On Bitcoin, India's Government And Tech Companies Find Common Ground

The Bitcoin craze is catching on in India. While tech geeks and young investors eye the digital cryptocurrency as its value soars, the government, too, is contemplating a course of action surrounding its regulation.

In a move expected to boost financial inclusion, the Department of Economic Affairs in the Ministry of Finance in India has formed an inter-disciplinary committee to examine the framework on virtual currencies. (It is expected to share its findings next month.) In addition, the government initiated a discussion on its forum MyGov to seek public opinion on virtual currencies. Clearly, despite some initial reservations, the Indian government is keen on understanding how Bitcoin works and is willing to deploy resources to build frameworks.

Bitcoin investors and companies welcome these efforts. They feel will it allow them to address concerns over security and risks pertaining to the use of Bitcoin, and eventually work towards improving its infrastructure.

Recognizing concerns

The majority of Indians who participated in the discussion on MyGov expressed interest in seeing Bitcoin become a larger part of the financial and trading systems in India. But, they were also apprehensive about its reliability as a currency. There have been reports of bitcoin trading amounting to money-laundering and that it propagates the financing of terrorist outfits.

Hesham Rehman, CEO and cofounder of Bitxoxo, understands the concerns but urges that “there is nothing corrupt about cryptocurrencies—they enable direct transactions with no third-party intervention.”

Bitcoin is also viewed with suspicion because it doesn’t fall under the purview of any government-mandated monetary policy, and fluctuates in value. Earlier this year, India’s central banking institution Reserve Bank of India issued a note of caution to users and traders of virtual currencies about the risks of using Bitcoin.

Former RBI governor Raghuram Rajan said that virtual currencies will be safer and better over time, and eventually become a form of transaction. (PUNIT PARANJPE/AFP/Getty Images)

Still, Indian Bitcoin companies are observing an increase in customers. After Prime Minister Narendra Modi’s demonetization move last November, numbers surged and it believed there are nearly 600,000 Bitcoin users in India, according to the founders of several bitcoin outfits. Companies also attribute growing interest to the increase in internet penetration, the success of Bitcoin overseas and the allure of the returns on unconventional investments.

Keeping Bitcoin secure

To keep their user base growing, India’s Bitcoin companies are keen on proving their platforms are trustworthy. They’re implementing multiple security checks, and all Bitcoin companies seek a valid ID proof from users that include government-verified address documents, a Permanent Account Number (PAN) or an Aadhaar number. Some companies even conduct voice verification and seek bank account details.

Benson Samuel, chief technology officer and founder of Coinsecure says, “These are expensive but necessary steps. By improving our infrastructure, current customers are assuaged and future customers are confident.” Aside from providing a strong security infrastructure, Samuel also believes that service providers should work towards simplifying the Bitcoin interface for users, which would encourage more people to adopt the technology.

Private Bitcoin companies have even formed their own association: the Digital Assets and Blockchain Foundation India (DABFI). The self-regulated entity is working towards educating the masses about cryptocurrencies and propagating best industry practices for businesses. Rashmit Gupta, whose company SearchTrade is a founding member of DABFI, says that it aims “to create more confidence among the public to use Bitcoin, and eventually increase the use of digital tokens more effectively.”

Growing investor confidence

Such efforts have not gone in vain. Until 2013, Bitcoin wasn’t very popular in India. Now, there’s a fast-growing customer base as well as rising investor confidence.

Unocoin raised $1.5 million USD, a record for an Indian digital currency outfit, and is paving the way for domestic and international investors to support Indian Bitcoin companies. Another bitcoin company Zebpay raised $1 million USD in 2016, largely from Claris Life Sciences and Jindal Worldwide.

Arpit Agarwal, principal at Mumbai-based Blume Ventures, urges venture capitalists to keep an open mind when it comes to Bitcoin companies. “Some financial investors are rightfully cautious about investing in this space due to lack of regulatory clarity. But, the government is working with private players to sketch regulatory frameworks that boost innovation as well as ensure safety of the platforms,” he says.

A promising future

Bitcoin’s future in India looks promising. Service providers are keen to expand the scope of usage, with the hope that the government and regulatory authorities provides them adequate frameworks.

Currently, Bitcoins are used to make purchases through mobile apps and buy gift vouchers. In the future, companies plan to step up the infrastructure that would support remittances to India and provide online financial solutions for the country's unbanked population.