As years are passing, the crypto space is successful in conquering more space and attention from different audiences, majorly investors, financial institutions, and law enforcement agencies, making it difficult to ignore.

The Bitcoin network quietly remains the leader in this market, with a larger capitalization, greater decentralization, and network size.

However, for a long time, the project that occupies the second place has stood out and supported the creation of the vast majority of other tokens in this ecosystem. Yes, we are talking about Ethereum, the second-largest crypto by market capitalization.

Inspired by the concepts proposed by Satoshi Nakamoto, such as consensus and decentralization, the Ethereum network emerged in 2013 with the proposal to allow new features to the blockchain technology and expand the possibilities initiated by the Bitcoin network, increasing the potential for disruption to various industries, especially that of finance.

In this blog, we’ll learn about this crypto and find out if it is legal in India. As we know, there are no laws in India governing digital currencies like Ethereum.

The major action the government has taken in the crypto area so far is the addition of a 30% tax on the profits made from crypto transactions, in addition to the 1% TDS on Virtual Digital Assets (VDAs). The tax plan has received varied reactions; some think it will negatively impact cryptos like Ethereum, while others support it. Nevertheless, despite the imposition of tax and other measures, Indian investors seem enthusiastic about cryptos, judging by the rise in transaction volumes.

Let’s quickly dive into the blog to understand the legal status of Ethereum in India.

Ethereum’s Overview

• Definition

Ethereum is a public, open-source blockchain platform that allows developers to create and deploy Decentralized Applications (DApps) using smart contracts. It established the concept of “smart contracts,” which are basically self-executing contracts with predefined rules and conditions. Ethereum also has its native crypto called “Ether” (ETH).

• Architecture

Ethereum employs a decentralized architecture where multiple nodes participate in the validation of transactions and execution of smart contracts. Its architecture is based on a global, public ledger and uses the Ethereum Virtual Machine (EVM) to execute smart contracts. Ethereum’s architecture is more suitable for public, open networks.

• Consensus mechanism

Ethereum currently uses a Proof of Stake (PoS) consensus mechanism called Ethereum 2.0. Previously, it used a Proof of Work (PoW) mechanism. PoS relies on validators who lock up a certain amount of crypto to create new blocks and validate transactions. This mechanism aims to be more energy-efficient compared to PoW.

• Smart contracts

Ethereum is renowned for introducing the concept of smart contracts. These self-executing contracts automatically enforce the terms and conditions specified within the contract code. Developers can easily write smart contracts using Solidity, Ethereum’s programming language, and deploy them onto the Ethereum network.

• Use cases

Ethereum is primarily used for decentralized applications, Initial Coin Offerings (ICOs), and Decentralized Finance (DeFi) applications. It has gained popularity as a platform for building new cryptos and tokens, enabling fundraising through ICOs, and facilitating decentralized lending, trading, and more.

• Privacy and security

Ethereum’s public and open nature means that all transactions and smart contract codes are visible to all participants on the network. While using cryptographic techniques ensures security, the public nature might not be ideal for scenarios requiring strict privacy.

• Network’s governance

Ethereum’s governance model has evolved and involves discussions and decisions within the Ethereum community. Ethereum Improvement Proposals (EIPs) are used to propose changes and upgrades to the network. Decisions are made based on rough consensus among developers and stakeholders.

Status of Crypto in India

India has emerged as a notable player in the global crypto space, boasting the largest number of crypto users worldwide and ranking second in crypto adoption.

Recent research highlights the increasing prevalence of crypto transactions in India. Technological advancements have played a crucial role in driving this surge. India has witnessed the development of blockchain-based educational games, enabling investors to acquire essential skills for successful crypto trading. Furthermore, substantial transaction volumes on crypto platforms have significantly contributed to this expanding crypto ecosystem. Notably, Ethereum offers a cost-effective means for cross-border transactions, minimizing transaction fees.

Legal status of Ethereum trading and mining in India

Currently, the trading and mining of Ethereum in India exist within a legal gray area. The government of India has not established specific regulations for Ethereum or other cryptos, and they are not considered legal tender in the country. Ethereum mining remains unregulated in India, although discussions are ongoing between the government and industry stakeholders regarding potential regulations for crypto mining.

It’s important to note that no specific legislation is currently prohibiting Ethereum mining in India. However, the government has clarified that expenses related to crypto mining cannot be claimed as deductions under the Income Tax Act.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.