The promise of decentralisation is what drives the bitcoin industry. Cryptocurrencies like Ethereum and Bitcoin, however, offer the unspoken promise of deregulation. Investor security becomes a significant factor in cryptocurrency and token trading as Indian regulators balance this tightrope.
Elon Musk and Donald Trump have some influence over the Western economy and industry, so the world is moving towards greater acceptance of blockchain and cryptocurrency. Indian lawmakers are determined not to fall behind.
Consider the most recent $44 million attack of CoinDCX, an Indian cryptocurrency exchange. For example, the $234.9 million WazirX hack a year ago, which even earned it a Wikipedia page, highlights the necessity of establishing regulations that effectively regulate cryptocurrency, its trading, and its use while maintaining the fundamental principles of blockchain technology.
Accordingly, the Ministry of Finance plans to release a discussion paper on virtual digital assets in response to the growing demand for new legislation pertaining to cryptocurrencies. But doing so requires walking a tightrope between excessive regulation and sensible legislation.
Industry participants present a proposed cryptocurrency bill.
In a first for the industry, two prominent players in the crypto policy field, Hashed Emergent and Black Dot Public Policy Advisors, have teamed up to produce a model law for crypto in India before the Centre looks to develop new guidelines. The COINS Act 2025 is the name given to it.
The first attempt by the Indian sector to enact legislation governing all things crypto is the Crypto-systems Oversight, Innovation and Strategy (COINS) Act. What makes it unique, though, is that it departs from the frameworks that are centred on regulations, which are disapproved of in the crypto community and which the majority of policymakers have up to this point supported.
According to Hashed Emergent, the COINS Act is “intended to be introduced as a stand-alone Act governing all crypto-asset activities in India from a rights-first perspective,” drawing inspiration from best practices used in the US, EU, and Singapore.
On July 21, a week after the first anniversary of the WazirX scandal and one day after the CoinDCX hack became public, the team released this draft Act. According to Arvind Alexander, one of the COINS Act’s authors, “the COINS Act is absolutely relevant, but will not be invoked since the CoinDCX breach reportedly hit only company-held funds and not user-assets.”
Alexander, a legal counsel for Hashed Emergent, continued, “But it would be very relevant and valuable in the WazirX hack, which happened exactly one year ago, where user assets were compromised.”
“The COINS Act envisions a risk-based custody framework that would significantly lower the risks of single-point failure with regard to user assets by requiring strong segregation of user assets, mandatory proof-of-reserves disclosures, and enforceable operational standards for centralised exchanges,”
Alexander instructed us to visualise your cryptocurrency holdings as cash in a bank vault system in order to better understand this. The COINS Act would compel exchanges to maintain your money in distinct, insured “vaults,” demonstrate on-chain that they do so on a regular basis, and adhere to stringent safety protocols. “That way, your crypto stays locked up and protected even if a company’s own funds are hacked,” he said.
The proposal was accepted by Anuradha Chowdhary, the founder and CEO of ZeroTo3 Collective, a law company that focusses on startups and innovative technologies.
The COINS Act deals with custody and non-custody assets, which is the need of the hour, she added.
“In the crypto space, regulatory clarity is crucial. Additionally, there is always misunderstanding regarding the restrictions that apply when a virtual asset service provider or cryptocurrency business has custody of assets vs when they do not,” Chowdhary stated.
Custody has been the main focus of long-standing traditional regulations. However, she emphasised that financial regulations must change to keep up with the rapid advancement of technology.
Asset custody and cryptocurrency exchanges
Indian cryptocurrency exchanges are primarily impacted by these rules. Avinash Sekhar, CEO of Pi42, a cryptocurrency derivatives market in Indian currency, was interviewed by THE WEEK. In theory, these rules are beneficial. However, from a regulatory perspective, I see certain difficulties,” stated Sekhar, who has been involved in the sector since 2017.
“We only deal with Indian rupees, so we don’t take custody of the customer’s cryptocurrency on our exchange (Pi42),” Sekhar clarified.
He did, however, add that it is a great idea to have a central custodian of cryptocurrency assets separate from non-custody centralised exchanges. “It is a very good idea because it reduces the risk from a customer’s point of view. It lowers the possibility of hacking. Bigger exchanges like Binance are currently heading in this direction as well.
However, Sekhar acknowledges that in the case of decentralised exchanges, this is not simple.
“It requires a lot of thought,” he stated. “How decentralised exchanges will adhere to regulations, particularly in the areas of AML (Anti-Money Laundering), KYC (Know Your Customer), and taxation, needs to be investigated.”
Nonetheless, industry participants concur that new regulations for the cryptocurrency market should be draughted.
Anything that affects human existence, whether it be food, aviation, or medicine, needs to be regulated in order to safeguard consumers. According to Anuradha Chowdhary, founder of ZeroTo3, there will undoubtedly need to be some degree of equilibrium between centralisation and decentralisation in terms of crypto legislation.
While the industry waits for more precise regulations on cryptocurrency exchanges, taxation, custody, asset protection, and privacy, the COINS Act, which was draughted by Hashed Emergent and Black Dot Public Policy Advisors, and the Ministry of Finance’s forthcoming Virtual Digital Assets discussion paper are positive steps.
