SCHOOLOFCOMPUTING

DEPARTMENTOFCOMPUTERSCIENCEANDENGINEERING

CRYPTO CURRENCY TECHNOLOGY - SCSA 3059

 UNIT 5
CRYPTO CURRENCY REGULATION AND BLOCKCHAIN
APPLICATIONS

Cryptocurrency Regulation: Stakeholders - Roots of Bitcoin - Legal Aspects

- Cryptocurrency Exchange - Black Market and Global Economy. Blockchain
Applications: Internet of Things - Medical Record Management System -
Domain Name Service - future of Blockchain.

Cryptocurrency Regulations:

Some common approaches and considerations in cryptocurrency

regulation:

1. Licensing and Registration: Some countries required

cryptocurrency exchanges and wallet providers to obtain licenses or
register with regulatory authorities to operate legally. This was often done
to ensure that these entities adhered to anti-money laundering (AML) and
know your customer (KYC) regulations.

2. AML and KYC Compliance: Many jurisdictions imposed AML

and KYC regulations on cryptocurrency exchanges and other service
providers. This was to prevent illicit activities such as money laundering,
terrorist financing, and other financial crimes facilitated through
cryptocurrencies.

3. Securities Regulation: In cases where cryptocurrencies were

considered securities (like tokens issued through Initial Coin Offerings or
ICOs), they might fall under existing securities regulations. This required
companies issuing such tokens to comply with relevant laws pertaining to
securities offerings.

4. Taxation: Cryptocurrency taxation was another important aspect of

regulation. Some countries treated cryptocurrencies as commodities,
 subjecting them to capital gains taxes. Others treated them as currencies,
affecting their taxation as well.

5. Consumer Protection: Regulations were often put in place to

protect consumers and investors from scams and fraudulent activities in the
cryptocurrency space. This included providing clear information about
risks associated with investing in cryptocurrencies.

6. Blockchain and Innovation-Friendly Regulations: Some

countries aimed to encourage blockchain and cryptocurrency innovation
by adopting more flexible regulatory frameworks. These approaches
sought to balance innovation with the need for consumer protection and
financial stability.

7. International Coordination: As cryptocurrencies operated across

borders, international coordination and standardization efforts were
underway to address challenges like cross-border transactions and
regulatory arbitrage.

8. Central Bank Digital Currencies (CBDCs): Some central banks

were exploring the creation of their own digital currencies. The regulatory
framework around these digital currencies was also being developed.

Stakeholders:

Stakeholders in the cryptocurrency ecosystem are individuals, groups, or

entities that have a vested interest in the development, adoption, regulation, or
use of cryptocurrencies and blockchain technology. Here are some of the key
stakeholders:
1. Users and Investors: Individuals who use cryptocurrencies for
various purposes, including as a form of investment, means of transferring
value, or participating in decentralized applications and platforms.

2. Developers: The individuals and teams responsible for creating and

maintaining blockchain protocols, cryptocurrencies, smart contracts, and
decentralized applications (DApps). They play a crucial role in the
technical evolution of the ecosystem.

3. Miners and Validators: Miners (in proof-of-work networks) or

validators (in proof-of-stake networks) are responsible for securing the
blockchain network by solving cryptographic puzzles or staking
cryptocurrency to validate transactions and create new blocks.

4. Exchanges: Cryptocurrency exchanges facilitate the buying, selling,

and trading of various cryptocurrencies. They provide liquidity to the
market and offer a platform for users to exchange their digital assets.

5. Wallet Providers: Wallets are software or hardware tools that allow

users to store, send, and receive cryptocurrencies. Wallet providers play a
role in ensuring the security of users' private keys and digital assets.

6. Regulators and Governments: Government bodies and regulatory

agencies monitor and often regulate the use of cryptocurrencies within their
jurisdictions. Their role includes establishing legal frameworks, addressing
AML/KYC compliance, and ensuring consumer protection.

7. Financial Institutions: Traditional banks and financial institutions

are increasingly getting involved in the cryptocurrency space by offering
services such as custodianship, trading, and investment products related to
cryptocurrencies.
8. Blockchain Startups: Numerous startups are exploring innovative
use cases for blockchain technology beyond cryptocurrencies, including
supply chain management, identity verification, healthcare, and more.

9. Investment Firms: Venture capital firms, hedge funds, and

institutional investors provide funding and support for blockchain and
cryptocurrency projects. They contribute to the growth and development
of the ecosystem.

10. Academic and Research Institutions: Universities and research

institutions contribute to the understanding and advancement of blockchain
technology through research, education, and development of new
applications.

11. Community and Advocacy Groups: These groups include

cryptocurrency enthusiasts, open-source communities, and organizations
that promote the adoption of cryptocurrencies, educate the public, and
advocate for favorable regulatory environments.

12. Media and Analysts: Media outlets, journalists, and analysts

provide information, analysis, and insights on developments within the
cryptocurrency space, influencing public perception and decision-making.

13. Legal and Compliance Experts: Lawyers and legal firms

specializing in cryptocurrency and blockchain law help navigate the
complex regulatory landscape and ensure compliance with applicable laws.

14. Standardization Bodies: Organizations working to establish

technical standards and best practices for blockchain and cryptocurrency
technology, aiming to ensure interoperability and security.
 15. Privacy Advocates: Individuals and groups advocating for privacy
and data protection within the cryptocurrency space, often focusing on
privacy-focused coins and protocols.

These stakeholders collectively shape the direction, growth, and impact of the
cryptocurrency and blockchain ecosystem. It's important to note that this
landscape is constantly evolving, and new stakeholders may emerge as the
technology and its applications continue to develop.

Legal Aspects:

Legal aspects of cryptocurrencies are complex and can vary significantly from
one jurisdiction to another. As of my last knowledge update in September 2021,
here are some of the key legal aspects associated with cryptocurrencies:

1. Regulatory Classification: Cryptocurrencies are often categorized

differently by various countries. Some countries treat them as
commodities, others as currencies, and some even as securities. The
classification can impact taxation, licensing, and regulatory requirements.

2. AML and KYC Regulations: Many countries have implemented

Anti-Money Laundering (AML) and Know Your Customer (KYC)
regulations for cryptocurrency exchanges and service providers. These
regulations aim to prevent money laundering and other illicit activities.

3. Licensing and Registration: Some jurisdictions require

cryptocurrency exchanges and wallet providers to obtain licenses or
register with regulatory authorities. This is often to ensure compliance with
AML and KYC regulations and consumer protection.

4. Taxation: Cryptocurrency taxation varies widely. Some countries

treat cryptocurrencies as assets subject to capital gains tax, while others
consider them as currency and subject to different tax rules. Properly
reporting cryptocurrency transactions is essential to avoid legal issues.

5. Securities Regulations: Initial Coin Offerings (ICOs) and token

sales that are deemed securities may be subject to securities regulations.
Companies conducting ICOs need to comply with relevant laws to avoid
legal repercussions.

6. Consumer Protection: Regulations may require companies to

provide clear information about the risks associated with investing in
cryptocurrencies. Scams and fraudulent activities in the crypto space are a
concern, prompting regulatory actions to protect consumers.

7. International Sanctions: Cryptocurrencies can be used to

circumvent economic sanctions. Some jurisdictions have regulations to
ensure compliance with international sanctions by monitoring and
controlling cryptocurrency transactions.

8. Data Privacy: Blockchain technology, which underlies many

cryptocurrencies, can raise data privacy concerns, especially when
personal information is recorded on a public ledger. Regulations like the
EU's General Data Protection Regulation (GDPR) can impact how
blockchain and cryptocurrencies are used.

9. Central Bank Digital Currencies (CBDCs): The development of

CBDCs is a legal and regulatory topic that central banks are exploring. The
legal implications of issuing and using CBDCs, as well as their potential
impact on the broader financial system, are being studied.

10. Smart Contracts and Legal Contracts: The use of smart contracts
on blockchain platforms raises questions about their legal enforceability.
Determining the legal status of these contracts and how they interact with
traditional legal systems is an ongoing challenge.
 11. Intellectual Property: Legal issues related to intellectual property
can arise in the crypto space, particularly concerning patent applications,
copyright, and open-source licenses.

Cryptocurrency Exchange:

A cryptocurrency exchange works similarly like stock exchanges

which helps the investors to buy and sell in digital currencies such as Bitcoin,
Ethereum or Tether. These platforms work on digital marketplace such as mobile
apps or via desktop functions similarly like e-brokerages. They also provide an
array of trading and investing tools to its users.

The crypto exchanges also provide trading of various cryptocurrency

such as margin or lending trading, and future and options trading.

To provide their users with these countless offerings, the crypto exchanges charge
some type of fee for your transactions which can be either based on the volume
of your transaction or dependent upon which kind of trade you carried out.

Before crypto exchanges, investors were only able to receive crypto via
mining or by organizing transactions in various online and offline forums. But
now, there are hundreds of cryptocurrency exchanges operating worldwide and
offering various digital currencies with varying levels of security and fees
structure.

How Does A Cryptocurrency Exchange Functions?

Cryptocurrency exchanges, whether centralized and decentralized, are

very new as a concept. They work on the basis to provide a match for buyers and
sellers. When you set up an account with any of the crypto exchange, it facilitates
you to buy and sell cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH),
Litecoin (LTC), Cardano (ADA) or Dogecoin (DOGE), and so on.
So, if anyone wants to place trades on crypto exchanges in India, they have to
first register and complete the Know-Your-Customer (KYC) process. Once the
user’s account is opened and verified, then they can transfer funds in the form of
fiat currencies such as INR or digital currency onto the platform, which can be
further used to make purchases.

So, if suppose you want to buy your first cryptocurrency via crypto exchange,
here are the basic steps:

Step 1: Explore and choose a trustworthy and sound cryptocurrency exchange.

Step 2: Register with the exchange and open an account with them.

Step 3: Fund your account or crypto wallet either by depositing fiat or digital
currencies.

Step 4: Now, select the cryptocurrency you want to buy and how much. For
instance, if you wish to buy Bitcoin worth INR 10,000.

Step 5: Follow the necessary steps to initiate and complete a transaction.

Step 6: Check your account to verify that the transaction was a success.

Pros and Cons of Cryptocurrency Exchanges

Pros

 Very easy and hassle-free for users to buy cryptocurrencies.

 Exchanges allow you to place a legitimate trade on cryptocurrencies.

 There are many exchanges which offer their users with tax forms,
making it easier to compute crypto taxes.

Cons

 Too much vulnerable to hacks and cyber theft.

  If the exchanges go bankrupt, users will not be able to access their
funds or place trades.

 In most of the exchanges, users do not have the right to hold their
private keys.

Types of Cryptocurrency Exchange

1. Centralized Exchanges

These kinds of exchanges work on the same lines of conventional equity stock
exchanges or full -time brokerages. As the name says, the centralized exchange
is regulated by a single authority which keeps an eye on every account and
maintains full charge on each and every transaction.

Pros

 Great liquidity.

 Recovery of the user’s fund is possible.

 Able to handle transactions faster.

Cons

 Easier for hackers as CEX stores valuable user data across

centralized servers.

 Have been charged with manipulating trading volume in the past.

2. Decentralized Exchanges or DEX

These kinds of exchanges are completely opposite of centralized exchanges. They

run on the basis of distributed ledger infrastructure. These kinds of exchanges
allow trading of cryptocurrencies without any authority.

Decentralized exchanges are fully autonomous where the users control their keys
and their digital assets. Moreover, the users are not required to go through any
kind of KYC formalities and thus have more privacy in securing their
transactions.

Pros

 Full custody of their funds.

 More security and privacy.

 Distributed hosting reduces the risk of cyber attacks.

Cons

 Low liquidity.

3. Hybrid Exchanges

A hybrid exchange is a mix of both CEX or DEX exchanges and has been
designed to offer the best of both the worlds. They assist in providing the ease
and convenience of the centralized exchange and also offer the benefit of privacy
and security of a decentralized exchange.

Pros

 Provides the strengths of both DEX and CEX.

 Provides a high level of privacy.

Cons

 Relatively a very new concept.

 Do not have much volume till date.

Things to Check Before Selecting a Crypto Exchange

Here are few of the important points which could save you big time
from a fraud or cryptocurrency exchange which might poses a significant amount
of risk:
 1. Check whether a particular firm is registered as a securities broker.
2. Choose the exchange which is incorporated or registered in India.
This could make it very helpful if any concerned authorities investigate the
exchange.
3. The exchange must notify or inform you what it does with your
funds. So, if the exchange is manipulating or commingling your funds, it
could be very difficult or impossible for you to recover your funds if the
exchange enters bankruptcy. For instance, bad lending practices led to the
demise of FTX and proved very risky for its users across the globe.
4. The exchange should have a legit presence on social media channels
such as LinkedIn, Twitter or Facebook.
5. Always check the customer support system of the cryptocurrency
exchange, before selecting the exchange, try to contact them via toll free
numbers or via chat system.
6. Before selecting the exchange, also locate the exchange’s wallet. A
fully operational exchange generally discloses their cryptocurrency
reserves. But, if an exchange is trying to keep this information hidden, then
it could be a sign of undercapitalized or illegitimate exchange.

How is a Cryptocurrency Exchange Different from a Cryptocurreny Wallet?

People often get confused between crypto exchange and crypto wallet. As they
both are used extensively for the safe storage of cryptocurrencies — although
how a crypto wallet functions is a little bit more complex. Here’s a quick rundown
of some of the notable differences between crypto exchanges and crypto wallets:
 Cryptocurrency Exchanges Cryptocurrency Wallets

Helps in facilitating crypto based

Helps to send, receive and store crypto.
trades

May or may not use private keys Wallets generally uses private keys

Might support or the storage of Supports any crypto which can be held in a
certain cryptocurrencies wallet.

Might include custodial wallets for Wallets can exist on crypto exchanges as
speedy transactions. offline or online wallets.

Allows to trade fiat currency for It only stores cryptocurrencies and not fiat
crypto. currencies.

How to Select the Proper Exchange for Your Investing Needs?

Do Proper Research: When it comes to selecting the best crypto exchange then
its reputation and past records really matters a lot. Thus, it is very important for
the users to do proper research about the exchange, its founders, legitimacy,
security issues, and how exchange addresses any customers related issues.

High Level of Security: The cryptocurrency exchange should have proper and
high level of security features. As these exchanges are not regulated, therefore
only tight security features are a must.

Always Check Pairs and Fees: If you are satisfied with the exchange’s
background and its security features, then the next important thing to consider is
the pairs and fees, as it might affect your daily investment needs. Fees and pairs
vary from exchange to exchange and totally depend on your on-investment
requirements.

Withdrawal and Deposit Options: Select that exchange which offers multiple
and convenient ways to withdraw and deposit your money such as bank transfers,
credit and debit card payments, peer-to-peer lending etc.

Black Market and the global economy:

The black market's interaction with the global economy of cryptocurrency shares
some similarities with its interactions in traditional financial systems but also
presents unique challenges and opportunities. Here's how the black market relates
to the global economy of cryptocurrencies:

1. Anonymity and Pseudonymity: Cryptocurrencies offer a degree of

privacy and pseudonymity that can attract illicit activities. Individuals
engaged in black market activities may use cryptocurrencies to obscure
their identities and transactions.

2. Darknet Markets: Cryptocurrencies like Bitcoin have been used on

darknet markets to facilitate the sale of illegal goods and services, such as
drugs, counterfeit items, stolen data, and hacking tools.

3. Money Laundering: Cryptocurrencies can be used for money

laundering by converting illicit funds into cryptocurrencies and then
transferring them through multiple addresses to obfuscate the source of the
funds.

4. Ransomware and Extortion: Criminals behind ransomware attacks

often demand payments in cryptocurrencies, as they provide a relatively
anonymous and quick way to receive ransom payments.
5. Sanctions Evasion: Cryptocurrencies can potentially be used to
evade economic sanctions by facilitating cross-border transactions without
going through traditional financial systems.

6. Regulatory Challenges: The decentralized and cross-border nature

of cryptocurrencies presents regulatory challenges for governments aiming
to combat black market activities. Law enforcement agencies need to adapt
to new methods of tracking and investigating illicit cryptocurrency
transactions.

7. Blockchain Transparency: While cryptocurrencies provide a level

of privacy, they are also built on transparent blockchains where all
transactions are recorded. This can make it challenging for individuals
engaged in black market activities to remain completely anonymous.

8. Legitimate Use Cases: It's important to note that while

cryptocurrencies can be used for illicit activities, they also have legitimate
use cases. Many people and businesses use cryptocurrencies for legal
transactions, international remittances, and investment.

9. Legitimate Use in Underserved Areas: Cryptocurrencies can

provide financial access to individuals in underserved regions who lack
access to traditional banking services. However, this also means that some
individuals in such areas might turn to cryptocurrencies for illicit purposes.

10. Regulatory Responses: Governments and regulatory bodies have

taken steps to address the use of cryptocurrencies in the black market.
These measures include enforcing AML and KYC regulations on
cryptocurrency exchanges and working on international cooperation to
combat illicit activities.
 11. Technological Solutions: The same technology that enables
cryptocurrencies can also be used to enhance security and traceability in
supply chains, potentially reducing counterfeit goods and illicit trade.

Overall, the interaction between the black market and the global cryptocurrency
economy is complex. While cryptocurrencies can be used for illicit activities, they
also have the potential to bring about positive changes in finance, supply chain
management, and more. Regulatory efforts, technological advancements, and
international cooperation are important factors in shaping the impact of
cryptocurrencies on the black market and the broader global economy.

Blockchain Applications:

Medical Record Management system

Blockchain technology has the potential to revolutionize medical record

management systems by enhancing security, privacy, interoperability, and patient
control over their health data. Here are some ways in which blockchain can be
applied to medical record management:

1. Data Security and Integrity: Blockchain's decentralized and

immutable nature ensures that medical records cannot be altered without
consensus from the network. This helps prevent unauthorized changes to
patient data, reducing the risk of medical identity theft and data breaches.

2. Interoperability: Blockchain can create a standardized and secure

format for medical data exchange among different healthcare providers,
systems, and organizations. This promotes seamless sharing of patient
information while maintaining data integrity.

3. Patient-Controlled Data: Patients can have control over who

accesses their medical records and can provide permission for specific
healthcare providers to access their information. This empowers patients to
manage their health data more actively.

4. Consent Management: Blockchain enables patients to give explicit

consent for sharing their data, and these consents can be tracked on the
blockchain, ensuring that data usage is in line with the patient's
preferences.

5. Auditing and Accountability: Every transaction or access to patient

data is recorded on the blockchain, creating an audit trail. This enhances
accountability and transparency in medical data management.

6. Secure Identity Management: Blockchain can be used to create a

secure and tamper-proof digital identity for patients, which can help
prevent fraud and ensure that patient records are accurately associated with
the correct individuals.

7. Clinical Trials and Research: Blockchain can streamline the

process of obtaining patient consent for participating in clinical trials and
research studies. It can also securely store and share research data while
maintaining data ownership and privacy.

8. Streamlined Claims Processing: Blockchain-based medical record

management can facilitate quicker and more accurate claims processing for
insurance companies, reducing administrative overhead and fraud.

9. Health Information Exchange (HIE): Blockchain can simplify the

secure exchange of health information among different healthcare
providers within a Health Information Exchange network.

10. Data Portability: Patients can have a digital copy of their medical
records stored on the blockchain, allowing them to easily share their health
history with new healthcare providers, even when switching institutions.
 11. Data Privacy Compliance: Blockchain's design can help healthcare
organizations adhere to regulations like the Health Insurance Portability
and Accountability Act (HIPAA) by providing a secure and auditable
framework for managing patient data.

12. Telemedicine and Remote Monitoring: Blockchain-enabled

medical record systems can support secure sharing of medical data between
patients and healthcare providers in telemedicine scenarios, ensuring
accurate and up-to-date information.

13. Reduced Administrative Burden: By eliminating duplicated

records and data discrepancies across different healthcare providers,
blockchain can reduce administrative work, improving efficiency.

It's important to note that implementing blockchain in healthcare comes with

challenges, including regulatory considerations, data standardization, scalability,
and interoperability with existing systems. However, as the technology matures
and regulatory frameworks adapt, blockchain has the potential to transform how
medical records are managed, enhancing patient privacy, data security, and the
overall quality of healthcare services.

Domain Name Services and the future of Blockchain:

A domain name is a unique address that people use to access a

website on the internet. Today, domain names are managed by a centralized
organization called the Internet Corporation for Assigned Names and Numbers
(ICANN). However, with the advent of blockchain technology, there is a growing
movement to decentralize the management of domain names and make them
more secure, transparent, and accessible to the general public.

One of the best things about using blockchain technology for

domain names is that it makes it possible to create ones that are not controlled by
a single organization. This gets rid of the need for a central authority to manage
domain names and makes it harder for any one group to censor or control the
Internet. Domain names based on blockchain can also be registered and
transferred from one person to another. This makes the process faster, cheaper,
and safer./

Another benefit of using blockchain technology for domain names is

that it allows for the creation of new top-level domains (TLDs) which would
be more memorable, meaningful, and easy to remember. These new TLDs can
be used to create new digital identities for individuals and businesses, which can
help to increase their online visibility and credibility.

Furthermore, blockchain technology can also enable the creation of

decentralized websites, which would allow for the creation of more secure,
transparent and accessible websites. These decentralized websites would be
hosted on a distributed network, making them less vulnerable to hacking and
censorship.

In conclusion, the future of domain names with blockchain

technology is exciting and holds a lot of potential for the future of the internet.
With the ability to create decentralized and autonomous domain name systems,
blockchain technology has the potential to revolutionize the way domain names
are managed and make the internet more accessible, secure, and transparent for
everyone.