Digital Identity

Webinar Wrap up: Demystifying the cryptic crypto: Compliance and regulations


Cryptocurrency space is maturing, India’s appetite for cryptocurrency is evident, as the country facilitates the highest recipient of remittances globally — more than $83 billion since 2018 every year. With the support of cryptocurrencies, the remittance market is anticipated to soar in India, with cheaper, more efficient methods of sending money. This blog is a brief about the discussion we had with Shashi Prakash Jha, Head of compliance and Legal, WazirX where he explained the current scenario of cryptocurrency and cleared the air around uncertainty over the legal status of cryptocurrencies which is unnerving Indian investors who, according to unofficial estimates, hold around $1.5 billion (Rs 10,000 crore) in digital currencies. In this blog, Shashi has also highlighted the KYC/AML related challenges associated with security of the platform and identity thefts and what should be taken care by crypto exchange companies.

Which technology is cryptocurrency based on?

Blockchain: Blockchain or distributed ledger technology (DLT) is a technological protocol that enables data to be exchanged directly between different contracting parties within a network without the need for intermediaries. The network participants interact with encrypted identities (anonymously); each transaction is then added to an immutable transaction chain and distributed to all network nodes. Blockchain might add $1.76 trillion to global GDP in next 10 years. A PwC report estimates that blockchain technology will make up 1.4% of the global economy.

What is cryptocurrency? What are the different types of crypto currency?

Cryptocurrencies can act like real money—in a sense, they are real money—but they take a digital monetary form and are not managed or governed by any central authority. A true product of the digital age, cryptocurrencies operate without the involvement of banks, governments, or any middleman.

As of April 2021, there are over 10,000 different types of cryptocurrency.

The different types of crypto generally fall into one of two categories:
• Coins, which can include Bitcoin and altcoins (non-Bitcoin cryptocurrencies)
• Tokens

India is home to 300 crypto firms and the first crypto launched by a Bengaluru firm features in the top 20 list globally.

Here’s a list of popular cryptocurrency types:

  1. Bitcoin
  2. Bitcoin cash
  3. Lite coin
  4. Ethereum
  5. Ripple
  6. Stellar
  7. NEO
  8. Cardano
  9. IOTA

What is CBDC?

CBDC stands for “central bank digital currency,” a new type of currency that governments around the world are experimenting with. What sets a CBDC apart from established currencies is that proponents hope it can use new payment technology, typically a blockchain, to potentially increase payment efficiency and lower costs.

Types of CBCDs:

1- Retail: Retails CBCDs are meant for use by individuals, households and corporations.

2- Wholesale: Wholesale CBCDs are meant for use by financial institutions.

Use of CBDC’s:

  • Real-time money transfer: Money transfers and payments can be made in real-time from the payer to payee without relying on intermediaries such as banks.
  • Easy tracking of currency: With the introduction of CBDC in a nation, its central bank would be able to keep a track of the exact location of every unit of the currency
  • Income Tax: Tax avoidance and tax evasion will be near to impossible as methods such as offshore banking and unreported employment cannot be practiced to hide financial activities from the central bank.
  • Curbing Crime: Criminal activities can be easily spotted and ended such as terror funding, money laundering, and so forth
  • Alternative to physical cash: Digital currencies issued by central banks would provide for a modern alternative to physical cash.
  • Seigniorage income: Issuance of digital currency would avoid a reduction of seigniorage income for governments in the event of the disappearance of physical cash.
  • Volatility: CBDCs will be pegged to assets such as gold and thereby will not witness any volatility as in the case of cryptocurrencies.

Anti-Money Laundering Compliance for Crypto Exchanges [2021 Update]

Criminals laundered $2.8 billion in 2019 sing crypto exchanges, finds a new analysis. All efforts to prevent money laundering are called Anti-Money Laundering. Regulators established to prevent financial crimes have published regulations and guides on how to prevent financial crimes from past to present. The crypto industry was late to fulfill ANTI-MONEY LAUNDERING (AML) obligations due to the controversy of its rapid growth. Crime organizations took advantage of the complexity of crypto ANTI-MONEY LAUNDERING (AML) regulations and attempted to carry out money laundering and terrorist financing activities over crypto exchanges instead of more established institutions such as banks.

Cryptocurrencies are prone to financial crimes being anonymous in nature, so the FATF has certain laws for crypto exchanges. The fifth anti-money laundering directive was implemented at the beginning of 2020 and by the end of the year, the sixth anti-money laundering directive was released which increased the trouble for crypto exchanges. Next year, all-digital currency exchanges will be following 6AMLD for sure. According to 6AMLD, there are 22 offenses related to tax crimes, cybercrime, environmental crime, and self-laundering. Compared to the 5AMLD, the penalties have increased, which means crypto exchanges are now at more risk than before. Inability to comply with these regulations results in hefty fines.

Here are some of the laws for cryptocurrencies:

  • All crypto exchanges must develop a customer due diligence process to assist them in assessing AML/CTF
  • ANTI-MONEY LAUNDERING (AML) screening for businesses is compulsory if you are in the B2B market.
  • CDD must be performed for building strong relationships in the businesses and occasional checks for people with transactions above USD 1000 to EUR 1000.
  • Hold records of all the customers especially their names and wallet addresses.
  • Ongoing due diligence for assessing risks is important for scrutinizing transactions.

The report prepared by the Financial Action Task (FATF) in 2020 aims to help cryptocurrency wallet and exchange companies develop ANTI-MONEY LAUNDERING (AML) programs. Transaction size, pattern, frequency, transaction geography, senders/ recipients’ profiles can be the main fraud indicators.

Crypto adoption in India- Tip of the iceberg

Indians had parked nearly $6.6 billion (Rs49,189 crore) in cryptocurrencies until May this year, as compared to around $923 million until April 2020. The country ranks 11 out of 154 nations in terms of cryptocurrency adoption. India has a population of 1.39 billion that is predominantly young which is seen as tech-savvy and more adaptable to crypto saving


Acceptance of crypto is bullish in India even though government has been delaying the regulations. We might expect proper set of regulations from government towards the end of the year or beginning of next year after laying a proper digital KYC verification and AML/CTF infrastructure. The Government has adopted a wait and watch policy and it is observing what’s happening in the crypto space across the world. All the developed countries of the world are keeping an eye on cryptocurrencies and are allowing the technology to grow. All the developed countries of the world are keeping an eye on cryptocurrencies and are allowing the technology to grow.

Webinar-Demystifying the cryptic crypto: Compliances and Regulations

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