Rise of P2P cryptocurrency platforms in India and ineffectiveness of the RBI ban
Problem
RBI first issued warning bell against cryptocurrencies (referred to as virtual or decentralized digital currencies) back in Dec’ 2013 . This was way before most regulators in other prominent countries had yet to issue an official stance on cryptocurrencies. The circular outlines 5 major risks. Since that time RBI has been closely following the growth of cryptocurrencies in India and issuing warnings.
In Dec, 2017 the finance minister of India announced that “Bitcoin is NOT a legal tender”. This led to massive confusion amongst the general populace. Finally in Apr 2018 in 2 separate circulars (Link 1 | Link 2) the Govt announced that -
“Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within 3 months.”
As expected by the close of the 3 months deadline all regulated and legit cryptocurrency exchanges stopped deposit and withdraw of INR
Even today many investors have their cryptocurrency on the exchange and it is stuck and they cannot convert it to fiat currency
Current situation
- There are multiple petitions and court cases against the ban in different courts in India
- Sept 11 is the BIG DAY when the Supreme Court and RBI will announce India’s official stance on cryptocurrency.
- RBI has set up a committee to explore cryptocurrencies and its regulations in depth
- Biggest concern is consumer protection
- RBI suggested to have a close watch on trading shift from exchanges to P2P, as a result of banking ban, wch involve increased usage of cash. It also raises concern over AML/CFT and Tax issues due to possible migration of exchanges to dark pools/cash and to offshore locations.
List of prominent cryptocurrency exchanges in India
- Zebpay
- Unocoin
- Coinsecure
- Koinex
- WazirX
- Bitxoxo
- PocketBits
- Coindelta
- Buyucoin
- Bitbns
Unocoin Approach
Unocoin is one of the earliest and biggest cryptocurrency exchange in India. Unocoin created 2 separate business entities — Unocoin (existing one) and Unodax. Unocoin is primarily as of now as a BTC and ETH wallet. They have enabled many services like bill payments and movie ticket purchase using Bitcoin. So the merchant always receives fiat payment and the buyer uses cryptocurrency to buy. Unocoin works like a brokerage converting BTC to INR and then using that INR for payment. Unodex is their altcoin exchange something similar to Poloneix with no fiat support and multiple tokens listed. They also support 1 stable coin (TrueUSD). However Unocoin, as of today, does NOT have any solution to fiat funding and withdrawal. Zebpay is suffering the same fate.
Rise of P2P Platforms (mostly by existing exchanges)
There is absolutely no ban nor it is deemed illegal in any way to hold cryptocurrency or buy directly with fiat. The rise of P2P platforms was obvious.
- LocalBitcoins: The most popular global P2P platform. Local Bitcoins works on a Bitcoin escrow model.
- Coindelta Flux: They have simple, effective solution. They have a basic P2P marketplace for 4 cryptos- Ripple, USDT, BTC, ETH (4 of the highest volume cryptos in India). User can send the 4 cryptos to Coindelta primary altcoin exchange. Typically users trade USDT on P2P exchange with fiat (INR) and then from the acquired USDT they will buy additional cryptos on the primary exchange which is non P2P. Escrow is for whichever crypto is being traded
- WazirX P2P, Koinex Loop: They are similar to Coindelta where they give support to one stable coin and/or cryptocurrency from their own P2P platform. Users, once they acquire the stable coin can then deposit it to their altcoin exchange and convert to other cryptocurrencies.
- Houbi P2P (India): One of the major exchanges, Houbi, is entering India with its own P2P marketplace as well.
Other Considerations and Business opportunities
- Depending on your business model you may have to first apply to be a eWallet in India with the regulators. There are 3 primary types — Closed eWallet (Amazon Pay), Semi-closed (Airtel Pay) and Open eWallet (Visa)
- Move dev operations AND/OR support to India: India is the haven for customer support and overall back office operations. India also has the largest pool of skilled software developers and students graduating with a computer science degree. Already the bright ones are upgrading their existing skillset with emerging technologies like Blockchain, AI, Machine Learning etc. Moving your dev shop to India not just helps cost but you get wide pool of brilliant developers.
Indian cryptocurrency consumer mindset
- Indian consumer perceives cryptocurrency just as a High risk Trading commodity
- The Libertarian values are alien to Indian culture. So no one is ideologically motivated unlike the west. In fact almost every Asian language does not have a word for ‘libertarian’
- General populace still perceives it as scam.
- Consumers do not have access to quality and unbiased opinions, knowledge and information
Few additional points
- There is no drop in $ price in India for bitcoin irrespective of the strict stance. This clearly means users are still doing large volumes in P2P and OTC marketplaces.
- There are hundreds and thousands of money converters actively providing the service
- Lot of dedicated telegram/whatsapp groups for this
- Scams are rampant and so is lack of education
- Govt of India is experimenting on its own national cryptocurrency which can be a game changer. Of course this is speculation but one thing is for sure that Govt of India actually understands the disruption that cryptocurrency can cause
- Many cryptocurrency based blockchain tech is being experimented and pilot projects used by the Govt itself where tokens are used. Eg: LYNK token for notarization of child births by local Governments.
Conclusion
- Most likely outcome by Supreme court will be buy and sell will be allowed but heavily regulated and Users will have to pay additional VAT (called as GST) on their profits.
- India has the world’s largest pool of skilled and qualified tech developers
- India is one of the world’s largest untapped consumer market as most consumers associate with scams or do not understand it. The existing marketplace mostly is an unorganized sector (P2P platforms, OTC markets)
- Indians are the world’s largest gold consumers and gold has very high cultural significance. Consumers perceive bitcoin as digital gold rather than currency.
What happens if cryptocurrencies are banned in India
- India stands to lose out on the opportunity to be the global hub of one of the most emerging tech
- Existing Indian startups will be forced to close and move out of India
- However, only 2% of total Bitcoin holders are from India which is very low. Govt. has other priorities and their top job is consumer protection as well as winning next election :) so they really do not care about cryptocurrency ban
- Do not expect any grass root movement in India when it is banned outright
Further reading
- From my personal Blog- Case Study: Demonetization and the rise and rise of Bitcoins in India
- India’s central bank is worried that its crypto crackdown may backfire
- I helped in this investigative journalism piece: How to Lose $3 Billion of Bitcoin in India
2 bodies working with Govt and advocating positive regulations
- Internet & Mobile Association of India (IAMAI)
- Digital Assets and Blockchain Foundation India (DABFI)
Abbreviations
- RBI — Reserve Bank of India (Regulators at federal level)
- INR — Indian National Rupee (India’s currency)
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