Why in news? India’s money laundering laws will apply to trade in cryptocurrencies.

Highlights:

• The exchange between virtual digital assets and fiat currencies, the exchange between one or more forms of virtual digital assets and the transfer of digital assets will be covered under money laundering laws
• The safekeeping or administration of virtual digital assets and the participation in financial services related to the offer and sale of virtual digital assets will also be covered
• India is yet to finalise regulations surrounding cryptocurrencies even as the Reserve Bank of India has cautioned against their use multiple times.
• The RBI reported that cryptocurrencies should be banned as they are akin to a Ponzi scheme.
• Extending money laundering rules to cryptocurrencies will give the government greater authority in monitoring the transfer of these assets abroad.

What is Ponzi scheme ?

• A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.
• This scheme generates returns for earlier investors with money taken from later investors.

What is a virtual asset?

• A virtual asset is a digital representation of an item that has value in a specific environment.
• This medium of exchange or property can be digitally traded, transferred or used for payment or investment purposes.
• The most common example of a virtual asset is virtual currency such as Bitcoin, Litecoin, Ethereum or Dogecoin.
• According to the Income tax act, ‘virtual digital asset’ refers to any information, code, number, or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and can be called by whatever name