The situation of cryptocurrency regulation a year before
The year 2017 drew the nation towards Bitcoin that skyrocketed the growth of digital currency in India. The journey was quite interesting among the exchanges, investors and its users. Consequently, the event influenced many advisory bodies and invited the masses to join the initiatives.
On the dark side, this led to some scammy initiatives as well that deceived many people in the name of easy money. As usual, media went berserk over the use of a currency which is volatile and doesn’t have a store value.
Unknown with the benefits, RBI defied the possibility of growth of this decentralised system in the country. The Finance Minister of India also warned people against investing in Bitcoin and debated over cryptocurrency regulation. Even at the end of 2017, the Income Tax Department raided major Bitcoin exchanges operational at that time in order to seek information about the process. Amidst the legal cautions, the growth of coin value couldn’t hold back their investors for long.
May 2017 saw the exponential growth in Bitcoin value. There was a situation where major exchanges imposed limitations over the Bitcoin purchases due to limited supply. Quite sooner, Indian crypto-exchange like Zebpay gained immense popularity among the investors. Consequently, this gave rise to a couple of new exchanges to join the competition.
In conclusion, the year 2017 gained mixed responses over the use of cryptocurrencies in India. While the government consistently opposed the implementation of blockchain industry and decided to impose cryptocurrency regulation. In spite of the government efforts, the trading volume of the digital coins maintained its pace followed by the growth of Bitcoin exchanges. Sooner, many different sectors in the industry supported blockchain and it remained undisputed.
Tension with the government
A couple of years ago, the Indian government imposed restrictions on overseas financial investments. While China was picking up the pace in the international crypto-transactions, Indians lagged behind them in this race. However, the announcement of demonetisation at the dawn of 2016 opened the doors for the Bitcoin. Surprisingly, this movement of cashless money drew many investors. Consequently, the country saw a drastic surge not only in the coin value but also in terms of Google searches.
This led to the setup of Bitcoin exchanges and started gaining a strong user base in the financial marketplace. This eased the coin adoption among firms and investors. Although India stepped a little late in the crypto-domain, however, this, in turn, benefited them. During that time, India had very scarce Bitcoin sellers which reflected in the international market price, over a whopping $400.
The finance ministry panel so far has opposed multiple times over the cryptocurrency regulation for the country’s cryptocurrency ecosystem.
Very recently RBI banned Zebpay and discontinued Unocoin services due to suspicion over the violation of investments and financial transactions. This move pushed the blockchain ecosystem to a corner and buried the scope of the technology in the nation.
However, the Narendra Modi government lit up the debate again over cryptocurrency regulation and adopting blockchain technology.
Now the situation is that the officials want to understand the ways to use blockchain without cryptocurrency. If you deal with any monetary aspects like mining, investing, buying, selling or trading in the distributed ledger, you need a native token. Thus the idea of exclusion of crypto-coins doesn’t make sense and needs reconsideration. However, the crypto-personnel are open for the discussion with the government. The discussion might assist the government to overcome the dilemma of where the money is coming from.
Bitcoin is outside of the current cryptocurrency regulation that governs currencies and legal tender in India. This doesn’t mean that the bitcoins are illegal. It just means that they are at this moment unregulated and outside of the definition of a currency or capital assets. In this context, the appropriate way of looking at bitcoin is a commodity like gold. Since the value that implicit in bitcoins is not recognised by the government but primarily by the users and the creators of cryptocurrency. With that said, bitcoin can be at best viewed from a regulatory perspective as a digital commodity that has been given an arbitrary value by those who deal with it.
Indian government to draft the cryptocurrency regulation by December
This news came as a surprise for all the people associated with the blockchain system. Supreme court asked the government to file a counter affidavit in order to clarify the work record so far on cryptocurrencies. Thus the cryptocurrency regulation panel formed by the government is ready to draft regulations which were filed in the supreme court on 19th Nov.
According to the counter-affidavit, there will be a framework for the digital currency. This shows the possibility of regulating the operation of cryptocurrency rather banning them. To cover the regulations, the supreme court has scheduled 2 meetings. The first meeting will be held in December and another one in Jan 2019. However, the final bill would possibly take some time for clearance within the ministry. Bill covers regulations on virtual currencies, use of blockchain technology and financial market framework.
In my opinion, it seems little late as the big players might have moved out of the Indian market. It was quite promising the last year. But now, the market seems lifeless in India with some scammers ended up in jail. Hopefully, this bill might spark more interest and draw the big players again.
At least we would get to know the intention of the government over the use of cryptocurrencies. But it seems, the government might take some concrete decisions on the policies over the use of crypto-coins and that’s too in favour.
The mishappening with Unocoin
The situation with Unocoin is nothing more than a marketing blunder. The founders Harish and Vishwanath, who led the company since 2013 were arrested in October. Everything was going great in the company with 1.3 million customers and around 45 investors across 5 countries. There were many cryptocurrency scam reports but nothing dragged the company under legal action in the last 5 years.
Unocoin, a Bengaluru crypto-firm installed a kiosk machine (much like an ATM) in the mid-October 2018. This was the first ever machine in the world by a crypto exchange for withdrawing and depositing crypto coins.
The drama started on 23rd October when police without any prior notice, arrested Harish. The co-founder was busy with the final stage of the upgrade process and the kiosk was not yet operational for consumers. But all of sudden, police took him and his co-founder in custody and seized all his assets.
Where was the flaw?
An ATM is run by banks and banks are the entity of RBI. Without any permission from RBI, no one can install ATM.
Now there are 2 types of ATM: one owned by a bank and another privately held.
RBI named privately held (non-banking ATM) as White Label ATM that is operated by White Label ATM operator.
RBI guidelines for setting up a non-banking ATM:
- Need turnover of over 100 Crore Rupees
- Registration under the company act is mandatory
- Authorisation by RBI under PSS act 2007 (payment settlement system)
- Declare the relevant experience of the firm
- If they want to provide VAS (Value added service)
Now the biggest concern with Unocoin was the matter of confusion. Upon press release of Unocoin, they mentioned their kiosk machine as a crypto ATM. Consequently, people started calling these machines as ATM. Things worsened when media channels hyped it as an actual ATM. However, the founders later claimed that the machine was not an ATM nor its variant. But one thing is clear that the major issue for its downfall is confusion and branding mistake. Their take-off was great but sadly ended up in a crash landing.
Both the founders are alleged with crimes like forgery, cheating, suspicious money laundering, unauthorized transaction method and no approval for Kiosk machine.
Following is the list of acts that cybercrime branch imposed upon them:
- IT Act 66
- Section 34 Indian penal code
- 468 Indian Penal code
- 120B Indian Penal code
- 420 Indian Penal code
- 465 Indian Penal code
- 474 Indian Penal code
- 471 Indian Penal code
Mistakes those were avoidable:
- Lack of communication and planning
- Use of ATM word in the press release
- Lack of product or service’s clarification among media
- The early launch of the product without any official announcement.
- No legal team to back them
In my opinion, the mistakes lie in branding tactics. The Unocoin founders had come up with brand new innovation and something to deliver to the nation. But the wrong media hypes brought the company with malicious fate. After all, they are not fugitive and ran the company successfully for 5 years.
They had a dream to install the first ever machine for cryptocurrency transactions in India. Their customer could deposit money by which they could trade on crypto coins. After trading, they could withdraw their money back through that machine without dealing with any banking or third-party entities. Since there was no relation to banking, I think there was no violation of banking policies.
The Unocoin founders had MO to set up crypto-business in India and bring new innovation. However, the government is going too harsh by imposing them with multiple acts. Now the law has decided to draft cryptocurrency regulations again without the intention of banning. Therefore, they must alsoreconsider the thoughts over Unocoin’s allegations and allow them to operate under legal approvals.