After the Supreme Court’s landmark verdict lifting the ban on cryptocurrencies in India, interest has spiked overnight, according to exchanges.
Players like Zebpay, Unocoin, Wazirx and CoinDCX went live on Thursday, a day after the SC verdict. While some banks like Karnataka Bank, IDBI and Karur Vysya Bank have started supporting their payments, others are waiting for an official circular from the RBI to go ahead.
However, reviving a legitimate cryptocurrency market in India could take time and effort, say the founders, as there are both regulatory challenges and the global bitcoin slump to deal with.
The first practical problem for crypto exchanges in India is the payment networks. In April 2018, the RBI banned banks from supporting payments to cryptocurrencies. To survive, exchanges then had to come with alternate methods like peer-to-peer payments, which were risky.
With no RBI circular issued, it is not possible for the crypto exchanges to set up an online payment facility on their websites. For online payments via NEFT, RTGS or UPI, the exchanges would need the help of both banks and payment facilitators like PayU, BillDesk, Instamojo and Razorpay.
“We will have to work out systems as the interest is huge. We are seeing thousands of users crowding our platform,” said Sathvik Viswanath, founder of Unocoin, which has an active trading base of 3 lakh customers and claims to have a total customer base of 1.3 million.
Another issue would be, even if the RBI gives an approval, investors and major banks like State Bank of India could stay away if the government and finance ministry remain sceptical.
Different cryptos a challenge for regulator
There are 1,658 cryptocurrencies in the world, of which Indian exchanges offer 70-80. But they vary in nature as some are currencies, some assets, some securities, some commodity derivatives and some are tokens used in a closed-loop system. Given that the nature of each cryptocurrency is different, regulation could be a nightmare, said RBI officials.
“Does it come under the RBI? Under Sebi? There are even telecom companies globally using token cryptos for closed-loop payments. Does it then come under Trai when it’s a token and not a currency? So, given the chameleon nature of cryptos, it’s a regulatory nightmare,” said an RBI official.
Self-governance way forward
The microfinance industry in 2000s grew by leaps and bounds with little regulatory check, till the massive Andhra 2009 crisis put it on the path of self-regulation with the formation of the MicroFinance Institutions Network (MFIN).
Likewise, crypto exchanges in the country and the Internet and Mobile Association of India (IAMAI) — which was the petitioner in the SC — are seriously considering self-governance. “We realise that one bad actor can really spoil things for all of us. It would take just one wrong move, one scam for the government to clamp down really hard on us,” says Nischal Shetty, CEO of WazirX, which has 2.5 lakh customers.
Take the Amit Bhardwaj bitcoin scam in 2018 — thousands of Indians lost close to Rs 2,000 crore. Or, the Rs 485-crore bitcoin scam where kingpin Abdul Shakoor was murdered in Dehradun. Even in a country like Japan, where cryptocurrencies have been legalised and encouraged by the government, there are scams like BITPoint, where customers lost $28 million in July 2019.
There is another huge problem of terrorism and possible misuse by fraudsters and con artists. As a result, to prevent illegal activities and possible use for terrorism, exchanges intend to do rigorous KYC checks.
What about customer grievance redressal?
If customers lose money in an ATM or in an online scam, there is the bank, banking ombudsman, the RBI, and the consumer courts to appeal to. The nascent cryptocurrency space also needs a proper grievance redressal mechanism to gain customer trust.
Source: Economic Times