70. Crypto Currencies (India)
Crypto currencies are everything that you don’t understand about money combined with everything that you don’t understand about computers
— John Oliver
If you want to know basics of Crypto Currencies then read here.
Feb’22 was a landmark month… Two major announcements were done during the budget session: taxation on crypto currencies and launching our own CBDC.
It was a classic case of whether the glass was half full or half empty.
Optimists thought taxation will give legitimacy to crypto currencies and pessimists thought that high taxation is designed to suffocate crypto trading.
What happened next?
Let’s take a step back and see what all happened since 2017
High taxation combined with crypto winter ruined the party… Another big jolt to crypto exchanges was the unavailability of reliable fiat rails.
Hey… wait… what is this new fancy word.. Fiat rails ?
These are regular payment products/methods (cards, bank transfer etc.) that are used for deposit or withdrawal.
A typical exchange (not P2P exchange) needs:
- Fiat rails for deposit
- Fiat rails for withdrawal
- Escrow a/c for holding customer’s funds
- Current a/c for operations
- Bank a/c Validation (IMPS based penny drop)
It is easy to get these banking/payment solutions if you are selling food or fridge magnets but not if you are a crypto exchange in India.
Somehow crypto merchants mustered a few banks to extend current accounts (escrow account was out of question). A few banks & PAs extended fiat rails but those didn’t last long.
I am sure you are aware of solutions and modes that I have listed in the above diagram… so I will skip the regular ones.
‘Account statement scraping on current a/c’ is something unique.. Crude but unique.
Working (Super simplified):
- Crypto merchant will have current account (common for all users); share the account details with customers
- Customers will transfer funds to that account using their internet banking; Add a specific number (merchant generated) in remarks section
- Merchant will download the account statement (periodically)
- Reconcile account statement with unique number (that was sent in remarks section)
- If recon is successful the credit the wallet balance else do manual checking or refund the amount via IMPS, NEFT Payout
With a little bit of automation, a little bit of smartness, crypto merchants are improving performance of this solution…. And for now, crypto merchants have to live with it…
Note: I hope you never have to rely on this solution!
Illustration 2 shows what happened… but not why?
RBI and the GOI consider Crypto Currencies risky (real as well perceived)
- Privately issued
- Beyond the purview of Government oversight or regulations
- Not considered as legal tender by countries (except few)
- Do not have intrinsic value
- Extremely volatile; doesn’t fulfil various function of money (medium of exchange, unit of account or store of value)
I do not see RBI changing its stance in the near future.
One can argue about the awesomeness of Crypto Currencies till cows come home but … for now, it is what it is.
Crypto winter, taxation, lack of fiat rails… translated into decline in active users, drop in trading volume… (let’s not stop) …. Crash of a stable coin, ED (enforcement Directorate) raids, (not done yet…) Crypto hacks, hiring freezes, employee layoffs… Uff!
