LEGAL RESEARCH AND ANALYSIS, 2025

Submitted To: Prof. Dr. Shiva Pd. Poudel

SEMESTER I, YEAR II
BBM-LLB

Global Legal Frameworks for

Cryptocurrency across Different
Jurisdictions:
Importance, Challenges, and
Development
Shreyash Sharma Parajuli

ABSTRACT
Cryptocurrency has emerged as a transformative financial innovation, redefining traditional monetary systems and
challenging regulatory frameworks worldwide. This paper explores the conceptual foundation of cryptocurrency, its
types, and the technological advancements underlying blockchain. It further examines global regulatory approaches,
with a focus on the United States, the European Union, and Nepal, analyzing the legal complexities and evolving
policies surrounding digital assets. This study, based on a review of scholarly articles, legal documents, and online
sources, employs an exploratory approach to examine the legal challenges and opportunities of cryptocurrency
regulation. It underscores the need for a balanced framework that mitigates risks while fostering financial innovation.
The study concludes that the future of cryptocurrency regulation depends on global cooperation, legal frameworks,
and policymaking to integrate cryptocurrency into the new financial landscape.
INTRODUCTION
Many experiments with any new technology will fail,
but failures can help point the way to future successes,
so broad room for experimentation – with appropriate protective
measures to reduce and mitigate harm – is paramount.
Experimentation can teach both regulators
and market participants important lessons.

- Hester Peirce, Commissioner of the Securities and Exchange Commission (SEC)

In today’s rapidly evolving financial landscape, cryptocurrencies and blockchain technology are
reshaping traditional banking and payment systems. Digital currencies have introduced a new way
to store, transfer, and invest money, but their rapid rise has left governments and regulatory bodies
struggling to keep up Unlike traditional currencies controlled by central banks, cryptocurrencies
operate on decentralized networks, making transactions faster, more transparent, and less
dependent on intermediaries

Since the introduction of Bitcoin by the mysterious Satoshi Nakamoto in 2008, the crypto market
has expanded dramatically. Today, cryptocurrencies like Ethereum, Ripple, Litecoin, and Monero
serve various financial functions beyond simple transactions, including smart contracts,
decentralized finance (DeFi), and secure global payments. Blockchain, the technology behind these
digital assets, acts as a public ledger that records every transaction, making it highly secure and
resistant to fraud. However, while blockchain enhances financial efficiency, it also raises concerns
about regulation, security, and economic stability.

The biggest challenge facing cryptocurrency today is regulation. Some governments, like those in
the United States and the European Union, have taken steps to introduce legal frameworks to
manage digital assets, ensuring transparency and protecting investors. Others, including Nepal and
China, have imposed outright bans due to concerns over economic stability, fraud, and illicit
activities such as money laundering and cybercrime. The lack of global knowledge on how to
regulate cryptocurrencies has created uncertainty about their future, making it crucial to explore the
opportunities and risks they present.

This study examines the rise of cryptocurrencies, how they work, and how different are responding
to their growth. By analyzing existing laws and global trends, the paper aims to provide insights
into the future of cryptocurrency regulation and its potential impact on economies worldwide.

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Purpose of the Study
This study aims to provide a clear and accessible understanding of cryptocurrency and its legal
regulations in the United States, European Union, and Nepal. As digital currencies continue to
shape the global financial landscape, it is essential to examine how different countries are adapting
to this evolving technology.
Specifically, this study seeks to:
 Explore how cryptocurrencies exist and are used in financial systems worldwide.
 Understand how cryptocurrency and blockchain technology work.
 Examine recent advancements in cryptography and their impact.
 Analyze the legal and economic implications of cryptocurrency adoption.
 Offer insights and recommendations for future research on cryptocurrency regulation.
By shedding light on these areas, this study aims to contribute to ongoing discussions about digital
assets and their role in the future of finance and regulation.

Definition of the Terms

Cryptography :
Cryptography is the transformation of readable and understandable data into a form which cannot
be understood in order to secure data. Cryptography refers exactly to the methodology of
concealing the content of messages, the word cryptography comes from the Greek word "Kryptos",
that means hidden, and "graphikos" which means writing.

Cryptocurrency :
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A
cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a
cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any
central authority, rendering it theoretically immune to government interference or manipulation.

Cryptology :
The study of secret codes or ciphers and the device used to create and decipher them is termed as
cryptology(Collins, n.d.). Such study is based on the fundamental assumption of encryption and
decryption.

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 Block Chain:
A block-chain is a digitized, decentralized, public ledger of all cryptocurrency transactions.
Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to
it in chronological order. It allows market participants to keep track of digital currency transactions
without central recordkeeping. Each node (a computer connected to the network) gets a copy of the
block-chain, which is downloaded automatically .

Peer to Peer Network :

A network of computers configured to allow certain files and folders to be shared with everyone or
with selected users. Peer-to-peer networks are quite common in small offices that do not use a
dedicated file server. All client versions of Windows, Mac and Linux can function as nodes in a
peer-to-peer network and allow their files to be shared

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LITERATURE REVIEW
This section examines the literature on the overview of cryptocurrency and blockchain technology, the importance of
cryptocurrency regulation, case analysis, a profound understanding of financial regulations from several nations,
including the United States, The European Union and Nepal. It analyzes the economic, social, and technological
causes that have led to the need for crypto regulation, as well as the problems and opportunities these regulations
bring for financial stability, consumer protection, and innovation focusing on challenges such as systemic risk,
regulatory complexities and technological advancements.

RESEARCH METHODOLOGY
This article is based on secondary data. Various articles and research papers published in different form were
consulted upon as per the objective of review. The study follows an exploratory design.

FINDINGS

 Overview of Cryptocurrency and Blockchain Technology

A form of digital money that uses codes is a cryptocurrency. A universal ledger called a blockchain
store the details of each transaction of these electronic coins. A user needs to understand two
particular requirements known as a private and a public key in order to maintain access to the
database.1 The transactions, funds, and bank account are spreadsheets from an online database. To
keep track of your financial standing, the data is recorded in a ledger using a network of servers
known as nodes. Every transaction in the ledger is preserved by the blockchain, which also
distributes the information to several users.2 It provides users a form of proof of work, or they just
have confidence in each other. Bitcoins are typically mentioned when discussing cryptocurrency.
Bitcoins are one of the many forms of electronic currency. There are Ethereum, Ripple, Litecoin,
Monero and many other cryptocurrencies. Till date, there are about 700 Bitcoin-like currencies and
they all hold different monetary values.

A payment network containing user accounts, balances, and transactions must exist for digital
currencies to operate. Such transactions are taken over by a central authority, such as banks.
Customers' free will to double-spend is an obstacle with this kind of payment network. This
implies that one can commit any kind of fraud or spend the same sum twice. As a result, a central
server maintains track of the balances and stops entities from making duplicate purchases.

The blockchain technology allows for a trustless financial system, eliminating the need for trusted
intermediary firms. Neither central banks nor commercial banks are required to issue currency or
regulate interest and exchange rates in the brave and volatile world of cryptocurrencies. There were
1
Andriole, S. (2017). Cryptocurrency is here and it's frightening. https://www.forbes.com/sites/
steveandriole/2017/08/11/cryptocurrency-is-here-its-frightening.
2
https://www.researchgate.net/publication/
320159769_Blockchains_How_they_work_and_why_they'll_change_the_world

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no institutions or insurers providing assurances, no authorities with well-defined monitoring
powers, and no laws or courts enacting laws. Yet, the equivalent of US$ 3 Trillion 3 were held by
millions of individuals in the form of more than 10,000 new digital currencies in more than 200
million cryptocurrency wallets, completely disconnected from traditional bank accounts and
credit cards. This sum is all the more astonishing, given the fact that every one of those “virtual
currencies”4 was privately created and managed, and not a single one of those wallets was
protected by any mechanisms in any other countries.

 The importance of cryptocurrency regulation

The disruptive potential of this technology has drawn the attention of economists, the international
financial community, and governmental organizations, who are interested in substituting
centralized commercial interactions with systems that use economics and mathematics to validate
transactions rather than depending on reliable third parties. Payment systems that are politically
independent have been made possible by cryptocurrencies. Blockchain technology has the potential
to significantly reduce data maintenance costs and speeds. Tokenization produced profitable and
contentious methods for raising money. Globally, people are still feeling the seismic tremors of
these new systems, goods, and methods.5

Current legal and financial structures are not designed with a technology like this in mind.
Financial institutions are built off of much older forms of currency.6 If cryptocurrencies became the
global norm for transactions, long standing systems for trade would need to be completely
reformed to deal with this type of competition. For this reason, cryptocurrencies could possibly be
the single most disruptive technology to global financial and economic systems7

Criminals, terrorists, and others who want to escape sanctions may find refuge in cryptocurrencies.
Blockchain technology's early, idealistic concept envisioned a decentralized money free from
national borders, centralized bank control, governmental oversight, and the need for identity.
The concept behind cryptocurrency was that it offered a quick, affordable, and secure method for
exchanging value between strangers. The unlawful use of cryptocurrencies for illegal purposes is
increasing.

Cryptocurrencies are now the preferred mode of payment for many criminals. As demonstrated by
the Wannacry and Colonial Pipeline incidents, hackers who steal data are requesting
cryptocurrency payment.8 Cryptocurrencies are being used more and more by criminals to finance
illegal actions. For example, Iran hired someone to help carry out a failed attempt to kill former US
National Security Advisor John Bolton.9 Cryptocurrencies are also being used to fund people who

3
For comparison, overall U.S. GDP in 2021 was around US$ 23.2 Trillion, “only” about 10 times the value
of the cryptomarket. On the other hand, once single company, Apple, was valued at US$ 3 Trillion in
January 2022
4
See FATF Report, Virtual Currencies, Key Definitions and Potential AML/CFT Risks, Financial Action Task Force
5
Daniel Stabile, Kimberly Prior & Andrew Hinkes, Digital Assets and Blockchain Technology – US Law
and Regulation, Edward Elgar 2020
6
A New Global Economy. (2015, August 4). Retrieved July 2016, from BitPay, Inc. Website:
https://blog.bitpay.com/bitcoin-a-new-global-economy/
7
Bitcoin Rollercoaster Rides Brexit As Ether Price Holds Amid DAO Debacle. Retrieved June 2016, from CoinDesk
Website: http://www.coindesk.com/bitcoin-brexit-ether-pricerollercoaster
8
Samuel Gibbs, WannaCry: Hackers Withdraw £108,000 Of Bitcoin Ransom, THE GUARDIAN

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traffic in weapons, drugs, people, and child pornography.10 Cryptocurrencies are also being used by
terrorist groups to raise money.

Currently, there aren't many financial crimes that have been associated with cryptocurrencies,
particularly when contrasted with "traditional" financial services.11 However, the risks of
cryptocurrency abuse rise in parallel with its increased use. Therefore, it's critical to recognize the
potential abuses of cryptocurrencies and support the early development of technological and
legislative solutions. The development of the industry will be hampered if the risks of
cryptocurrency abuse are not adequately reduced. Authorities may even try to ban
cryptocurrencies, as Nepal 12 and China has done.13

 Case Analysis
Terror Fundraising
Hamas Case

Hamas, which has been designated as a terrorist organization by the United States, the
European Union, and Israel, has been fundraising in cryptocurrency since at least 2019. At
first, Hamas used regular cryptocurrency wallets, but later moved to use non-custodial
wallets. Most recently, Hamas has adopted advanced software that generates a unique
address for each new donation.14

In 2021, intelligence indicated that Hamas launched fundraising campaign via social media
asking for donations in cryptocurrency. In July 2021, the Israeli Minister of Defense
designated crypto wallets related to this fundraising that were associated with Hamas’

9
Press Release, Off. of Pub. Affs., Dep’t of Just., Member of Iran’s Islamic Revolutionary Guard Corps (IRGC)
Charged with Plot to Murder the Former National Security Advisor
10
Press Release, U.S. Att’y’s Off. for the W, Dist. of Mich., Dep’t of Just., Plainwell Man, Benjamin James Cance,
Charged with Illegal Arms Exportation, Other Crimes
11
FIN. ACTION TASK FORCE, SECOND 12-MONTH REVIEW OF THE REVISED FATF STANDARDS ON
VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS 22
12
https://www.nrb.org.np/contents/uploads/2021/09/FXMD-Notice-03-207879-Cryptocurrency.pdf
13
Alun Jon, Samuel Shen & Tom Wilson, China’s Top Regulators Ban Crypto Trading and Mining, Sending Bitcoin
Tumbling
14
See Baydakova, supra note 7

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 military wing.15 The designation was made under Israel’s Anti-Terrorism Law and certified
that those funds were associated with terrorists, requiring their immediate seizure. The
designation included over 20 different types of cryptocurrencies, including bitcoin, Ether,
Tether, TRON, Cardano, XPR, Doge, and more.16

This case was one of the first to designate cryptocurrency wallets linked to terrorism
financing across a wide range of digital assets. Israel’s National Bureau for Counter Terror
Financing (NBCTF) publicly announced the designations and actively shared them with
Virtual Asset Service Providers (VASPs) worldwide. In response, many VASPs—both
regulated and unregulated—identified connections to the flagged wallets and reported their
findings. Some shared information directly with the NBCTF, while others worked through
law enforcement agencies (LEAs) or financial intelligence units (FIUs), which helped
coordinate international efforts.

VASPs played a key role in tracking these wallets by using their compliance tools, open-
source data, and blockchain analytics. Their findings not only helped trace and seize illicit
funds but also contributed to broader investigations into terrorism financing. Blockchain
analytics firms also conducted independent research, uncovering links to additional wallets
and past illicit activities. When these findings were published, they provided even more
insights into potential threats.

This case demonstrates the power of collaboration between VASPs, law enforcement, and
private-sector analysts. By working together and leveraging technology, they helped
Israel’s NBCTF trace and seize millions of dollars in cryptocurrency tied to terrorism
financing.

 U.S. Federal Laws

The United States Constitution provides for a federal structure of government, and grants to the
Federal Government only the powers enumerated in the Constitution itself. All remaining
powers are reserved to the Several States. Neither the Constitution of 1787, nor any of the
subsequent amendments to it, mention regulation of the internet, distributed ledger technology,
or digital currencies, as a power of the Federal Government. Furthermore, within the Federal
Congress andthe U.S. Supreme Court, the dominant views oppose pretty much any expansion
of Federalpowers at the expense of the Several States.17
Nevertheless, it is equally obvious that the Federal Government would have the power to
regulate cryptocurrencies on the basis of the interstate commerce clause, which grants to the
Federal Government the power to regulate Commerce with foreign Nations, and among the

15
See Administrative Seizure Order (ASO-44/21), MINISTRY OF DEFENSE (Isr.)
https://nbctf.mod.gov.il/he/Announcements/Documents/%d7%a6%d7%aa%2044-21.pdf [https://perma.cc/UQ79-
V5VR].
16
Hamas Cryptocurrency Donations Update | Seizures by Israel’s National Bureau for Counter Terror Financing
(NBCTF), CIPHERTRACE
17
United States v. Lopez, 514 U.S. 549, and commentary by Steven Calabresi, “A Government of
Limited and Enumerated Powers”: In Defense of United States v. Lopez, Michigan Law Rev. Vol. 94, No.3

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 several States.18 So far it has not done so and, not least because of the highly partisan
environment in Congress, it is highly unlikely that specific legislation will be developed at the
Federal level in the foreseeable future.However, this does not mean that there is no Federal
law, let alone that the Federal level is of no concern to developers, traders, and users of
cryptocurrencies.

Among the Federal laws of relevance are banking- and money services business laws and
regulations,19 as well as a variety of consumer protection laws.20 The financial and securities
industry is specifically governed by the following Federal laws:

 Securities Act of 1933

 Securities Exchange Act of 1934
 Commodity Exchange Act (CEA) of 1936
 Trust Indenture Act of 1939
 Investment Company Act of 1940
 Investment Advisers Act of 1940
 Sarbanes-Oxley Act of 2002
 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
 Jumpstart Our Business Startups (JOBS) Act of 2012, as well as a number of Federal
Rules and Regulation.

At the Federal level, various agencies and authorities are currently involved in oversight of
cryptocurrency businesses:

 the Securities and Exchange Commission (SEC) has oversight of securities issuers and
traders;
 the Commodities Futures Trading Commission (CFTC) has oversight of traders and
trading places (exchanges) dealing with commodities futures;21
 the Department of Justice is charged with fraud prevention, for example in the form of
Ponzi schemes;
 the Federal Reserve, i.e. the central bank of the U.S., has oversight of banks and financial
institutions to ensure their safety and soundness;
 the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department is
charged with combatting money laundering, terrorist financing, and other large scale
financial crimes; cryptocurrency business may have to obtain licenses as “money services
businesses;”
 the Office of Foreign Assets Control (OFAC) at the Treasury Department administers and
enforces trade sanctions against particular countries, individuals, and companies;

18
U.S. Constitution, Article 1, Section 8, Clause 3
19
Federal banking laws (U.S. Code Title 12) https://www.sec.gov/about/laws/secrulesregs.htm
20
Consumer Financial Protection Bureau (CFPB) https://www.consumerfinance.gov/rules-policy/regulations/
21
Cryptocurrency businesses may need licenses or registration as Derivatives Clearing Organization (DCO),
Designated Contract Market (DCM), Swap Execution Facility (SEF), Swap Data Repository (SDR),
Commodity Pool Operator (CPO), Commodity Trading Advisor (CTA), Futures Commission Merchant
(FCM), Introducing Broker (IB), Swap Dealer (SD), and/or Foreign Boards of Trade.

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  the Consumer Financial Protection Bureau (CFPB) protects consumers against unfair
treatment by banks, lenders, and other financial companies;
 the Internal Revenue Service (IRS) at the Treasury Department is responsible for
assessment and collection of taxes on income and assets;
 the Federal Trade Commission and the Commerce Department, together with the
Department of Justice, are charged with the enforcement of antitrust legislation;
 the Environmental Protection Agency (EPA) may yet get involved if the current
expansion of Bitcoin and other energy intensive mining operations in Texas and other
places continues;
 several Self-Regulatory Organizations (SROs) like the Financial Industry Regulatory
Authority (FINRA) or the National Futures Association (NFA) set industry standards and
regulations;
 Federal courts oversee the rulemaking by and activities of the Federal agencies.

In conclusion, while the U.S. Constitution does not explicitly grant the Federal Government
authority over cryptocurrencies, existing federal laws and agencies still play a significant role in
regulating the industry. Through financial, securities, consumer protection, and anti-fraud laws,
various federal agencies oversee different aspects of cryptocurrency businesses. Despite the lack of
comprehensive federal legislation, regulatory oversight remains active, making compliance with
existing federal rules essential for developers, traders, and users in the crypto space.

 European Union (EU)

When it comes to regulating cryptocurrency assets, the European Union (EU) has led the way
globally. A standard legal framework for crypto assets, crypto asset issuers, and crypto asset
service providers was established by the regulation on markets in crypto assets (MiCA) that was
enacted by the Council of the European Union on May 16, 2023. This is the first complete set of
regulations in the world about crypto assets, and it aims to safeguard investors, lessen illicit
activity involving crypto assets, maintain financial stability, and foster technological innovation. 22
With the approval of MiCA, European firms can now begin preparing for a period after MiCA
since they have a better knowledge of the rules that will apply to companies that provide services
related to crypto assets in Europe. This will probably provide Europe a competitive edge when
luring companies that deal in digital assets. European Union has also recently approved new anti-
money laundering and counter-terrorist financing (AML/CTF) rules for digital assets. It imposes
stringent guidelines on crypto asset service providers (CASPs) about how to recognize users of
unhosted wallets. The EU Commission has introduced key measures, including the Sixth Anti-
Money Laundering Directive (6AMLD)23and the Markets in Crypto-Assets Regulation
(MiCA)24.

This regulation ensures crypto asset traceability while providing a regulatory framework for digital
asset businesses for the first time. This legal document establishes a uniform field of activity and
22
EU Council, 16 May 2023
23
Proposal for a Directive of the European Parliament and of the Council on the mechanisms to be put
in place by the Member States for the prevention of the use of the financial system for the purposes of
money laundering or terrorist financing and repealing Directive (EU) 2015/849: https:// eur- lex. europa. eu/
legal- conte nt/ EN/ TXT/? uri= celex% 3A520 21PC0 423.
24
The new MiCA regulations are expected to go into effect in 2024, following a final agreement that
reached in April 2023

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regulates the operations of various players in the cryptocurrency market (crypto exchanges, issuers
of crypto assets, virtual assets service providers).25

6AMLD requires crypto-asset service providers to register with national authorities, comply with
anti-money laundering (AML) rules, and report suspicious activities. It aims to standardize money
laundering definitions and strengthen enforcement across EU Member States. Companies covered
by 6AMLD must implement robust Know Your Customer (KYC) processes and comply with strict
risk-management obligations.

MiCA, on the other hand, is designed to establish a comprehensive regulatory framework for
crypto markets. It introduces clear rules for issuers, service providers, and exchanges, ensuring
better oversight and consumer protection. Its primary goals include reducing fraud, enhancing
market stability—especially for stablecoins, and improving investor safeguards. MiCA also
enforces stricter requirements for stablecoin issuers, such as maintaining a 1:1 reserve of assets
with independent custodians to enhance transparency and security.

Despite these efforts, MiCA has limitations. It does not yet cover decentralized finance (DeFi),
non-fungible tokens (NFTs), or other emerging digital assets, highlighting the need for future
updates. Given the global nature of cryptocurrencies, many experts argue that a coordinated
international approach, such as one guided by the Financial Action Task Force (FATF)—is
essential to effectively regulate digital assets.

In conclusion, the current state of legal regulation for cryptocurrency assets transactions in France,
the United Kingdom, Italy, Germany, and Liechtenstein highlighted that there is no unified
national legal field in this area. A survey of experts on crypto assets in these countries confirmed
that European legislation does not establish a consistent legal framework for effectively regulating
crypto assets. Furthermore, analysis of the MiCA Regulation indicates that only three groups of
crypto-assets will be covered by regulatory rules at the European Union level: exchange tokens,
stablecoins and e-money tokens.

 Nepal
As of today, the Nepalese Parliament has not put any effort in making any bill to regulate
cryptocurrency rather the Central Bank of Nepal has issued circular to ban them. As many
countries have either started creating their own cryptocurrencies or connecting their economies
with this baffling technology through multiple arrangements, there are certainly better prospects of
Cryptocurrency if regulated properly. So, it is necessary to analyze the changing societal and
economic landscapes surrounding cryptocurrencies and explore the implications for state
governance, law, and politics in adapting to these emerging phenomena to increase the country’s
competitiveness, and quality of life of citizens and compete with the world economy. So, the need
for this research has been realized.

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The MiCA regulation extends the Financial Action Task Force’s ‘Travel Rules’ to crypto assets, requir-
ing originators and beneficiaries of all transfers of digital funds to share identifying information. This
new regulation strengthens the European anti-money laundering system, reduces fraud risks and makes
transactions with cryptocurrency assets more secure.

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Legal Framework for Cryptocurrency in Nepal

Nepal has implemented strict regulations on cryptocurrency to safeguard its financial stability and
economic interests. The Foreign Exchange (Regulation) Act, 196226 governs all foreign exchange
transactions, ensuring that Nepal’s financial system remains protected from unregulated monetary
activities.

On August 13, 2017, the Nepal Rastra Bank (NRB), issued an official notice prohibiting the use of
Bitcoin in Nepal. This decision was made under Section 12 of the Foreign Exchange (Regulation)
Act, 1962, along with provisions from the Nepal Rastra Bank Act, 2002. NRB explicitly stated that
Bitcoin is not recognized as a legal currency, and any transactions involving it would be deemed
illegal within Nepal.

Building on this stance, on January 23, 2022, NRB extended the prohibition to cover all forms of
Virtual Currency and Cryptocurrency. The notice declared that any activities involving the use,
trade, investment, transactions, or mining of cryptocurrency are strictly illegal in Nepal. This move
reflects the government’s cautious approach to digital assets, prioritizing regulatory control and
financial security over the adoption of decentralized financial technologies. In August 2022, NRB
released a concept report entitled “Central Bank Digital Currency (CBDC): Identifying
Appropriate Policy Goals and design for Nepal” for public consultation. And in another circular,
NRB unveiled the Cryptocurrency Risk Assessment Report. In the Report, the NRB concluded that
cryptocurrency cannot be brought into use as transactions in it would be financially risky. It states
that prohibition on cryptocurrency is necessary as it has risks including destabilizing the overall
economic balance, risk on financial stability, risk in terms of implementing the monetary policy
and risks of fraud and tax evasion, among others.27

Engaging in cryptocurrency transactions is illegal in Nepal .The foreign exchange related with the
offence shall be forfeited and the person involved in such offence shall be fined additionally from
the amount in question to three fold of such amount in question. If the amount in question involved
in the offence is ten million rupees or more, the concerned person shall be liable to an additional
punishment of imprisonment for a term not exceeding three years, in addition to the punishment
imposable on such a person. In the event of failure to pay the fine, such a person shall be liable to
the punishment of imprisionment for a term not exceeding four years on the basis of magnitude of
the offence.

Nepal has envisioned a future of digital governance through its Digital Nepal strategy, which
consists of three national goals—accessible contemporary infrastructure and extensive connection,
quantifiable sustainable output and productivity, and excellent governance. Securing a
multidimensional change in the economy is the primary goal of Digital Nepal. Thus, the adoption
of cryptocurrency can be a step towards use of digital currency. Blockchain technology is the new
revolution in banking and finance and is being adopted gradually. It can facilitate bankless
transactions for millions of people with minimal charges without the involvement of middle
agencies just with the help of smartphones. This currency can be a better means for cross-border
payments and can help to flourish trade, and tourism and attract a lot of business and investments

26
https://www.nrb.org.np/contents/uploads/2020/01/foreign_exchange_act_2019revised.pdf
27
NRB Circular, April 2023

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in the country.

In conclusion , Nepal has taken a firm stance against cryptocurrency, prioritizing financial stability
and regulatory control. The Nepal Rastra Bank has reinforced this ban through various notices and
reports, citing risks like economic instability, fraud, and tax evasion. However, as the world moves
towards digital finance, Nepal faces a crucial decision. With the right approach, cryptocurrency
could support secure digital transactions, boost trade and tourism, and open new economic
opportunities, helping Nepal stay competitive in a rapidly evolving global economy.

CHALLENGES AND WAY FOREWARD

The regulation of cryptocurrency remains a global challenge, with countries taking different
approaches based on their economic priorities and legal structures. Nepal faces a unique dilemma
—whether to maintain its outright ban or introduce regulations that could unlock economic
benefits, such as attracting investments and utilizing its abundant hydropower resources for
mining. However, navigating this shift comes with significant challenges.
One of the primary concerns is regulatory uncertainty. Nepal’s current legal framework,
including the Electronic Transaction Act, Nepal Rastra Bank Act, and Securities Act, does not
explicitly address digital currencies, leading to confusion among businesses, investors, and
policymakers. Without clear guidelines, potential investors remain hesitant, stifling innovation in
the financial sector. Additionally, financial stability risks pose a major hurdle. Cryptocurrencies
are inherently volatile, and their unregulated use could disrupt Nepal’s monetary policies, making
it harder to maintain economic stability.

Another challenge is illigal financial activities. The decentralized nature of cryptocurrencies

makes them attractive for money laundering, tax evasion, and fraudulent schemes. Nepal currently
lacks a strong Anti-Money Laundering (AML) and Know Your Customer (KYC) framework
tailored to digital assets. Without proper oversight, the risks of financial crimes could increase.
Furthermore, lack of infrastructure and awareness presents another barrier. Many Nepalese
citizens and financial institutions are unfamiliar with blockchain technology, making widespread
adoption difficult. Additionally, using Nepal’s hydropower resources for cryptocurrency
mining raises concerns about energy allocation, as prioritizing mining could strain the national
grid and affect other industries.

At the global level, even advanced economies like the United States and the European Union
continue to grapple with regulatory complexities. In the U.S., cryptocurrency regulation is
fragmented, with multiple federal agencies overseeing different aspects. The Securities and
Exchange Commission (SEC) regulates securities issuers and traders, while the Commodities
Futures Trading Commission (CFTC) monitors exchanges dealing with crypto futures. Other
agencies, like the Financial Crimes Enforcement Network (FinCEN) and the Department of
Justice, focus on financial crimes, tax compliance, and fraud prevention. However, despite these

13
oversight mechanisms, there is no comprehensive federal law governing cryptocurrencies, and
state-level regulations vary significantly. This decentralized approach has created legal
uncertainties for businesses operating across multiple states.

In contrast, the European Union (EU) has taken a more structured approach, becoming the
first jurisdiction to implement a comprehensive regulatory framework through the Markets in
Crypto-Assets Regulation (MiCA). Enacted in 2023, MiCA establishes clear rules for crypto
asset issuers, exchanges, and service providers, ensuring market stability, investor protection,
and reduced financial crime risks. Additionally, the EU has introduced stringent AML and
counter-terrorism financing (CTF) measures, requiring crypto businesses to comply with
identity verification and transaction monitoring. However, MiCA has limitations—it does not yet
cover Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs), leaving gaps that
require further regulation.
For Nepal to move forward, it must develop a balanced regulatory framework that mitigates
risks while fostering innovation. The first step is to classify cryptocurrencies based on their
function—whether as securities, payment instruments, or commodities—and amend relevant laws
accordingly. Establishing a dedicated regulatory authority to oversee digital assets would
provide much-needed clarity and ensure compliance with financial and security regulations. Nepal
can also implement a taxation policy, ensuring that crypto transactions contribute to national
revenue while discouraging illicit financial activities.

Furthermore, Nepal must strengthen AML/KYC regulations, requiring crypto exchanges and
financial institutions to verify users and monitor transactions to prevent fraud and money
laundering. Instead of an outright ban, the government could explore stablecoins and Central
Bank Digital Currencies (CBDCs), which offer more stability and regulatory oversight.
Additionally, investing in blockchain education and infrastructure development will be crucial
in ensuring Nepalese businesses and individuals are equipped to participate in the digital economy.
By learning from global regulatory experiences and adapting policies to its own economic
landscape, Nepal can harness the benefits of cryptocurrency while minimizing risks. A well-
structured approach will not only enhance financial inclusion and attract investment but also
position Nepal as a competitive player in the evolving global digital economy.

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CONCLUSION
Cryptocurrency and blockchain technology have introduced a paradigm shift in global finance,
challenging traditional monetary systems and regulatory frameworks. While digital currencies
offer benefits such as decentralized transactions, financial inclusion, and investment opportunities,
they also pose significant risks, including financial instability, regulatory uncertainty, and potential
misuse for illicit activities. As nations worldwide grapple with these challenges, their approaches
to cryptocurrency regulation vary widely, reflecting differences in economic priorities, legal
structures, and risk assessments.

Nepal currently maintains a strict prohibition on cryptocurrency, prioritizing financial security and
regulatory control. However, as global financial landscapes evolve, this rigid stance may limit the
country’s economic potential. The adoption of a well-structured regulatory framework could
enable Nepal to harness blockchain technology while mitigating risks. By learning from global
experiences, particularly the comprehensive regulatory frameworks established by the European
Union’s MiCA regulations and the fragmented but active oversight mechanisms in the United
States, Nepal can strike a balance between innovation and security.

To move forward, Nepal must classify digital assets, amend existing laws, and establish a
dedicated regulatory authority to oversee cryptocurrency transactions. Implementing taxation
policies and robust AML/KYC measures will be crucial in preventing financial crimes while
ensuring compliance with international standards. Furthermore, exploring alternatives such as
Central Bank Digital Currencies (CBDCs) and stablecoins could provide a structured pathway for
digital financial inclusion.

In conclusion, while the risks associated with cryptocurrency are undeniable, a complete
prohibition may not be a sustainable long-term strategy. Instead, progressive regulation can offer
Nepal the opportunity to integrate into the global digital economy, attract investment, and
modernize its financial infrastructure while safeguarding national economic stability. By taking a
proactive approach to regulation, Nepal can position itself as a forward-thinking player in the
evolving financial landscape, leveraging blockchain innovation for sustainable economic growth.

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