Legal Provisions on Cryptocurrency in Nepal

This Article briefly deals with Cryptocurrencies, legal frameworks surrounding Cryptocurrency and other Digital Currencies in Nepal and the existing provisions and directives for outlawing such Digital Currencies. 

1. Introduction to Cryptocurrency

Cryptocurrency is a digital/virtual form of currency that functions on networks founded upon Blockchain Technology and employs cryptography to ensure its security and prevent replication. Typically decentralized, cryptocurrencies function via blockchain, a distributed ledger that is monitored and maintained by a network of computers (nodes). To regulate the Legal Status, Rights, and Obligations Associated with the Use, Issuance, and Exchange of Cryptocurrencies, a regulatory framework is required for the legalization of cryptocurrency in a country.

A licensing or registration process must also be established for cryptocurrency exchanges, wallet providers, and other relevant entities in the applicable country. Additionally, KYC and AML (Anti-Money Laundering) Regulations must be adhered to. They will be required to establish tax treatment, incorporate capital gain tax into their transactions, and implement security and anti-fraud measures.

2. Legal Frameworks Regarding Cryptocurrency in Nepal

Foreign Exchange (Regulation) Act 2019 is the governing Act upon which the Ban on Cryptocurrency has been introduced in Nepal. The Nepal Rastra Bank has cited the Act in its attempt to outlaw Bitcoin and additional Virtual Currencies. The Act has set limitations on the Transactions of Nepalese Citizens with the Globe for receiving and Sending Money or other incentives. The Act has set deliberations on Payment to Foreigner selling Goods and Services. 

The legal provisions pertaining to cryptocurrencies in Nepal appear to be primarily restrictive in nature. As of 2023 A.D., the Nepalese government has yet to establish the necessary provisions for the legalization of cryptocurrencies.

In addition, the government issued an Official Notice prohibiting Bitcoin and cryptocurrencies in general in violation of the Foreign Exchange Regulation Act. Responsible for developing the Fiscal Regulations for the Currency, the Nepal Rastra Bank (NRB) has confirmed that all forms of cryptocurrency, including virtual currency, are unlawful in Nepal. Any form of transaction involving these currencies will be appropriately penalized, as has been established. Government regulations prohibit the utilization of these cryptocurrencies.

3. Conclusion

In Nepal, the legal framework surrounding cryptocurrencies continues to be stringent and discouraging. The lack of an established regulatory framework in Nepal has resulted in the prohibition of Bitcoin and other cryptocurrencies. The Foreign Exchange Regulation Act has been used to enforce it legally. With severe penalties for related transactions, the Nepal Rastra Bank has confirmed that any form of virtual currency is unlawful. In order to address the evolving legal status, rights, obligations, and security measures for digital currencies in Nepal, a Comprehensive Regulatory Framework must be established.

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