As India stands on the cusp of determining the legality of cryptocurrencies, it is important to highlight that blockchain technology continues to gain momentum as a solution to innumerable issues, thereby increasing efficiency across various industries, including different government operations. A decentralized network, blockchain is in most cases supported by cryptocurrencies that incentivize activity across this network.
Recent reports from different Indian media outlets indicate that the government is going to take a stricter than average approach to the cryptocurrency market, which has some investors concerned. However, as the bill has only been drafted, the changes that many portals are claiming as “in effect”, are yet to be passed, if at all.
Industry insiders are actively lobbying against the government with the intention of convincing them to show some laxity in their approach. Additionally, with a strong public support, the combination of expert analysis and public opinion can effectively influence the draft.
Let's examine the eventful timeline of the cryptocurrency in India.
Indian Crypto-Scene with Timeline
India’s interest in cryptocurrency coincided with 2017’s massive spike in prices, when 1 Bitcoin surged to nearly $20,000 in valuation. Until then the concept of cryptocurrencies in the country had been a relatively obscure concept. The sudden popularity and massive movement, drew the attention of the Reserve Bank of India (RBI) and the government, which issued a warning in December 2017, with the then Finance Minister Arun Jaitley confirming that the government did not see Bitcoin, or any other cryptocurrency, as legal tender.
A panel, led by Subhash Chandra Garg, was soon formed to review cryptocurrencies and blockchain. In April 2018, the RBI ordered banks to stop serving cryptocurrency exchanges, until a formal regulation has been set in place. Although a slight setback, multiple individuals and organizations appealed against the decision and demanded clarification on the government’s perception of crypto. While this move halted the conversion from cryptocurrencies to fiat currencies and vice versa, individuals who had already purchased cryptocurrencies, were able to continue to hold on to their assets. Furthermore, exploration into the sector, and inception of new startups dealing with cryptocurrency and blockchain was not put to a stop.
Since July 2018, representatives from the crypto industry have filed multiple documents, debating reasons as to why the ban should be lifted. The active development and the massive potential of blockchain technology, and its application in the country, is a strong factor of the argument that a strict approach to these digital currencies would be holistically detrimental – to the blockchain industry as well as the development of the country.
Nonetheless, the main takeaway is that the comprehensive scrutiny of the cryptocurrencies is still an ongoing process. While investors continue to look for new startups in the domain (which is gaining strong momentum and acceptance globally), industry incumbents are regularly showcasing, to the relevant authorities, the validity of digital assets as means to boost economic development.
The Confusion Around Cryptocurrencies
Response from Indian startups and entrepreneurs on the newest draft of the bill has been overwhelming, with many saying that the proposed regulations would stifle innovation, draw talent away, and handicap economic growth by limiting the adoption of blockchain technology. Others are of the opinion that various critical statements in the bill are unclear or contradictory.
Only recently, have the Indian Government formally defined the term “cryptocurrency” and “blockchain”, but this is engulfed in confusion as well. The government’s bill still demonstrates misguidance on what cryptocurrencies are, specifically indicating that not all cryptocurrencies are intended as legal tender. Security and utility tokens, which are comparable to investments in a company with the right of drawing dividends, do not qualify under the government’s perspective of illegality.
While this discussion is ongoing, blockchain and cryptocurrency are being implementing across India.
The Aggressive Adoption of Blockchain Technology
India is actively deploying blockchain based solutions in various sectors. Many reports have highlighted the advantages of blockchain technology, finding use cases in updating legacy systems in a diverse set of industries, including insurance, healthcare, supply chain logistics, and retail.
The Andhra Pradesh Government has been working on a blockchain-based land registration contract, already aiding farmers in the state. Uttar Pradesh, India’s most populous state, has also implemented the blockchain technology for land registration, along with Maharashtra. The three most popular use cases for blockchain in the county are land registration, farm insurance, and digital certificates, with more use cases to be discovered as the technology organically matures.
How Blockchain Technology Will Shape India’s Tech Space
India’s more lenient view of the underlying blockchain technology itself is encouraging. What remains to be entirely accepted, however, is that that truly decentralized systems - a property which leads to the many benefits that blockchain provides – cannot necessarily be executed without the use of an incentive mechanism for good network behaviour. This is exactly the role that cryptocurrencies play.
From an administrative point of view, at the very least, blockchain will have an enormous effect on any system, greatly improving efficiency, reducing human involvement, and streamlining cross-sector interaction. As an example, blockchain-based digital identity management services could be linked to insurance, real estate, and loan application processes, which would drastically reduce paperwork and streamline the verification processes.
Blockchain Based DApps on the Growth
Several startups and established businesses are aware that operating within a nation’s regulatory stance is critical for effective growth and mainstream adoption, And across the globe, in crypto-friendly nations like Malta and in less friendly ones like China and India, startups have a strict focus on being legally viable. In fact, many startups are emphasizing their adherence to KYC/AML regulations, and their support for regulated processing of crypto services and products. Alluva, for instance, is a crypto price prediction web app that allows users to win rewards for predicting the price of cryptocurrencies over a time frame, ranging from a day to a year. The reward, which is dispensed in the form of Alluva (ALV) tokens, requires no prior token purchase, and zero investment. Especially for its Indian user-base, Alluva is working on providing an effective mechanism through which users can redeem their rewards via partner products and services.
The debate around the cryptocurrency ban is unlikely to subside soon. Startups and entrepreneurs will argue that cryptocurrencies and blockchain technology do far more good and have far more use than as described in the panel’s report. Authorities will counter that the cryptocurrency market is rife for exploitation. An increasing number of countries have found mutual ground, implementing regulations that have allowed cryptocurrencies and blockchain to be applied towards the improvement of numerous functions and industries, while protecting the population against the potential of risks and scams. India too is highly likely to reach this middle-ground as both sides continue to work with each other to find the most ideal solution.