In April, the Reserve Bank of India (RBI) cracked the whip on cryptocurrency exchanges in the country. It sent a missive to all Indian lenders, asking them to terminate all banking relationships with these bourses by July 05.
With the restrictions now coming into force, India’s cryptocurrency exchanges are reinventing their businesses to circumvent the ban—and survive. A number of platforms, including Zebpay, Unocoin, WazirX, and Koinex, have shifted to crypto-to-crypto trade, wherein customers can exchange units of one digital currency for another at predetermined rates. The bourses earn commissions on these transactions.
However, the scope of these platforms is now limited to the businesses of existing investors, significantly shrinking their customer pool. First-time investors will have to rely on peer-to-peer (P2P) exchanges that connect individual buyers and sellers. Typically, the challenge with these kind of exchanges has been the high level of risk involved in trading with unknown investors.
“Earlier, a lot of these transactions were taken offline and completed, which led to a possibility of being robbed,” said Shubham Yadav, co-founder of Coindelta, an Indian cryptocurrency exchange. “Or even when it was online, you didn’t know who you were dealing with and there were chances that the deal could go awry.”
In order to fix these gaps, firms will implement changes including improved know-your-customer norms, allowing only online bank account transfers, and withholding the buyer and seller’s identites, added Yadav, who will be launching P2P trade on his exchange later in July.
“If you are a seller, we will not release your crypto to the buyer until you confirm the receipt of money. We are also building a robust dispute-resolution engine to detect any dispute between buyer and seller,” said Nischal Shetty, founder and CEO of WazirX, another Indian cryptocurrency exchange that launched P2P trade on its platform last month.
Meanwhile, these exchanges have challenged the RBI’s order in the supreme court and the next hearing is due on July 20. Despite the court not staying the ban earlier this week, the exchanges are hopeful. The Modi government is expected to come out with draft regulations on cryptocurrencies sometime in early July and firms expect the RBI’s diktat to be overturned, said Praveen Kumar, chairman and CEO of Belfrics, a Malaysia-based exchange with operations in India
“There are measures that we are taking in the meantime, but for the industry to survive and thrive, fiat transactions need to be allowed,” added Kumar. “Else, we end up competing with all the other global exchanges that also offer crypto-to-crypto or P2P trade.”