A PROJECT ON

A STUDY ON METAVERSE
&
WHY INDIA GOVERNMENT NOT ALLOW
CRYPTOCURRENCY IN INDIA

Submitted by:
Ravi A Khokhar
2ND year B.B.A
ID NO. 60

Submitted to:
ABHISHEK SIR RANKAWAT

SHREE J.D GABANI COMMERCE

COLLEGE & SHREE SWAMI ATMANAND
SARASWATI COLLEGE OF MANAGEMENT
 Topic 1:-
What is Metaverse
Metaverse:
unlocking imagination and
embracing reality
Following the PC-connection desktop Internet era and the smartphone-connection mobile Internet era, the metaverse
has unlocked the imagination of the next era of information interconnection, creating an ideal virtual world through
the perfect connection of the virtual world with reality. The concept of the metaverse first appeared in the Avalanche
written by American science fiction writer Neo Stevenson in 1992. It describes a cyber world parallel to the real world, the
Metaverse, where people in the real world all have a digital avatar; they interact and live with each other through these
avatars. The sandbox game platform Roblox as the "first listed company under metaverse concept" again proposed the
concept of metaverse in its prospectus, which triggered a heated discussion in capital markets and related industries.
Then Facebook’s changed its name to "Meta", stimulating even more enthusiasm in the market for metaverse. Hence the
sci-fi concept of metaverse was brought into the real life.

Mutual generation of the virtual and the real is a key feature of the metaverse, which is embodied in six core
elements: immersion, virtual identity, digital assets, real experience, virtual-real interconnection and complete social
system. In the future, metaverse will develop from real to virtual to realize digitalization of real experience, as well as
from virtual to real to realize actualization of digital experience.

Metaverse will show two development directions:

Figure 1: Two Development Paths of Metaverse
From real to virtual: the virtual world imitates the real
world, and the digital experience of real life is enhanced by
building immersive digital experiences. It emphasizes realizing

From real to virtual

digitalization of real experience. In the Real World

era of mobile Internet, the virtual world is mainly

constructed through text, pictures, videos and other
2D forms. In the future metaverse era, the real physical
Self-creation of the
world will be digitally reconstructed in the virtual world virtual world
to form a completely virtual parallel world. Actualization of
digital experience
From virtual to real: here it is no longer about Virtual parallel world of
From virtual to real

imitation of the real world but self-creation based the real world
on the virtual world, which can not only form a Digitalization of real
value system independent of the real world, but experience
also influence the real world. It emphasize realizing
actualization of digital experience. For example, the
Virtual World
augmented reality (AR) game Pokémon Go helps brands
attract more consumers by cooperating with brands to
issue limited coupons at specific locations, and in this
way the digital experience is driving consumption in the
Source: Deloitte Research and analysis
world.
Human society evolves around the two complementary axes, material and spiritual civilization. This is what Deloitte
believes the core value of the metaverse is rooted in—improving the development efficiency of material civilization
and expanding the development space of spiritual civilization. Specifically, the development of metaverse will form
a dual-core ecosystem, with the industrial metaverse promoting the production efficiency of the physical world and
the consumer metaverse enriching the personal spiritual world.

According to the different service

process, which improves their actual AR glasses as they observe the actual
targets, the metaverse will form a
efficiency in the physical world. For roads. People around the world can
dual-core pattern, with the industrial
example, vocational education can attend a meeting in the same virtual
metaverse promoting the production
introduce simulation scenarios to office through AR glasses, as seen
efficiency of the physical world and
construct virtual digital workshops, to in the movie Kingsman: The Golden
the consumer metaverse enriching
provide students with real technical Circle.
the personal spiritual world. The two
guidance and efficient practice
development paths integrating the
methods. What's more, 3D simulation Developing from virtual to real
virtual and real world will gradually
models can help accelerate industrial is the process of exploring new
combine to eventually form a closed-
design processes, greatly reducing production and consumption
loop ecosystem of the physical and
potential safety hazards in the testing scenarios.
spiritual world.
stage as well as resource costs. For the industrial meta-universe,
developing from the virtual to real
Developing from real to virtual
For the consumer metaverse, means that emerging industries
is the process of improving the
developing from real to virtual refers in the virtual world can circulate
experience and efficiency of the
to the augmentation of reality through and be displayed and used in the
real world.
digital virtual experience, so as to virtual world, while at the same time
For the industrial metaverse,
enrich the experience of the physical also having practical applications
developing from real to virtual refers
world. For example, in the future, in the physical world to influence
to leveraging virtual scenarios during
people will be able to see navigation the physical world and create real
the digital and online deployment
guidance from the screens of their economic value. For example, Larva

Figure 2: Ecosystem of the Consumer and Industrial Metaverse

Physical World
Improve real industrial efficiency in the virtual way

Generate new industries to create real value

Healthcare Concerts
Create new virtual experience

Education Short
videos
Enrich real experience

Transpor
Consumer
Industry metaverse Movies
tation
Metaverse
Games
Virtual Industrial
services metaverse
Art shows
Virtual
community
management Social
…
…

Virtual World

Source: Deloitte Research and analysis

Labs creates "Meebits" and sells them
thus bringing new value points to the becoming increasingly popular after
as virtual artworks. The Meebits are
entertainment industry. several years of development. The
20,000 unique 3D voxel characters,
For the consumer metaverse, Chinese virtual influencer Angie, with
created by a custom generative
developing from virtual to real means vivid skin and facial expressions, has
algorithm, which can be bought
that people’s spiritual needs are gained nearly 300,000 fans with only
and sold on the Ethernet platform.
satisfied in the emerging virtual 13 videos posted online. Angie’s
Owners of Meebits are given access to
scenarios through the diverse short videos bring a sense of warmth
an additional asset pack that include
interactive experiences that bring and healing to people, and many
the full 3D model, which can be used
a sense of reality; in the meantime, fans even confide their troubles to or
to render and animate their Meebits,
people can give full play to their exchange ideas with her, thus realizing
or the Meebits can be used in
creativity in the virtual world to emotional and spiritual interaction.
animation, movie or other non-virtual
generate real social and economic
scenarios to generate economic value,
value. Virtual idols, for example, are

Multi-system integration is the evolution trend of the metaverse: Due to the diversity and dispersion of industries,
Deloitte believes that the metaverse needs to rely on the existing industrial base to develop and integrate from the
bottom up, and it is difficult to build a complete system from top to bottom via a unified standard. Therefore, in the
early stages of development, various industries are expected to form small decentralized, multi-centered ecosystems
of the metaverse; then the small ecosystems will gradually share data and form unified standards, thus achieving
integration. In the mature stage of metaverse, we don't know what it will look like, which is still full of all kinds of
imaginations.

At Deloitte we see the development

scenarios. For example, Osso VR, operations; RaLC, an assembly line
of the metaverse through four stages:
a Boston-based doctor training simulation software developed by
infancy stage, early stage, mature
company, has developed software a Japanese AI company, uses 3D
stage and final stage. Currently,
that can create virtual operating animation as the carrier to build
a variety of digital and intelligent
rooms to allow doctors to receive simulation verification models for
concepts have appeared in the
more training on complex multiple logistics system elements;
industry, which can be regarded as
the infancy of metaverse. The next Figure 3: Development Stages of Metaverse
5-10 years are expected to witness the
early development of the metaverse 2030 - ？
Level of development

2016-2020 2021-2030 ？
as the relevant technologies mature
Infancy Early stage Mature stage Final stage
and the concept of the metaverse
Connection of data
strengthens. Breakthrough Infrastructure +
and standard,
in basic connecting
technologies devices
The infancy stage is from 2016 cross-platform opening
and integration
to 2020. Although the concept Development of Further
Deepening of Deepening of
of metaverse did not appear, application single-industry cross-industry industrial and
products and application application individual
different industries were equipment integration to
form the
Single-industry Integration of ultimate state of
carrying out technological single- based indepen- independent the metaverse
Technological
point trials for digitalization online, digital dent metaverses metaverses to form
and virtual trials form disperse, industry and
or virtualisation. This was the multi-center small individual-centered
embryo of metaverse: ecosystems
metaverse ecosystems

• In the industrial metaverse, Present stage Time

applications were mainly building
Source: Deloitte Research and analysis
digital, online and simulation
• In the consumer metaverse,
applications were mainly to facilitate
virtual experiences using 2D forms.
For example, in the mobile game
"Pokémon GO", jointly developed by
Nintendo, The Pokémon Company
and Niantic Labs, AR technology
is equipped to mobile phones for
players to find and capture virtual
Pokémon in the physical world; the
New York-based health technology
company Peloton integrates AR
technology with cycling to provide
fitness courses on electronic
screens, achieving virtual-real
integration of 2D imaging and
improving users' immersive
experience.
The early development stage is
from 2021 to 2030. This stage
involves further online, digital
and virtual applications and
technological advancements in
different industries, eventually
forming a single-scenario based
on independent metaverses
and small decentralized,
single-industry, multi-centered
ecosystems of the metaverse.
Technological patterns, platform
infrastructure and key connecting
devices, such as XR devices, will
be primarily developed in this
stage. Looking at application
developments, the focus will be on
the applications in hot industries.
• In the industrial metaverse, the
focus will be on the application
of basic technologies, which are
expected to be expanded to
entire-industrial chain and whole-
industry virtual applications. For
example, NVIDIA actively deploys
basic technologies such as virtual
3D simulation and rendering, and gradually form two metaverse
applies them to industrial design. ecosystems respectively centering
At present, the virtual collaboration on industries and individuals.
platforms that can be built through
Deloitte believes that unified data
Universal Scene Description
standards, payment systems and
technology are mainly applied to
identity authentication are the
digital collaboration and real-time
key to achieving cross-platform
simulation scenarios, creating the
development and integration at
technological foundation for the
this stage.
future expansion of metaverse in
the industrial design field.
• In the industrial metaverse, the
independent metaverses of similar
• In the consumer metaverse, the
industries are expected to gradually
virtual experiences of various
share data and industry standards
independent IPs will deepen.
will trend towards multi-industry
Hardware devices connecting the
interactions and integration. For
physical and virtual worlds are
example, the industrial Internet
continually being developed and
optimized. Virtual experiences in different industrial fields might
are improving to provide a greater gradually develop unified data
standards and combine to form
sense of reality, and a virtual social
an industrial metaverse; smart
system is gradually being built. For
example, in Roblox, players can communities, smart buildings and
smart transportation may gradually
exchange game currency with real
develop unified data standards and
currency to realize actual economic
exchange between virtual and join together to form a smart city
metaverse.
physical worlds. It also provides
multiple forms of social interaction
• In the consumer metaverse, the
to allow users to have a better
virtual experience of independent
immersive experience and stimulate
IPs will no longer be separate.
their innovative thinking via long
The multiple scenarios and virtual
online social interactions.
elements in individuals’ virtual
lives are connected to build
The mature stage starts
comprehensive virtual life scenarios
from 2031, during which the
and content. Thus the virtual
independent metaverses of
assets and information on various
different industries gradually
share data and form unified platforms are distributed and
shared. For example, Marvel heroes,
standards, and achieve
such as Sun Wukong, and virtual
integration. Deloitte believes
concerts by K-pop groups could
that in this stage, there will
appear in the same virtual space.
be cross-platform and cross-
industry ecological connection
and integration—the small
decentralized, multi-center
ecosystems will integrate to
XR is the entrance for exploring the metaverse: XR devices are the key equipment connecting the virtual and real
worlds. At the early development stage, the priority is to construct and develop infrastructure and equipment.
Currently, we need to develop the key products, i.e. XR devices, and apply their basic functions.
According to Jon Radoff, who
proposed seven layers of the
metaverse, the realization of the
metaverse consists of seven layers
of development and implementation.
The infrastructure and human
interface layers are mainly for
deployment of hardware, software
and other infrastructure and
equipment. The decentralization and
spatial computing layers are for the
deployment of development tools.
The creator economy, discovery,
and experience layers are for the
deployment of application products
and operational ecosystems.
Based on the four development
stages of the metaverse, the focus
in the early development stage will
be put on infrastructure and
Figure 4: The Seven Layers of the Metaverse
EXPERIENCE
DISCOVERY
CREATOR ECONOMY
SPATIAL COMPUTING
DECENTRALIZATION
HUMAN INTERFACE
INFRASTRUCTURE
equipment as well as development
tools. The infrastructure and
equipment, in particular, constitute
the basic technical framework and key
equipment for the construction of
metaverse ecosystems.
The development level of XR
equipment-related technologies
is expected to meet the current
development needs of the
metaverse
According to Gartner's 2021 ICT
graphs, the "six core technologies
of the metaverse" explained in the
Metaverse Token published by China
Translation & Publishing House, and
the four development stages of the
metaverse identified as above, the
development level of the relevant XR
Games, Social, Esports, Theater, Shopping
AD Networks, Social curation, Ratings, Stores
Design Tools, Asset Markets, Workflow, Commerce
3D Engines, XR, Multitasking, Geospatial Mapping
Edge Computing, AI Agents, Microservices, Blockchain
Wearables, Haptic Gestures
5G, WIFI 6, Cloud, chip technology, GPUs
technological reserve satisfies the
application and product needs of
the early development stage of the
metaverse.
XR devices are the key connecting
devices of the metaverse ecosystems.
They have different characteristics
than the mobile Internet, such
as three-dimensionality, natural
interaction and spatial computing. At
present, the metaverse is still confined
to two-dimension worlds, with a
large gap compared to real three-
dimensional immersive experience.
XR devices will facilitate the virtual-
physical connection necessary for
realizing the metaverse, and will be
the key to engaging users. This report
focuses on the development of the XR
equipment industry.
Application Products
& Operation Ecosystems
Development Tools
Infrastructure &
Equipment
Figure 5: Development Stage of Various Technologies

Technological base Infancy stage Mature stage

of metaverse Early stage

Hashing and timestamp technology

Data transfer and transaction

verification mechanism
Consensus mechanism
Blockchain
Distributed storage

Smart contract

Distributed ledger VR

technology

Interaction AR technology
technology
MR technology

Holographic display

Sensing technology (somatosensory, environment)

Sensors
IoT

IoT network communication support

IoT management system

Network and 5G/6G network

computing
technology Cloud computing

Edge computing

Computer vision

Machine learning
AI technology
Natural language processing

Computer game technology

XR: linking the virtual
and the real
XR refers to creating a virtual man-
In general, AR technology lags innovative functions of hardware, VR
machine interaction environment
behind VR. Similar to VR, AR faces the and AR technologies and applications
by combining the real and the
development difficulties in creating will become more integrated and
virtual through a computer. XR is a
a sense of reality, virtual scenario interoperable>. It is here that the MR
general term for VR (Virtual Reality),
rendering, and the performance and XR concepts emerge. From the
AR (Augmented Reality), MR (Mixed
of sensing and interaction devices, perspective of end users, VR and AR
Reality) and other technologies.
among other issues. In addition, both provide and improve the virtual
AR needs to accurately “place” experience of users. This report
VR and AR are the main components
the virtual objects in the real explores the investment potential and
of the XR concept, and both bring
environment, and have display devices opportunities in the XR market from
virtual world experience. But they vary
that integrate the virtual scenes with the perspective of market demand
greatly in terms of the technologies
the real environment. At present, and development.
they adopt to achieve a virtual
there are a number of VR HMDs and
experience: VR simulates a virtual
glasses devices in the market that VR, AR and MR are represented by the
world through equipment and uses
have been recognized by consumers. general term XR.
computers to generate a simulated
However, AR glasses still face many
environment, which emphasizes
technical obstacles.
real-time interaction of users with
the virtual world and creates a closed-
At present, VR devices account for
loop, immersive virtual world
nearly half of the market share, AR for
experience; AR uses computer
about a third, and MR for the rest.
graphics technology and visualization VR MR
technology to produce virtual objects XR
As the development of 5G technology
that do not exist in the real world, and
and network empowers more
accurately "place" the virtual objects AR
application scenarios, combined
in the real world, putting users in a
with the integration of AI technology
intertwined real-virtual world.
with computational vision and the
Figure 7: XR Market Size by
Technology Application (2020)
Figure 6: Difference between VR and AR

VR AR MR
18%

Leverage real life data, electronic signals generated Virtual image rendering by
Technical
through computer technology and various output computers based on the real world— VR
principle
devices to generate phenomena that people can emphasizing interaction with the real 48%
feel world

Head-mounted display (HMD), positioning devices, Use cameras or imaging devices AR

Terminal motion capture devices, interactiondevices, etc. to interact with thereal world, 34%
device e.g. AR glasses
Closed-loop, immersive experience—users
interact in real-time with the virtual world Augmented real experience—
Experience
users in a real-virtual
intertwined world
Source: Deloitte Research and analysis
Imagination of
XR applications
“The full potential of human-oriented computing will only be realized when rather than interacting with the
virtual world through flat portals, we live in a world that intertwines virtual and real however we want, and that
is what AR and VR are all about. This is the second great wave, and unless it proves to be literally impossible
to create good enough virtual experiences, augmented and virtual reality are the future, as surely as personal
computers…”
——Inventing the Future by Michael Abrash, Chief Scientist of Oculus

A few decades ago, we could

Now, we can imagine a future in which EMG and brain-computer interaction,
not image that we would carry a
we carry an even more powerful it might know what you are thinking
computing device with us almost 24
computing tool all day. That tool about and intend to do. It might not
hours, just like we wear clothes, to use
might be nothing like the hardware even need specific instructions, but
it for social interaction, entertainment,
we see today, but it will bring a new actively filter the information and
work and other activities simply by
world where the virtual and the help you make a decision through
tapping it or giving voice commands
real are completely integrated and perception of the surroundings and
at any time and or any place. We
interchangeable—we can interact and sophisticated AI algorithms. This is the
all know this computing tool as the
give instructions in a more naturally whole new world with new experience
integrator of the mobile Internet era:
way, such as by waving our hand, that XR will bring.
the smartphone. We can interact with
snapping our fingers or simply turning
the virtual world anytime anywhere
our head, and the information we
through our smartphones—albeit a
need to make a decision could appear
2D world.
any direction we look at. Through
The XR industry ecosystem
is getting richer
Continuous breakthroughs in technology will help improve the hardware experience and ecosystem
As the integrator of many cutting-edge technologies, the current industry development of XR is limited and is hampered
by technological limitations. The XR industry includes five key technologies: near-eye display technology, perceptual
interaction technology, network transmission technology, rendering and computing technology, and cloud content
production and distribution. Each type of technology is the integration of multiple technologies or has multiple technology
paths, which need to meet the demand of various application scenarios, especially B2C consumer experience demand.

Figure 11: Five Key Technologies of XR

Key subdivision technology

Key technology and maturity Mature Developing Starting

Free form surface, new

Near-eye
End (terminal)

transflective, ultrathin VR,

display
OLEDos, LCOS, Rapid Optical waveguide, Micro LED,LBS
technology Holographic display
response liquid crystal laser display

Virtual movement, immersive audio,

Perceptual gesture tracking, odor simulation, tactile
interaction Inside-Out, Electromyographic sensing
feedback, speech recognition, eye
technology Outside-In Brain-computer interface
tracking, 3D reconstruction, environment
understanding, cloud AR
Channel
(5G)

Network
Access network, bearer network, pre-processing, data center,
transmission
monitoring and maintenance
technology
Multi-resolution rendering,
Rendering and
asynchronous timewarp, Deep learning rendering, Hybrid cloud rendering,
computing
asynchronous spacewarp, fixation point optics, foveated real-time path tracking,
technology
distortion compensation rendering light field rendering
rendering, MultiView

Cloud content Support technology, avatar

production and (upper body), personalized
distribution Normalized VR live
Full body avatar
streaming video, 6DOF videos
Global investment in key technologies to fix weak links
Taking a global view on investment opportunities in XR can be helpful. Taking advantage of China's own strengths while
absorbing the strengths of others, will help the industry prosper while winning investment returns.

Although China is leading in global

Figure 26: Global Distribution of VR and AR-related Patents
patent applications, it still lags behind
(total in 2017-2020)
the global leaders in forward-looking
research, especially in key technology
areas, such as perceptual interaction,
rendering computing, and content 10%
12%
production and distribution.
9%
• In terms of rendering technology 9%
36%
and perceptual interaction
technology, overseas giants, such as 48%
11% VR AR
Google, Facebook, Apple and other
technology giants, have already 15%
advanced through self-research
and mergers and acquisitions in the
early stage, and quickly widened 23%
28%
the gap between themselves and
other enterprises after XR crossed WIPO South Others
China US Korea
the initial threshold of immersive
experience.
• In terms of cloud content production Source: BIS research; Deloitte Research and analysis
and distribution, looking at weak
interactive content production
domestic Chinese firms and other domestic screen enterprises,
with three degrees of freedom,
overseas companies; technology the overall gap between domestic and
the influence of local panoramic
realization is mainly based on top overseas enterprises has been
brands, such as the domestic brand
technical solutions from leading shrinking, but there is still some gaps
Insta360, is increasing. Looking
foreign enterprises. in technological distribution.
at strong interactive content
production with six degrees of • In terms of near-eye display
freedom, there is still a gap between technology, with the rise of BOE and
 Topic:-2
WHY INDIAN GOVERNMENT NOT
ALLOW CRYPETO CURRANCY IN
INDIA
Cryptocurrency
landscape in India
In India, crypto mining has been a challenge dueto
uncertainties around laws and regulations along with
the huge infrastructure and power costs associated
with the mining setup.
However, there has not been any explicit law that bans
crypto trading related activities. With the rise of the
blockchain industry, crypto tradinghas gained
tremendous traction in the Indian market. On the back
of two important events
in 2020 - the COVID-19 pandemic outbreak and the
overrule of an RBI ban on cryptos by the Honorable
Supreme Court of India - the crypto market has seen a
dramatic rise in the number ofretail investors. According
to crypto research andintelligence business CREBACO,
as of October 2021, 105 million Indians or 7.90 per cent
of the population has invested in some form of digital
token. Though there is no official data available,
according to a Thomson Reuters report, it is estimated
that cryptocurrencies held in India could be about
INR400 billion or USD5.40 billion1.
Backed by the strong demand, the cryptocurrency
exchanges in India have also witnessed a meteoric rise in
number of new user sign ups over 2021. According to a
press release in November 21, WazirX is said to have
facilitated trading volume worth over USD38 billion in the
past 12 months, with a month-on-month growth rate of
44 per cent. The company reported growth of 2,648 per
cent in user sign-ups from Tier II and Tier III cities - in
other words, large
cities in the country except the six biggest: Mumbai,
Delhi, Kolkata, Chennai, Bengaluru and Hyderabad.2
Zebpay, another crypto exchange platform based in
India, has witnessed a 300 per cent rise in its trading
volume over 2021, coupledwith an increase in its user
base by 130 per
cent to over 5 million in a year’s time.3 Another
exchange, namely Coin store, which started active
operations in June 2021 has seen daily trading volumes
jump from USD10,000 to USD40million in a period of 6
months’ time.
While India now has 15 homegrown crypto exchange
platforms that enable trading of cryptos, the market
largely has been unregulatedwith no specific consumer
protection laws or redressal mechanism yet. Further,
most of these exchanges are privately owned and there
is no designated financial regulator who oversees their
operations or regulates any settlement risks.
Further, past trends have shown extreme price volatilities
across all cryptos due to the fluctuatingdemand and
supply dynamics.To put things in perspective, the daily
price volatility for bitcoin over the past three years is 75
per cent. In comparison, the S&P 500 daily volatility over
the past three years has been 22 per cent, thereby
making bitcoins almost thrice as volatile as S&P 5004.
Without any "safety net" or check on the trading activities,
this can potentially wipe off significant investor wealth.

1. India may create obstacles to crypto trading and holding -sources, Reuters, Nov 19, 2021
2. Indian crypto exchange WazirX registers $38-bn trading in a year, Business Standard, Nov 12, 2021
3. Crypto round up: Zebpay's user base grows 130%, Rohit Sharma will launch his own NFT, Times of India, Dec 24, 2021
4. ‘Crypto: A new asset class?’ -Goldman Sachs, Global Macro Research, May 21, 2021
Implementation
roadmap: A possible
approach
Regulators around the globe have been grappling
with the twin issues - controlling the mining as well
as trading around cryptos. For long, the mining
activities have been associated with concerns such
as concentration of poweramong relatively few
operators and owners, market opacity, significant
price volatility, and environmental impacts of such
activities. To make this process transparent and
develop a governance framework around it, there is
an ever-growing need for a regulator to monitor all
mining activities. There are also significant
concentration risks as well, since today approximately
70 percent of the hash rates arecontrolled by top 5
mining pools1.
1. Bitcoin mining pools, Buybitcoinworlwide, March 10, 2022
Till 2021, China has controlled a majority share of these
mining pools, till Chinese government'scrackdown on
mining operations. Since then, most of hashing power
has moved to US and Canada. However, given relative
opacity aroundthis activity, it is difficult to exactly track
the hashing power usage or the volumes of newly
minted coins across multiple networks. The presence
of a global regulator and access to
the distributed ledgers for the various networks would
ensure accurate estimation of the numberof coins
produced vis-a-vis coins in circulation.
Crypto transactions executed on public blockchains,
might not have a very well-defined central management
or governance. In case, there are hacks or compromises
on the network,the crypto asset owner might not have
any recourse action available as there are no trusted
intermediaries like a bank to capture, confirm, clear/settle
and conduct the transactions.
The crypto eco-system, as it operates currently, isvery
different from a traditional
Market regulator
Buy
Retail Institutional Sell
investors investors
Crypto
custodian
Figure 1: How the key players may interact in a re-imagined crypto marketplace
Just as the Registrar and Transfer Agent (RTA) tracks a
company’s authorised shares vis-a-vis outstanding
shares in the share market and determines the float, for
a crypto network, an independent agency should track
transactions occurring on a mining blockchain and help
assessthe trading volumes, along with liquidity of a
particular crypto trading in the market.
Currently, to the best of our knowledge, such anagency
is not existent but if it can be created, that would act as
a powerful mitigant against the information asymmetry
that exists in this ecosystem. It is difficult to accurately
determinethe total number of various cryptocurrencies
in circulation1 but around 18,000 different crypto
currencies are in circulation today. Not all of these are
actively traded and some of them are ‘dead’ but at any
point, determination of this number is a challenge in
itself. With Initial Coin
1. How many cryptocurrencies are there in 2022? Exploding Topics, Mar 22
financial ecosystem involving banks, financial
intermediaries, regulators and customers (wholesale and
retail), which is highly centralised.While there are
obviously certain parallels that one can draw between the
crypto ecosystem and the traditional financial
ecosystem, there are newer components that need to be
brought in and enhanced roles that existing components
need to play to give this ecosystem certain stability that
may soften the regulatory stance towards it.
Crypto Crypto Crypto
exchange 1 exchange 2 exchange 3
Crypto
clearing house
Offerings (ICOs) happening almost on a weekly basis, its
highly possible to underestimate this number at any given
day. It is even more difficult to determine the number of
coins in circulation across each of these networks. These
RTAs, specific to each network, would need to act as
registrars that can track exactly how many coins get
mined vs to-be-mined and track it against the network
limit, if any. They would also need to work in conjunction
with the regulators as well asmarket participants to
provide them with timely information to improve the ease
and transparencyof the overall ecosystem. The crypto
exchanges (discussed later in this section) need to make
this information available to the users on their platform
to enable them to assess the liquidity and tradability of
the coin they are holding and/orintend to
purchase/sell/hold.
Once, the number of coins is accounted for, next one
needs to have a closer look at who would be holding
these coins in custody. Herein comes in the crypto
custody solution providers/ custodians,the second
building block of this eco system.
On a blockchain network, the cryptographic private key
owner has control of crypto assets that can then be
used to unlock a public key wallet address, which in
turn is used to executetransactions and move the
assets and/or tokens
across the network. Typically, these keys are
combinations of alphanumeric characters, therebymaking
it challenging for the users to remember them. The crypto
custodians provide independentstorage and security
systems and hold large quantities of tokens on behalf of
the investor. The primary objective of these custody
solutions is to ensure that the private keys are safe and
are not accessible to anyone except the rightful owner of
the asset/ token.

There could be two types of storage options

Hot Custody: This is a crypto custody with
connection to the Internet thereby offering
ease of liquidity but are also proneto hacks
due to online connectivity.
For a traditional asset, banks and trusts authorised by
a regulatory body are allowed to act as the custodian
for an institutional investor.There are specific
regulatory requirements on aspects such as
infrastructure, governance
and controls, risk management and reporting that
these banks and/or the trusts are subject to.
Similarly, for crypto assets, these qualified
custodians will need to be well-equipped
Cold Custody: This is a crypto custody thatis
not connected to the Internet and hence
is more secure, but at the same time comes with
the challenge if the owner must generateliquidity
with
at astorage, network and technological requirements
short notice.
that will need to be defined, as well as there would be
policy requirements on risk management, cyber
security, know your customer (KYC) norms. This would
significantly
bring down the apprehensions that investors havewith
respect to safeguarding their crypto assets once they own
them.

Traditional asset exchange lifecycle

Asset manager Custody bank Market

Front office: Back office: • Clearing
Middle office:
houses
• Trade capture • Clearing
• Validation • Market makers
• Settlement
• Booking • Stock
accounting
• Confirmations exchanges
Asset • Administration
owner • Execution

Tokenised asset
Crypto study and exchange

Key custody Transaction Self-custody

• Transaction • List prices

authorisation • Order
• Releases matching
OR
private key Asset
• Liquidity owner
Asset
• Compliance
owner
trade life cycle
Figure 2: Traditional asset exchange lifecycle vs Tokenised asset trade lifecycle; Source: KPMG International

Taxa
Currently there are very limited rules that are
applicable to these exchanges, and it varies widely
across countries. For example, in the US, they fall
under the regulatory scope of BankSecrecy Act (BSA).
These exchanges need to register with FinCEN,
implement an AML/CFT program, maintain appropriate
records, and
submit reports to the authorities. FINCEN expects
exchanges to comply with the “Travel Rule”
(refer to FATF, June 2019 guidance) and gather and
share information about the originators and
beneficiaries of cryptocurrency transactions.
Similarly the European Commission has also proposed
draft travel rules to improve traceability of crypto coins. All
Virtual Asset Service Providers(VASP) would need to
collect details of senders and recipients to help authorities
track transactionand thwart attempts at money
laundering.
The role that a crypto exchange plays in this ecosystem is
enormous, and therefore, also needto shoulder great
responsibility in improving the data security, privacy and
AML/ CFT concerns around cryptos.
Given that cryptos can be traded across the globe, a
payment network system needs to be also
developed, specially if investors aren’t
transacting on international exchanges. Domestic
exchanges in a country need to have a messaging system
like SWIFT developed with its counterpart in a foreign
jurisdiction to enable the buy and
sell transactions. The key would be to ensure that this
messaging system is fast, secure, andreliable. This
could lead to the emergence of
a central counterparty to facilitate the clearing of these
transactions. For instance, the centralcounterparty
may possibly be like a clearing house that guarantees
clearing and settlementfunctions for transactions in
financial markets.
There would also be the requirement to set up a
settlement guarantee fund which would
have margin contributions from all members to
maintain enough liquidity to meet all end of day
settlements.
Considering these challenges inherent in the crypto
trading transactions, a market regulator may need to
have an oversight on the entire crypto ecosystem.
Strong internal safeguard mechanisms using advanced
AI/ML investigativetechniques might be required to be
employed byexchanges to identify any fraudulent or
AML/CFTtransactions and delist the associated
accounts. The presence of such a regulator will mean
that the private crypto exchanges build in appropriate
mitigants and safeguards to early detect and report such
transaction, block, and delist such accounts and work
back with law enforcement agencies. Further, investor
protection related laws would need to be strongly
enforced by the regulatory authority to create a safe
marketplace for retail and institutional investors.
 Mining set up

Global regulator

Crypto Crypto Crypto

minor 1 minor 2 minor 3

RTA 1 RTA 2

Trading setup: Country 1

Market regulator

Buy

Retail Institutional Sell Crypto Crypto Crypto

investors investors exchange 1 exchange 2 exchange 3

Crypto Crypto

custodian clearing house

International transactions between

counterparts/ exchanges to be supportedvia
a SWIFT like messaging system

Trading setup: Country 2

Market regulator

Buy

Retail Institutional Sell Crypto Crypto Crypto

investors investors exchange 1 exchange 2 exchange 3

Crypto Crypto

custodian clearing house

Figure 4: Reimagining crypto value chain

 Way forward
The world of cryptos is evolving fast, and so are the
points of view of various governments,regulatory
followed by a proposal in September 2020, called
Markets in Crypto-Assets Regulation (MICA). In July
bodies, and market participants. 2021, the European Commission published a set of
Recently, the Honorable Union Finance Minister Nirmala legislative procedures around Transfer
Sitharaman in her fourth budget speech announced that of Funds regulations (TFR) and information collection of
the Reserve Bank of India (RBI) will issue India’s digital senders and recipients that would beapplicable to all
Rupee in financial year 2022-23. The digital Rupee is VASPs across the EU.
popularly known asCBDC. CBDC is the digital form of
fiat currency that can be transacted using wallets based It also remains to be seen how these developments in
on blockchain technology and in the Indian context, it the international arena impactRBI’s policy stance on
will be regulated by the RBI. cryptos and CBDCs andin general on its monetary
policy. It is likely thatfactors such as utility of
While the cryptocurrency bill is yet to be issued, the blockchain technology,
Honorable Union Finance Minister announceda flat tax security and acceptable levels of decentralisationwill
rate of 30 per cent for any income from transfer of digital influence the way crypto-related transactionsare permitted
assets. Also, Tax Deducted at Source (TDS) of 1 per cent and how regulations evolve in the country.
has been introduced to track transactions in crypto
assets.
In 2022, the Federal Reserve (FED) is expected tocome
up with policy sprints focused on cryptos and would
provide a roadmap of their future
work on cryptos. This roadmap is expected to
provide clarity on whether banks would be
legally permitted to support crypto-assets-related
activities, elaborate on consumer protection laws and
how compliance needs to be enhanced.
Further, the roadmap is expected to provide clarity in
areas such as crypto safe-keeping and custodian
solutions, crypto collateralised loans, landscape around
stablecoins and treatment of crypto assets on the
balance sheet. The agencieswould also evaluate
application of bank capital and liquidity standards to
crypto assets for activities involving U.S. banking
organisations1.
In January 2020, European Commission had announced
a public consultation initiative pertaining to where and
how crypto assets fit intothe EU’s existing regulatory
framework. This was

Jurisdic
possible forcrypto jurisdiction. Given that
transactions. Further, these assets

tion commissionsand fees

received by
are global in nature,

tional
tax considerations

issues
the exchange operator will also depend on
may be deemed as residency status of

issues
assessable income and
the buyer and seller as
therefore would be
There are multiple tax well as the country in
subject to the income
treatments that might be which the transaction is
tax laws of the
taking place.
Long arm jurisdictionalrules participations. In the jurisdictional defined. Therefore
may be applicable where an electronic boundaries may special careneeds to be
thereare cross country world, not be clearly taken in such situations
Thank You