The need for regulation of cryptocurrency and associated businesses in India has grown stronger ever since the Supreme Court quashed the Reserve Bank of India’s (RBI) ban on virtual currency trading.
Since then, a bunch of events have taken shape. However, a law in India is yet to recognise the mere existence of cryptocurrencies, even as no legal construct currently deems them illegal.
RBI, on the other hand, has time and again referenced its project to explore a need for a digital version of fiat currency or Central Bank Digital Currencies (CBDC) and its operationalisation.
TechCircle caught up with Mumbai based cryptocurrency exchange WazirX founder and CEO Nischal Shetty for notes on the regulatory state of cryptocurrencies in the country, industry growth, cryptocurrency burning and enforcement directorate’s latest doings.
Which regulatory body should spearhead regulation of cryptocurrency in India?
There is no right answer. It has not happened anywhere. Ideally, what happens is, the best case scenario is a brand new regulator, because this is a very different industry. But the other way is, maybe the finance ministry could lay out some rules. And it can be a combination of both RBI and SEBI regulating if it is under their domain.
The thing with crypto is… its like, can you define a regulator for the internet? You can't, which is why what you do is you break down parts of the internet, and then the right regulator regulates it. Let us say if it is entertainment, then you have the broadcast ministry doing it.
In this also, there are cryptos, which are probably trying to be just currencies or payment instruments, so that can probably go under the RBI. But then there are also cryptos that are commodities or utilities or assets that could go into maybe the commodities regulator, and then securities can get into SEBI. This is one of the approaches, which at least the United States and United Kingdom are trying to take. We could attempt that and see how to bring about regulation. Or we could have a brand new regulator being created just for crypto.
You have been running a #IndiaWantsCrypto campaign on Twitter since 2018 that has completed 1,000 days last Thursday. How has that helped initiate discussion?
From 5 million people in India who were into crypto, today we have 15-20 million. That is a 3X-4X increase in the 1,000 days since the campaign started in the entire ecosystem. That is the total user base in India itself. While you can't attribute to it completely, I'm saying this campaign played a pivotal role in that.
The campaign has attracted curiosities of multiple politicians and policy makers. Can these individuals influence India’s cryptocurrency policy?
There are people, but the thing is that the biggest confusion today is who is going to be really the right department, the right authority to make those regulatory changes. That is a little confusing right now in the country. But some of these people are people who will be in part of that process somewhere or the other, may not be the initiators. I have not met someone who would initiate and say, ‘this is the law to be brought in India’ or anything, but I have met people who are in the whole roadmap.
How much has WazirX grown through this campaign?
I think we can separate out WazirX and this campaign, because the motivation of this campaign was never to like, let's say, get people to use WazirX. It was always about, how do we make sure that crypto is represented in the right way in the country… This was more of a personal campaign where I wanted India to participate.
How has WazirX penetrated through tier II-III cities in the recent past?
At a company level, I think that we've seen some good percentage rise in the tier II-III cities population coming on to crypto. I think 6-8 cities are there. 40% of our orders are placed by users from metro cities. Besides these, we have a good mix of users from the other tiers as well.
Top tier II cities like Jaipur, Ahmedabad, Patna, Bhubaneswar, Indore and Bhopal contribute to another 30% of our trades amidst a few others.
WazirX burns an amount of their cryptocurrency token every quarter. How does it work?
What is a burn is usually what happens is a number of crypto is usually sent to an address, which is not recoverable. It sort of is destroyed and that much crypto is destroyed and removed from circulation forever.
In a way that also helps because now you have less number of tokens in circulation, which means the ones that are in circulation become more valuable. So that is usually the concept of why a burn is done by any project team.
When we were launching WRX, in our white paper, we had said that we would go ahead and burn around 10% of our total WRX over a period of our operations. Keeping that in mind, every quarter what we do is we, based on our token performance, company performance, how we operate, how many people used it, we come up with a number and then we burn that much amount of WRX.
Does the burning process impact WazirX’s business and/or userbase?
There is no direct correlation that you can place but because, after the burn, there will always be less WRX in circulation, compared to before it. That helps the existing holders of WRX because their value increases.
If you have 21 million bitcoins, and that is why Bitcoins are valued that way. But the moment 1 million is burnt, then now you have only 20 million so it becomes more rare and the value should appreciate. The price appreciation may not always happen. Sometimes it might be already priced in, sometimes over a period of time you realize it gets more valuable. You can't quantify it immediately.
Is there any update on the ED notice to WazirX matter yet?
Right now, we are just preparing the response to that. I can't obviously talk about it… I think probably by another one week or so, we have time to submit our response.