Bitcoin ban? This is how cryptocurrency players are bypassing RBI order
As the going gets stressful, cryptocurrency industry is toughening itself by adapting to the evolving environment. After the denial of Supreme Court (SC) to offer interim relief, virtual currency players have moved to new operating models like peer-to-peer transfers or crypto-to-crypto trading to ensure continuity of their business and offer assurances to their users.
As the going gets stressful, cryptocurrency industry is toughening itself by adapting to the evolving environment. After the denial of Supreme Court (SC) to offer interim relief, virtual currency players have moved to new operating models like peer-to-peer transfers or crypto-to-crypto trading to ensure continuity of their business and offer assurances to their users.
Nischal Shetty, founder and CEO of WazirX, told DNA Money that anticipating the withdrawal of banking services, his exchange had already begun working on an alternative model for entry and exit from cryptocurrency trading a week back.
A peer-to-peer model does not require a bank account and entails direct cash transfer between the sellers and buyers with exchanges taking the responsibility of transferring the cryptocurrency.
“A week back, we announced an alternative to the existing model to tackle the problem that people would face on stoppage of services from banks. It is the peer-to-peer model. For this, we don’t need to have a bank account to provide services for cash-in and cash-out of cryptocurrencies. Here, you transfer your money to the seller directly using any fine tech unified payment interface (FT UPI). Once the buyer has done the cash transfer and the seller confirms to us that he has received the money from the buyer, we transfer the crypto to his WazirX wallet. That is our responsibility,” he said.
Shetty saw SC denial of interim relief by striking down the industry plea to extend the Reserve Bank of India (RBI) deadline of July 6 as a “minor bump in the road”.
On April 6, the central bank came out with circular directing banks to withdraw all services being offered to cryptocurrency industry in three months. The shift to an operating model would increase the time for cash-in and cash-out of cryptocurrencies.
“Through a bank account, it used to take five minutes to 10 minutes for an entry into or exit from cryptocurrencies. It may now take an hour or two or maybe less depending on the demand and supply. If you look at it in perspective, it still is faster than you cashing in and out of equity market today; which takes longer. It takes a day or two for the money to reach your bank or for you to take delivery of your assets (in stocks),” said Shetty.
Ashish Singhal, co-found & CEO of CoinSwitch.com, said the other model that will now gain popularity is the crypto-to-crypto trading, where users convert one virtual currency to another.
He said these alternative methods for trading in cryptocurrencies were fraught with challenges of frauds and leakages, which will require technological innovation and regulatory framework to resolve.
Singhal believes since the new model was based on people-to-people and cash transfer modes, they could also face the central bank curbs.
He feels the sentiment in the cryptocurrency industry was largely low with negative commentary coming out of the government and the Reserve Bank of India.
“The current sentiment in India is a little negative because we are not able to see a clear path. Unless there is clarity from the government and the RBI, no one can be sure what comes next,” he said.
However, despite the despondency, exchanges are not about to shut shop any time soon.“Shutting down a company because of this (SC order) would be a little premature because we all understand that the industry is evolving and this is just the beginning. Once the rules and regulation are put in place - that might take three-six months or maximum up to a year -after that there is a potential for tremendous growth. What we are doing is trying to survive the winter and once the cloud clears we should be in a better place to scale up,” said the CoinSwitch.co founder.
Interestingly, the response to the SC directive on the digital currency market was not as extreme as it was when the RBI issued a notice to banks three months back.
“The biggest impact was after the RBI circular came out on April 6 when there was a 25-30% drop in crypto prices because of panic sale. After the SC episode nothing happened,” said Shetty.
Shetty revealed that more than the erosion in a number of existing traders, there has been a big reduction in the number of new people entering into cryptocurrency trading. His trading platform WazirX used to see 35-40,000 people register in the initial months of its launch.