India Introduces COINS Act for Crypto Regulation

India has taken a significant step towards establishing a clear and progressive regulatory framework for cryptocurrencies with the introduction of the COINS Act. This comprehensive legislation, proposed by Web3 firm Hashed Emergent and policy group Black Dot, aims to promote clarity, innovation, and user rights within the country's crypto ecosystem. The COINS Act is designed to address key issues such as high taxes, unclear regulations, and the need for a dedicated crypto regulator, providing a clear path for digital rights like self-custody, protocol access, and financial privacy.

The COINS Act proposes several key provisions to enhance the crypto landscape in India. Firstly, it emphasizes digital rights at the core, protecting fundamental freedoms such as self-custody, privacy, and the freedom to deploy or interact with code. Secondly, it suggests the establishment of a dedicated crypto regulator, called CARA, which would focus on handling services based in India without interfering with global decentralized protocols. This regulator would operate independently of traditional financial regulators like the Reserve Bank of India or the Securities and Exchange Board of India, ensuring a clear and focused approach to crypto regulation.

The Act also outlines clear rules for control and custody, requiring centralized platforms to obtain full licenses while imposing a light disclosure regime on non-custodial protocols and no compliance on fully decentralized protocols. Additionally, it offers a time-limited safe zone for initial coin offerings (ICOs) in India, providing local crypto projects with a two-year window to grow without heavy restrictions. This includes a two-year pause on FEMA regulations to streamline the process while more crypto-friendly policies are developed. Developers are also protected from being held responsible for how end users utilize their protocols.

Furthermore, the COINS Act proposes the creation of a national reserve of Bitcoin and other crypto assets to strengthen India’s long-term digital sovereignty. This strategic move aims to enhance the country's digital infrastructure and ensure its position in the global digital economy. The Act also addresses the current challenges faced by users, such as high taxes and unclear KYC/AML rules, by treating these rights as constitutional protections and providing users with a strong legal foundation. The framework tailors these rights based on users’ control and custody of assets, ensuring a balanced approach to regulation.

The introduction of the COINS Act has sparked a range of reactions from industry stakeholders. While some welcome the move as a positive step towards legitimizing cryptocurrencies and providing a clear regulatory framework, others express concerns about the potential impact on innovation and the ability of startups to compete in a highly regulated environment. Despite these differing views, there is a general consensus that the COINS Act represents a significant milestone in India's approach to cryptocurrencies. The Act is seen as a pro-innovation blueprint that the industry can get behind, especially as the government is set to release a long-awaited discussion paper on crypto regulation.

The COINS Act also addresses the issue of tax compliance, mandating that all cryptocurrency transactions be reported to the tax authorities. This provision aims to prevent tax evasion and ensure that the government can effectively monitor and regulate the cryptocurrency market. Additionally, the legislation includes penalties for non-compliance, providing a strong deterrent against illegal activities. The proposed framework emphasizes the importance of international cooperation in regulating cryptocurrencies, recognizing that effective regulation requires collaboration with other countries to combat cross-border financial crimes and ensure the integrity of the global financial system.

In summary, India's proposal of the COINS Act represents a bold and comprehensive approach to regulating cryptocurrencies. By recognizing cryptocurrencies as a legitimate asset class, establishing consumer protection measures, and developing an official digital currency, India aims to create a balanced regulatory environment that fosters innovation while ensuring financial stability. The introduction of the COINS Act is a significant step forward in India's efforts to integrate cryptocurrencies into its financial system and position itself as a leader in the global digital economy.