prior to the COVID-19 pandemic, increase to 0.335 and 0.347 respectively
with the Shanghai and Shenzhen stock exchanges. They found short-term
strong correlations between Bitcoin and Chinese stock markets.

10. Briere, Oosterlinck, Szafarz, (2015) (ANALYZE BITCOIN IN

RELATION TO FINANCIAL ASSETS SUCH AS STOCKS, BONDS,
HARD CURRENCIES, COMMODITIES, HEDGE FUNDS AND REAL
ESTATE):- He Used weekly data from the bitcoincharts.com website over
the 23 July 2010 to 27 December 2013 period. The data for the financial
assets were downloaded from Datastream. The methodology used is the
mean-variance spanning test to test the relationship of the Bitcoin with the
mentioned financial assets. They found that Bitcoin show high average return
404% annually and high volatility in percentage terms 176%.

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11.Bouri, Gupta, Tiwari, Roubaud, (2017) (CAN BITCOIN BE USED AS A
HEDGE TOOL AGAINST UNCERTAINTY IN DIFFERENT TIME
PERIODS USING DAILY DATA FOR THE PERIOD OF 17TH
MARCH, 2011, TO 7TH OCTOBER, 2016):- Uncertainty is measured by
the first principal component analysis of the US VIX volatility index of
equity markets. The US VIX index represents market sentiment and investor
expectation. The US VIX index represents the stock markets of Brazil,
Canada, China, France, Germany, India, Japan, Mexico, Russia, South
Africa, Sweden, Switzerland, the UK and the US. The data for the VIX was
obtained from the DataStream of Thomson Reuters, while the Bitcoin price
data in US dollars are collected from CoinDesk at www.coindesk.com/price.
Wavelet analysis decomposes the time series in several wavelet scales or
frequencies to investigate the relationship between Bitcoin prices returns and
global uncertainty.

12.Klein, Thu, Walther, (2018): (ANALYZED AND COMPARED

CONDITIONAL VARIANCE OF BITCOIN AND GOLD AND OTHER
ASSETS AND FIND DIFFERENCES IN THEIR STRUCTURE):- They
want to investigate if Bitcoin cryptocurrency is the new gold. Their findings
indicate that Bitcoin is not the new Gold. Its volatility fluctuations has some
aspects with Gold and Silver, however, from a portfolio perspective, Bitcoin
does not serve as a safe-haven as Gold it is. They examined the correlation of
Bitcoin with Gold, Silver, the oil price WTI, and the three equity in- dices
S&P 500, MSCI World, and MSCI Emerging Markets 50. Gold has a
negative correlation with S&P 500, but a positive correlation of 0.059 with
MSCI World. Gold, S&P 500 and MSCI World have the highest correlation
with Bitcoin between 0.045 and 0.049.
- 22 -
13.Baur, D. G., Hong, K., Lee, A. D., (2018) (RATE OF RETURN IN
BITCOIN):- Bitcoin show high average return 404% annually and high
volatility in percentage terms 176%. It shows low correlation with the
mentioned assets and can be considered from investors as a safe haven
investment due to the low risk exposure with other financial and alternative
assets. As an exception, we can mention Gold and inflation linked bonds that
show a significant correlation with Bitcoin. However, Bitcoin should be
considered with cautious from investors as its identity as safe haven may not
last in the medium to long-term horizon. It is classified between fiat money
and commodity currency. Bitcoin show large volatility and returns and as
mining procedure involved has many similarities with gold but not intrinsic
value. They found that miners have the largest standard deviation in number
of Bitcoin transactions of up to 25,155.50 at the end of 2013. The Bitcoin
returns showed very high negative skewness and very high kurtosis. High
negative skewness is similar to the skewness of high yield corporate bonds,
gold and silver returns.

14.Dyhrberg, (2016) (GARCH MODELS):- The hypothesis tested was how

the return of Bitcoin is presented when compared to gold and dollar exchange
rate prices when taking into consideration the variance. The price volatility of
Bitcoin is tested to find if it is ideal for portfolio management. The results
showed a strong ARCH effect in the residuals of the first difference-logged
price of Bitcoin. The Bitcoin data was obtained from Coindesk Price Index
from the 19th of July 2010 to 22nd of May 2015. Other data for the gold
commodity, dollar exchange rate currency, federal funds rate and FTSE index
were obtained from datastream. The GARCH results of the mean and
- 23 -
variance equation showed that bitcoin returns are more sensitive to the value
of the dollar relative to the pound. The variance equation reveals that a
positive volatility shock to the dollar relative to the sterling exchange rate
decreases the variance of the bitcoin returns. Bitcoin was affected
significantly to the federal funds rate. The asymmetric GARCH model
showed that Bitcoin is ideal for risk averse investors especially in
anticipating negative fluctuations of the market. Bitcoin is ideal for portfolio
management as it occupies a place between gold commodity and dollar
currency rate. Gold commodity has negative correlation in relation to the
dollar currency rate and both showed hedging techniques using the GARCH
model and advantages as a medium of exchange. Bitcoin act as a hedge
against the US exchange rate dollar and the UK stock market.

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 Objectives of the study

1. To study the legal framework of Crypto Currency in India.

2. To study the types of crypto currency and that are implemented in different
platforms including crypto currency in social network, in social games
loyalty points and peer to peer networks.

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 CHAPTER-3

OBJECTIVE NO-1

THE LEGAL FRAME WORK OF CRYPTOCURRENCY WITH

REFERENCE TO INDIA

Topics:-

1. Cryptocurrency regulation in india

2. Taxation
3. Anti-money laundering objectives
4. Cross border transaction
5. security exchange board of india [SEBI]

 Cryptocurrency regulation in india :-

It is inarguable that the era of information and communication technology has

produced several promising potentials. The financial and commercial sectors are
among those that benefit from the growing online ecosystem. The rise in internet
users has inspired the creation of virtual world concepts, resulting in new
commercial phenomena. As a result, new trading models, transaction systems, and
currency alternatives have emerged.

Out of these, one of the most divisive fiscal mediums to emerge is cryptocurrency.
Cryptocurrency refers to any non-fiat currency that can be used in a variety
of financial transactions, virtual or physical. Cryptocurrencies are intangible assets

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that are purportedly used in a variety of applications and networks, including peer-
to-peer networks, virtual worlds, online social networks, and online games.

While India’s conservative stance on cryptocurrency remains firm, some

information has been clarified with the Indian Parliament's announcement of the
annual fiscal budget in February 2022. The finance minister stated that the tax rate
on revenue from virtual digital assets will be a flat 30%, with a 1% tax deduction at
the source.

The Ministry of Corporate Affairs also amended Schedule III of the Companies
Act. It specifies how businesses must prepare their balance sheets and income
statements for submission to the government. It demands that Indian enterprises
record the profit or loss on cryptocurrency transactions, the amount of currency on
hand at the time of reporting, and any deposits or advances received from third
parties for trading or investing in cryptocurrencies. The Indian government has
made it clear these are not signs that crypto is legitimate, however.

As such, there are no clear regulations governing cryptocurrencies in India. For

now, cryptocurrency use is not forbidden nor regulated. Individuals and businesses
can own, invest in, and use cryptocurrencies as long as they follow all applicable
regulations. India’s stance on cryptocurrencies will become clear once the contents
of the draft bill “The Cryptocurrency and Regulation of Official Digital Currency
Bill, 2021” are made public.

 taxation :-

Tax on cryptocurrency is one of the most confusing aspects in India. Initially, there was
no Income Tax Act or Goods and Services Tax (GST) defined cryptocurrencies in India.
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In the recent Union Budget 2022 outcome, the Finance Minister presented a tax regime
for virtual or digital assets that include cryptocurrencies.

 Cryptocurrency investors are required to report the calculated profits and losses as
a part of their income.
 A 30% tax will be charged on the earnings from the transfer of digital assets that
include cryptocurrencies, NFTs, etc.
 Just the cost of acquisition and no deduction will be permitted while reporting
earnings from the transfer of virtual assets.
 A 1% deduction of tax deducted at source (TDS) on the buyer’s payment if it
crosses the threshold limit.
 If cryptocurrency is received as a gift or transferred it is subjected to tax at the
giftee’s end.
 If you face any loss from the virtual asset investment, it cannot be balanced
against other income.

 ANTI MONEY LAUNDRING OBJECTIVES

Egulators frequently struggle to track virtual currency transactions due to their

anonymity. Although wallet IDs are stored on the blockchain, they are impossible
to correlate with specific individuals. Since regulators are unable to track the flow
of money that could be used for money laundering, the concept of sending
anything valuable over the internet while avoiding the conventional framework for
financial surveillance is a cause of worry.

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Know Your Customer [“KYC”] and Anti-Money Laundering [“AML”] regulations
are currently established in several distinct legislation and RBI guidelines. These
restrictions, however, do not specifically apply to businesses that use virtual
currency.

 CROSS-BORDER TRANSACTION

If Indian nationals send virtual money outside of India in exchange for services or
goods provided by a non-resident business, the Foreign Exchange Management
Regulations 2015 and the Master Directions on Export of Goods and Services are
likely to apply.

These export restrictions, among other things, provide that only authorized banking
channels may be utilized to receive the entire number of exports and that only an
authorized bank may be used to offset import payments against export receivables.
As a result, a cross-border exchange would be disallowed.

As a result, Indian nationals who carry virtual currencies across borders –

without first receiving fiat cash through recognized banking channels – may
be in breach of the Export Regulations.

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  SECURITY EXCHANGE BOARD OF INDIA [SEBI] REGULATION

The SEBI Investment Advisers Regulation 2013 and the SEBI Portfolio Managers
Regulation 2019 govern investment advisors and fund managers in India.

Despite the absence of a ban on managing and advising on crypto assets in the
aforementioned regulations, SEBI has made public the list of commodities in
which managers and advisers are entitled to trade. As a result, any investment
counselors or fund managers providing virtual currency services in India do
so in their capacity rather than as SEBI-authorized managers or advisers.

However, beginning with the current fiscal year, the Companies Act Amendment
will require Indian investment advising firms and wealth management firms to
disclose their holdings and ownership of cryptocurrencies and venture capital firms
to the Indian government. Individual advisers and fund managers may be
unaffected.

Looking Forward

Due to the ese of anonymity in digital wallet transactions and owing to how
challenging it is to track the identity of the underlying owners, the entire endeavor
of regulating crypto-related activity could be riddled with contradictions and might
be at risk of being rendered pointless.

Absolute prohibitions on this technology are impracticable and may be quite easy
to avoid. As with other disruptive technologies, a balanced regulatory framework is
required to reduce the risks while maximizing the advantages. We sincerely hope

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that any future regulations or court rulings recognize this fact and continue to take
a more balanced approach to it.

As the number of regulatory frameworks surrounding cryptocurrencies proliferates

across jurisdictions to regulate cryptocurrency transactions and consumer behavior,
some harmonization and standardization across regulatory frameworks will be
required to establish cooperative legislative agencies/groups for policy
enforcement and avoid the creation of safe havens, which is common in money
laundering legislation schemes.

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 Chapter no - 4

OBJECTIVE NO - 2

To study the types of crypto currency and it's implementation in

different platforms including crypto currency in social network, in
social games loyalty points and peer to peer networks

There are many types of Cryptocurrency that are implemented in different

platforms including Cryptocurrency in social networks, Cryptocurrency in social
games, loyalty points and Cryptocurrency in peer to peer networks. These
platforms can be classified into two main categories, centralized
cryptocurrency platforms and decentralized cryptocurrency platforms. The
centralized cryptocurrency can be defined as a Cryptocurrency system that has a
centralized repository which is similar to the central bank. The administrator of
that repository has full control of transferring the Cryptocurrency value between
persons or from location to another. Whereas the decentralized cryptocurrency can
be defined as the Cryptocurrency system that has no centralized repository and has
no single administrator. De- centralized Cryptocurrency can be obtain by

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computing or manufacturing effort. Many business activities have been involved in
both Cryptocurrency categories including the following:

A. Obtaining and Generating Cryptocurrency

Since there is no universal virtual currency across the digital medium, there are
several different ways and methods to obtain or generate the virtual currencies.
This paper presents the most prominent ones.

Pay for cryptocurrency method: This method allows adult users and gamers who
aged 18 and over to pay for cryptocurrency using real money or its equivalent in
the real monetary system such as pre-paid cards and credit cards or e- payment
systems such as PayPal. Each cryptocurrency platform has its own pricing and
exchanging rate which indicates the amount of purchased currency. The purchased
virtual currency in this method is stored in buyers’ accounts which are created
within the platforms by the operators. This method is restricted to over 18 years old
in most of platforms.

Offer based method: Many online gamers do not have the ability or the means to
pay with cash option for cryptocurrency. Offer based method enables users and
gamers whether they are adults or minors to earn cryptocurrency by watching
advertising videos, participating in a surveys, winning games levels and signing up
for a trial subscription. Users just need to complete the promotional activity to gain
the points and credits in order to fund their accounts which are created within the
game platform.This method is considered as one of the safest ways of earning
and generating cryptocurrency.

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Loyalty based method: In this method, customers and gamers earn points and
credits, which are forms of cryptocurrency, as long as they stay with the
cryptocurrency provider. Commercial companies and games operators reward
customers for their loyalty by giving them points that are redeemable towards
future purchases. These points are also exchangeable with vouchers, discounts and
gifts. Customers earn points whenever they make purchases from the loyalty point
provider’s products or from other collaborating companies. For example, Nectar
points, a loyalty point scheme in the UK, can be earned by purchasing real goods
and items from several partner companies such as Sainsbury’s and Hombase
stores. Furthermore, users can combine between this method and the method of
paying for cryptocurrency. For example, Saudi Airlines’ customers can pay for
extra air miles if their collected air miles are not enough to get the desired tickets.

Self-effort based method: This method is mainly used for decentralized

cryptocurrency systems such as Bitcoin. It is a mechanism of generating virtual
money in peer to peer networks. There will be fixed, immutable and finitely
number of generated virtual coins in Bitcoin which will equal to 21 million units
and there will be no more. Unlike other cryptocurrency where it is generated by
one or more central authority, Bitcoins are generated by the network peers. The
network users run specialized software on their computers to solve complex
mathematically puzzles and thus producing virtual coins. The complexity of the
puzzles ensures the flow of generating the coins which is then distributed randomly
to the system users. The virtual coins can be stored in local digital wallet in the
users devices so the coins are fully controlled and managed by them.

A. Spending and exchanging Cryptocurrency

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Spending and exchanging CC can be divided into two main sections, namely,
exchanging cryptocurrency for virtual items within the virtual environment and
exchanging cryptocurrency for real items including money, goods and services.

The first category has some challenges and problems but it is not comparable with
the second one which has more challenges and issues that this paper will address in
further sections.

Exchanging cryptocurrency for virtual items: This category of spending and

exchanging CC is followed mainly in online games and social networks. In many
virtual world communities, gamers spend their cryptocurrency to improve their
experience of the game by buying clothes and accessories for their avatars,
weapons, armors and properties. Moreover, gamers can buy advanced level of the
game using their virtual money. Some cryptocurrency platforms provide
transferring and payments activities between the system users such as Bitcoins.
Users can buy any virtual items using Bitcoins as a medium currency.

Furthermore, many of the Internet technologies are using the concept of sharing
resources which mean that they depend on participants’ participations. The
resources which need to be shared in these kinds of systems include files, storage
capacity, computations’ results and bandwidth. These systems are built on
share-resources based to maintain functionality and control stability.

Some peer to peer networks introduce the idea of incentives to balance

contribution by utilizing some financial concepts such as cryptocurrency. Karma

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is an example of cryptocurrency system for peer to peer networks that uses this
mechanism. Every new user that joins to the system will gain a small amount of
KARMA to start with. This amount will be increased when the user contributes
and it will be decreased when the user consumes. Knowledge is also can be
exchanged with cryptocurrency where users are able to value their knowledge and
they can exchange it with other users for cryptocurrency. For example, VEN
is a global digital currency that can be exchanged with knowledge and it is used in
a social network called Hub Culture. Users in Hub Culture can use VEN to charge
accessing to individual contents such as articles and videos which are considered as
users’ knowledge. Additionally, promises can also be considered as cryptocurrency
in some decentralized networks. This type of virtual currency is derived from two
concepts which are trust in social relationships and the mechanism of real
monetary system. The real money in reality is traded as promises or what so called
I OWE YOU (IOU) concept. Real currency notes are essentially IOUs from the
government and bank accounts are IOUs from the banks. Government and banks
IOUs are used as payment method between people. A combination between the
trust relationships between members in decentralized networks and the concept of
IOU promises can be converted to cryptocurrency to be used as a payment
method. Ripple is a good example of a decentralized system that use IOU
promises as virtual currency. The role of Ripple system is to find the rout between
the payer and the payee in the network through trusted nodes between them. For
example, Alex needs to pay £10 for buying an item from Mary but they do not
know each other so they do not trust each other. They know and trust a third person
called Tom who will play the role of mediator between them. Now, Alex can give
his IOU to Tom who is in turn can give his IOU to Mary and this means the
payment is completed between Alex and Mary via Tom. Exchanging
cryptocurrency for real items:
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The connection between the cryptocurrency and the real world can be divided into
three main parts as follows:
Cryptocurrency to real money where the CC can be exchanged for real cash.
This kind of spending cryptocurrency indicates the maturity of the operator’s
system which needs to have business connection with the real money systems.
Exchanging rate must be set up to control the financial exchanging. A good
example of this type of exchanging is Linden Dollar (L$) in Second Life virtual
world where users can convert L$ to variety of real currencies such as US$, see
As of Jan 2018,
over 16.78 million Bitcoin units are circulated around the world which worth more
than 142 billion USD. Additionally, Bitcoins are still created until they reached 21
million units and there will never be more than that amount. This will help to
control the exchange process and the circulation of this type of virtual
currency.
Cryptocurrency to real goods where the VC can be exchanged for tangible goods.
Some CC platforms enable individuals to buy clothes, sunglasses, perfumes
and electrical appliances using their virtual currency. Mobily company, a
mobile network provider in Saudi Arabia, enables its customers to pay for
their purchases from partner companies using their collected points. In some other
cryptocurrency platforms, customers receive vouchers versus their collected points
to use them for buying real items and goods from the points provider’s stores such
as Tesco ClubCard points. Moreover, virtual currencies in decentralized platforms
can also be exchanged for real items. For example, VEN currency can be
exchanged for real goods and commodities such as clothes, accessories and
Precious metals. It can be used to purchase cars where users can exchange
254,451.94 VEN with NISSAN all-electric car called LEAF. Cryptocurrency to
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services where individuals can exchange CC with services that they need in their
real life. For example, customers can benefit from converting their collected
points to free minutes and texts with Mobily network. Furthermore, Avios point’s
collectors can convert their points to travel services such
as travel insurance.
CHAPTER NO - 5

CONCLUSION

Cryptocurrency offers a new, effective and attractive model of payment methods

that can boost companies and operators revenues. It also provide alternative
method of payment, apart from real money, that enable users to make financial
activities such as buying, selling, transferring and exchanging easily. Although
cryptocurrency platforms open many channels for digital financial transactions and
provide a new form of currency with different mechanisms and methods, they are
not controlled and regulated as they deserved. The research analyzed
cryptocurrency platforms and extracted many concerns and challenges that put
such financial system under the risk. The lack of legislations is considered as the
main concern in cryptocurrency systems. Almost a clear picture of the size of
cryptocurrency use has been drawn from my analysis of the current cryptocurrency
literature and from the conducted study. Although the pilot study has been
conducted with relatively small sample, but the results showed me a preliminary
perception about the use, the growth, the trust of using and future expectations of
cryptocurrency. I can now realize many indications that can provide initial answers
to the research questions. My analysis indicates that cryptocurrency is very likely
to be the next currency platform due to the large volume of cryptocurrency that is

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flowing in different systems, the huge expanding and growing of using and
implementing cryptocurrencies and the opportunities that cryptocurrency
systems offer. Moreover, the confidence and trust rate of using cryptocurrency is
noticeably high as it can be seen in several cases that have been stated in this paper
besides the survey results. However, users have not realized the full picture of
using cryptocurrency. In fact, many cryptocurrency forms do not deserve that
much of trust yet. Many concerns, challenges and issues are existing in many
cryptocurrency platforms and they are clearly outlined in the above sections
of this paper. Until cryptocurrency is being well regulated and controlled, users
need to take extra precautions of using such virtual money. The future of
Cryptocurrency concept is promising, revealing more opportunities to bring
positive changes and progress to e-Business and e-Payment sectors. With the rapid
progress and improve of technology, cryptocurrency will not stop progressing.
There are advanced steps towards improving and expanding the cryptocurrency
concept since our study was conducted. More and more vendors are accepting
payment with different types of cryptocurrency and many people are now more
aware of potentials and opportunities that CC can offer. New forms of virtual
currency have also been emerged and spread around the world recently. M-Pesa as
example, which is a form of CC that offer a secure payment, has been introduced
in Kenya in 2007 and now, it has been expanded into many other countries in
Africa, Asia (including India) and Europe creating a highly popular payment
service. The Cryptocurrency field creates a lot of research opportunities and many
studies need to be done in order to provide scientific contents. The correlation
between the real financial laws and the legislative status of implementing
cryptocurrency platform needs to be studied further from various different
prospectives. Moreover, the adoption and acceptance level also needs more

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consideration and more analysis with large samples. Trust and confidence are
important factors that need to be investigated further in terms of using and
trading the Cryptocurrency forms. The further research scope can be extended to
developing use-cases for applications of cryptocurrency across different sectors in
India.

REFERENCE

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CRYPTOCURRENCIES) (vol. No. 14(6) ) (issue no. 6) pages- 1-16.

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BITCOIN SAFE TO INVEST?) (vol. No. 28) (issue no. 3).

3. Baur, Hong, and Lee, (2019) (STATISTICAL DATA OF BITCOIN)

(vol. No. 18(3) , pages 239-254.

4. Duan. K, Huang.Y, and Mishra.T,(2021): SAFETY OF BITCOIN

DURING TURMOIL OF STOCK AND BOND ASSETS IN FIVE MAJOR
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5. Gozbasi, Sahin, and Altinoz,(2021) (FACTORS THAT EFFECT

THE PRICE OF BITCON) (vol. No. 34) (issue no. 1) .

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USED AS HEDGE AND SAFE HAVEN AGAINST WORLD STOCK
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PANDEMIC) (vol. No. 2) (issue no. 1/6). Pages 234-267.

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DURING THE COVID-19 PANDEMIC) (vol. No. 82) (issue no. 1)

pages 120-145.

10. Briere, Oosterlinck, Szafarz, (2015) (ANALYZE BITCOIN IN

RELATION TO FINANCIAL ASSETS SUCH AS STOCKS, BONDS,

HARD CURRENCIES, COMMODITIES, HEDGE FUNDS AND

REAL ESTATE) (vol. No. 62) (issue no. 7) pages 160-185.

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CONDITIONAL VARIANCE OF BITCOIN AND GOLD AND OTHER
ASSETS AND FIND DIFFERENCES IN THEIR STRUCTURE) (vol. No. 34)
(issue no. 1) pages 135-175.

13. Baur, D. G., Hong, K., Lee, A. D., (2018) (RATE OF RETURN IN
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14. Dyhrberg, (2016) (GARCH MODELS) (Dyhrberg publishers is•

edition.2009)(2008).

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 BIBLIOGRAPHY

The data collected for this project basically secondary data which is
collected from newspapers and internet. Yes it is really a very difficult
task to take views of higher authorities of any companies in such a
less than an analyse their response.

WEBSITE:

 WWW.SSRN.COM
 WWW.RESEARCHGATE.NET
 WWW.DAILYGUARDIAN.COM
 WWW.ITWGLOBAL.COM
 WWW.BUSINESSSTANDARD.COM
 WWW.LAWBHOOMI.COM

NEWSPAPER
 HINDUSTAN TIMES
 TIMES INDIA

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