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Crypto & Blockchain
Our Crypto & Blockchain Expertise
Globally, there has been an immeasurable surge in interest, particularly institutional interest, in crypto-assets (also known as cryptocurrency, virtual digital assets, or virtual currency), non-fungible tokens (NFTs) and blockchain. India has also seen start-ups and established entities launching crypto and NFT initiatives, and Indian crypto businesses joining the coveted unicorn club. Besides trading, the crypto economy has led to opportunities across sectors, with beneficial use-cases being seen in education and philanthropy, in addition to use-cases which lead to more efficient financial outcomes (e.g., remittance). Crypto and NFTs have boosted the creator economy and software developer economy, where talented individuals are able to create products and access global markets more easily. The world is keenly watching whether the Internet will transition from Web 2.0 to Web 3.0, a decentralised, blockchain-based Internet powered by a crypto token economy. Talk is also rife in tech circles about the ‘metaverse’, a new type of digitally native universe, of which NFTs are a crucial part. NFTs have seen popularity in Bollywood, cricket, music and indie art.
Several countries around the world have recognized the benefits and the risks associated with crypto-assets and have opted for regulation of crypto-assets in an attempt to encourage financial innovation. Given the large consumer base in India and its increasing market capitalization, it would be reasonable for India to enable the progressive regulation of crypto-assets in India.
Scope of Services
Nishith Desai Associates (“NDA or the “Firm”) has significant experience in the crypto-asset and blockchain industry since its beginning in India (circa. 2013) and have advised several leading players in the industry as well as industry associations. We were also the firm representing the Internet and Mobile Association of India in its successful Supreme Court challenge to the Reserve Bank of India (RBI) restriction on virtual currencies, resulting in a first-of-its-kind landmark judgment allowing banks and other regulated entities to facilitate trading in crypto-assets, hence opening up the ecosystem in India. We have also drafted a first-of-its-kind self-regulatory code of conduct for the crypto-asset industry drawing from global best practices and have made independent representations to the Indian government proposing a progressive regulatory framework for the sector.
Our crypto and blockchain practise encompasses the following services:
- Regulatory and Strategic Advice: We provide entry strategies and regulatory advice to leading crypto-asset trading platforms (comprising, among others, leading international and Indian exchanges), social media businesses branching out into Web 3.0, NFT monetization projects, play-to-earn projects, cross-border remittance solutions, real estate and other asset tokenization, and others. Our advisory services include suggesting self-regulatory best practices to our clients, including from a Know Your Customer / Anti-Money-Laundering (KYC/AML) perspective.
- Structuring Advice: The Firm advises crypto trading platforms, NFT monetization projects, social media Web 3.0 projects, Web 3.0 gaming projects, and others, on global structuring advice from a regulatory and tax perspective. The Firm generally proposes structuring options with pros and cons of each option. Since structuring advice is generally cross-border in nature, the Firm assists clients with liaising with foreign counsels so that the client receives holistic advice from a global perspective.
- Enforcement and Dispute Resolution Advice: TheFirm has a robust enforcement and dispute resolution practice, advising leading players in their interactions with regulatory and tax authorities, as well as representing them in contentious matters both vis-à-vis the State and in private disputes.
- Tax Advice: The taxation of crypto-assets presents several ambiguities, and the Firm provides both direct and indirect tax advice i.e., income tax, equalisation levy, Goods and Services Tax (GST), to crypto and blockchain projects incorporated both in India and abroad.
- Documentation: The Firm undertakes drafting and review of terms of use, term sheets, definitive agreements, framework agreements, market maker agreements, serviceagreements, privacy policies, and bespoke agreements, to enable our clients to make deals and continue operations smoothly.
REGULATORY AND LEGAL FRAMEWORK APPLICABLE TO THE SECTOR
The legal analysis of crypto-assets and NFTs throws up a vast variety of issues across domains. These include foreign exchange controls, payment systems, intellectual property, securities, consumer protection and advertising, and tax. Globally, jurisdictions are still in the process of defining the legal treatment of these crypto-assets, and in India, there are significant ambiguities across legislations on the treatment of crypto-assets.
Some key statutes that require analysis when we advise our clients include the following:
- Companies Act, 2013;
- Consumer Protection Act, 2019;
- Finance Acts;
- Foreign Exchange and Management Act, 1999;
- GST statutes;
- Income Tax Act, 1961;
- Indian Penal Code, 1860;
- Information Technology Act, 2000;
- Payment and Settlement Systems Act, 2007;
- Securities and Exchange Board of India Act, 1992;
- Securities Contracts (Regulation) Act, 1956; and,
- Prevention of Money-Laundering Act, 2002.