India Lifts Ban on Cryptocurrencies: What Are Implications For Consumers?
By Dr Vin Menon on The Capital
In a phenomenal judgement, the Indian supreme court on Wednesday ruled out the curb on cryptocurrency as illegal and disproportionate. The ruling comes in the wake of the 2018 RBI ban on cryptocurrency trading in India which stated that ‘all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those’. The formal crypto-economy witnessed a rude shock when financial institutions and regulated entities already involved in dealing in cryptocurrencies and providing such services were told to cut-off their ties within three months. The IAMI ( Internet and Mobile Association of India) argued the legitimacy of such transactions as constitutional and that they could in no way lead to the undermining of the integrity of banking systems.
Industry pundits and crypto-enthusiasts see this as a positive sign for the industry, and rightfully so. The implications it holds in empowering the investors and businesses, and tech and innovations in the near future are immense. The Indian crypto-trading scene, since, 2018, has been bereft of the immutability of the blockchain and the vast potential cryptocurrencies hold to disrupt other industries like real estate, logistics, electricity grids, and even government functioning. What started as a revolution with the bitcoin phenomenon is ready to forge new grounds for digitization and decentralization of businesses and processes, now that the hiatus ceases asking for fresh beginnings.
Most of the infrastructure and bits and pieces towards the cryptocurrency was already built out over the last few years. We should see a lot of them restarting and a lot more activity happening around this space,” opined Benson Samuel, Director Of Technology at Tokenyz Ventures.
The market cap for Bitcoin, as of 4th March, stands at around $161 billion, making it the most valued cryptocurrency in the world. Countries have been wise to its potential, with Japan already integrating it as a legal currency in its financial system in 2017. Let’s take a crisp look at the implications of the SC move:
- Integration of the Indian crypto scenario with the world — now that the financial institutions and other agencies would be free to provide services.
- The emergence of a regulated framework for recognised crypto exchanges — which would further trading, investment and lending practices pushing the stagnant economy towards a boom.
- So far, 5 to 6 million internet users are involved in crypto trading. With the number of internet users touching the 500 million mark, this number will only grow several folds with the raising of the ban. And it should.
- Sectors like real estate are sure to see a spike in their businesses with the alternative mode of investment now gaining the trust of the apex court. The multiple applications of blockchain across real-estate and housing industry are sure to revitalize the sluggish growth.
- Startups are ubiquitous with the corporate Indian scene today. Being a disruption in themselves, cryptocurrencies can provide them with easy access to capital, fully automated legal agreements among other benefits.
State of Real Estate in India
“The amount of venture capital fundraising for Blockchain-based companies so far in 2018 has already reached more than 40 percent of last year’s total, according to a report released by Crunchbase News on Feb. 27″.
Of all the sectors in the Indian economy, the real estate sector seeks to benefit a lot from this development, given the nature and magnitude of investment it requires and the oversupply it is facing over the current slump in demand. The real estate outlook has been touted as highly pessimistic by the stakeholders with its piling inventory and disinterested investors losing their trust in the sector. There are several reasons:
- The ROI from housing currently stands at a meagre 2–3% even in the most developed cities of India.
- The negative RoI has its direct relationship with the current economic slowdown and the high rate of unemployment in India.
- Investors are no longer trusting the under-construction properties owing to the huge time-gap in actual possession.
- The loan-to-value ratio by the traditional banks has fallen.
- High taxation accompanied by new GST norms has pushed up the costs and the underlying formalities dissuading more and more investors from putting their stakes in the realty sector.
Implications of the SC move for real estate sector
The cryptocurrency revival, with its tokenized system of investment, can open up new avenues for the sector. Global investors dealing in cryptocurrencies will find India as a hotbed for real estate investments, given the current SC ruling backing the legality of trading and investment in cryptocurrencies in India. The global integration will boost the creditworthiness of the sector on one hand and lead to better regularisation and norms on the other hand. Here are some of the key ways in which cryptocurrencies can impact the real estate market in India:
- Tokenisation of a real estate asset: This is a relatively new concept dealing in cryptocurrency fundraising, in which investors raise money for a property by securitizing it or dividing it into shares or ‘tokens’ that can be exchanged for fiat money or cryptocurrency. The securitization of a real estate culminates in the creation of an ERC20 real estate token equivalent to the total value of the real estate asset. This tokenization would help in empowering the small investors into putting in their money in high-priced assets that were once beyond their reach. On the supply side, investors can attain diversification by creating a portfolio of their real estate investments. Investors, through this tokenization, will be able to earn higher returns through trading. Real estate trading would be one of a kind revolution.
Even better, this tokenization can be guaranteed using insurance in the case of any default by the provider. The InsurTech sector has already been actively exploring blockchain tech as an integration in its offerings, and there are plenty of ways insurance could be implemented in real estate tokenisation. This will be key to adoption owing to the comfort it’ll offer to investors.
- Fractional ownership of assets: The securitization of real estate would offer fractional ownership of properties to several owners at one time with property titles and agreements all being transacted through the immutable system of blockchain and smart contracts. The redundancy of an expensive trusted third party in formalising real estate contracts is another feature that would push the digitization of the economy. The use of peer-to-peer network has huge implications for the traditional industries standing at the altar of revival with the current development.
- Globalisation and cross border dealings: Cryptocurrencies in real estate are to facilitate international transactions especially in countries where monetary regulations are strict. Since cryptocurrencies aren’t backed by any government institution or monetary agency, their dealings are unrestrictive and scale across borders and countries. Digital trust supersedes the state-bound constraints and limitations. The digitization of the agreements will ensure a centralized database that can be accessed by any person from any part of the world, transactions can be made more secure and transparent.
Times are not far when the real estate sector would function in a global village assisted by the cryptocurrencies and blockchain, and crowdfunded by investors — big and small — across the globe. The prospects of integrating the cryptocurrencies like Bitcoin in the mainstream investment and business scenes are mighty and overwhelming. With the current initiative by the SC to deregularize and delimit the crypto markets, the real estate and other traditional industries are right in for a complete upheaval and disruption. Once again, truly exciting times!