Indian cryptocurrency and blockchain start-ups are moving to countries with friendlier regulatory environment for crypto business, from India. The start-ups link their decision to the recent moves by the Reserve Bank of India (RBI), i.e. the Indian central bank, and the Government of India (GoI) opposing cryptocurrencies.
RBI has issues multiple warnings over the years that they don’t consider cryptocurrencies as legal tender. Their concerns around crypto assets are following:
- Cryptocurrencies are mathematical money, and not backed by any tangible asset, and the crypto market is very speculative;
- Cryptocurrencies aren’t regulated anywhere in the world, and if investors lose money due to fraudulent practices, there’s no redressal mechanism.
Additionally, GoI has also made it absolutely clear that cryptocurrencies will not be allowed in the payments system, and everything possible will be done to prevent using these to fund criminal activities. GoI’s opposition to digital currencies are due to the following reasons:
- There is a history of criminals funding their illegal activities using the anonymity provided by cryptocurrencies;
- Money laundering and funding of terrorist activities will become easier with cryptocurrencies, since the transactions aren’t regulated in any manner, and are done entirely ‘under the radar’.
- Tax evasion by crypto exchanges and crypto traders.
It’s to be noted that GoI and RBI are very keen to explore blockchain, i.e. the underlying technology of cryptocurrencies. A premier think tank of GoI is exploring blockchain to improve governance delivery to citizens and tackle corruption. Also, the south Indian state of Andhra Pradesh has already put the land records of a region on blockchain, to make management of land records easier and secure.
On the crypto space, however, both RBI and GoI have been resolute. RBI has issued a circular to deny banking services to crypto exchanges. GoI has already conducted tax raids on some of the crypto exchanges.
Indian crypto start-ups are moving to countries like Singapore, Switzerland, Japan, and Estonia. These countries have crypto-friendly regulatory environment. Estonia, in particular, has emerged as a destination of choice. The country has a crypto-friendly regulatory environment, and it’s easy to set up businesses there. Initial Coin Offerings (ICOs) aren’t heavily regulated, and the country encourages mass adoption of blockchain.
Estonia’s e-residency program, which makes it easy to register a company there, deserves special mention. An Indian entrepreneur, Nilesh Trivedi, from Bengaluru (Bangalore) has recently obtained e-residency in Estonia, and is working on moving his Ethereum blockchain-based start-up Indium to Estonia. He explains the ease with which he could avail the e-residency service: “To apply for e-residency, I had to give them a scanned copy of my passport, photograph, and very basic details. Now, one month later, my ID has arrived at the embassy.”
Some industry watchers believe that unfriendly regulatory environment for crypto businesses will adversely impact India’s growth in this promising technology landscape. While it makes sense for GoI and RBI to pay attention to this feedback, it’s a debatable point, for the following reasons:
- GoI, RBI, and several state governments in India are already exploring blockchain with great interest;
- While cryptocurrencies have generated a lot of interest, they actually don’t carry any tangible value on their own, and are yet to have a transformative impact on any economy of the world;
- India is resolutely undertaking tax reforms, instituting effective bankruptcy and insolvency code, and undertaking resolute action against corruption. At a time like this, allowing unregulated cryptocurrencies that can become instruments of money laundering isn’t worth the risk, especially when the country is being consistently recognized as the fastest growing large economy in the world.
