Future of Blockchain and Cryptocurrencies in India
I have been active on Quora for past few months and love answering questions on Blockchain technology and cryptocurrencies. Last few days, I was been busy with some personal work and mostly offline. Today I did manage to find some time and found lots of queries related to whether Indian traders/investors would be able to buy and sell cryptocurrencies going ahead, how they could liquidate their crypto-assets for fiat money, how could they transfer their fiat money stuck on the centralized exchanges and so on. Not that these questions are sudden, such queries have been pouring in since 5th July, the date that the RBI circular (banning the banks from doing business with centralized exchanges) came into effect, and deposits and withdrawals were suspended by all centralized cryptocurrency exchanges. But I guess the surge can be attributed to the growing impatience among the investor community.
To resolve the crisis, the exchanges came together and reached out to the courts to intervene on the premise that the circular was arbitrary in nature (RBI apparently accepted this in response to a RTI filed) and in violation of their right to do business (as long as it was done legally and ethically) as guaranteed by the constitution. The supreme court however declined to put a stay on the circular but directed RBI to make its stance clear and deferred the matter till 11th September — the date for the next hearing. The panel constituted by the government a few months back, was to come up with a template for regulations by July as indicated earlier by the economic affairs secretary, has pushed the timeline further quoting that more research needs to be conducted. In the meantime, despite the exchanges assuring the RBI that they welcome regulations and would be happy to comply (they already follow the KYC and AML norms), there has been no breakthrough. To ensure that the business is not impacted, some exchanges launched peer to peer trading platforms while other looked at working with Bank of Sikkim which apparently falls outside the purview of RBI. A couple of exchanges came up with a workaround of transferring money through other portals. For the investors especially, those who entered the market in Nov-Dec 2017, the prolonged bear market has only added salt to the wounds.
One question that is bothering everyone including the ones who are still not initiated (and observing from the side-lines) is, “where does one go from here”? “Will cryptocurrencies die at least in India, if not across the world”? The atmosphere of uncertainty and absence of regulatory clarity has even kept the VCs and Angel Investors away from investing in blockchain start-ups. So, what really is the way forward in India?
As far as the government is concerned, its stance has kind of remained consistent over the last couple of years, “that cryptocurrencies are not recognized as a legal tender but at the same time they look forward to the benefits of implementing the blockchain technology. Such statements have only added to the confusion as blockchain and cryptocurrencies can’t exist without each other as both are required to keep the eco-system running and growing. The pro-crypto community has interpreted such stance of the government as having no objection to cryptocurrencies being treated as assets and thus to buying, selling, trading or storing of cryptocurrencies. The anti-crypto lobby believe just the other way around. However, sometime back, there was some insider news that the government constituted panel could recommend that cryptocurrencies be treated as commodities. As far as the implementation of the blockchain technology itself is concerned, barring a couple of state level government implementations for land registry there is not much to talk about.
What is important to understand, is that, India is a complex nation with its federal structure, multiple autonomous authorities and sometimes overlapping responsibilities/jurisdiction among these authorities. And therefore, the process of framing laws and regulations tends to be a long drawn one. Keeping this in mind, we need to re-calibrate our expectations accordingly. The exchanges will figure out a way to make their money either by coming up with alternate revenue models or expanding their business to other geographies outside of India. As far as the investors are concerned, the only viable option for them is to wait and watch for the next couple of months till the outcome of the supreme court hearing becomes clear and the recommendations from the panel are out. Exiting the market in the current bear market is anyways not a good option. Hodling certainly is!
However, the finance ministry officials, RBI and other relevant stakeholders/authorities need to understand that blockchain technology being a distributed decentralized ledger, needs participation from public (as miners) for validation of transactions. Why would anyone spend their resources (computing power and electricity) for this task unless there is some incentive in doing so! This incentive or rewards is in the form of cryptocurrencies. It therefore is simply not possible to implement a truly decentralized and transparent blockchain without cryptocurrencies? The only way to do that is by creating a private blockchain which won’t need public participation. But that would make it centralized blockchain!!
India is today the fastest growing economy in the world. Over the last 2 decades, India established itself as the undisputed leader in the software services industry. With new technologies like artificial intelligence, machine learning and blockchain, there is a slowdown in the services sector and India must not lose the opportunity that these new technologies provide.
