Based on a trustless system, cryptocurrencies are fighting hard to win the trust of investors: Cryptocurrencies are generally treated as an asset class, rather than currencies. Even the government has indicated it wants to treat them as such. But any asset class needs a swarm of investors to have a robust ecosystem.
Currently, one of the biggest challenges in front of cryptocurrency entrepreneurs is getting the trust of investors. It is ironic for an industry that is based on blockchain, also known as a trustless system.
“Regulation is really required. In the case of Uber or Foodpanda, when people pay money, the gratification is instant or on the same day. But when it comes to cryptocurrencies, where people are invested for a longer time, it is important to have a system in place that will give them confidence that they will get the money when they exit,” said Sathvik Vishwanath, co-founder, and CEO, UnoCoin.
Speaking at an event organized by IAMAI and BACC, he rued the fact that Indian investors lack that confidence today.
Any economic transaction requires trust among involved parties. Banks today are trusted because they are recognized and regulated by the Reserve Bank of India, which people believe will protect their rights.
Blockchain has minimized the amount of trust required from any single actor in the system. They do this by distributing trust among different actors in the system–using a distributed ledger to verify the transaction. The actors who verify the transactions have incentives to cooperate with the rules defined by the protocol.
This works great when Bitcoin or any other token is used as a currency as the system eliminates the role of a bank and by extension a regulator. But, the story is different when cryptocurrencies are treated as an asset class.
Today, an investor puts her money in share markets or debt papers because there are regulations in place to protect their interests. But cryptocurrencies lack any such regulations. This is the reason Reserve Bank of India and the government officials have warned investors time and again to invest in them at their own perils.
“We cannot expect things to change in a technology that is so innovative. It touches two aspects–the internet and the financial world. The former is heavily misunderstood and the latter is heavily regulated. These two combined, you cannot expect the government or authorities to just accept it,” said Nischal Shetty, CEO, WaxirX.
Thus, these crypto entrepreneurs now also seek to have regulations in place to guard investor interests. They have realized that being part of the system, rather than fighting it, is the only way forward.
With this understanding, entrepreneurs agree that cryptocurrency industries have fewer problems to deal with today than what was a couple of years back. Even the government has shown some willingness to accept them rather than banning them outrightly.
Many in the industry, reading between the lines of comments by the finance minister and statements in the parliament, suggest India is already on a path of regulation.
“That is important. Until now, we were not even sure people in India wanted to discuss crypto or understand it. Now we are creating billion-dollar companies in India. It is time to show the government that there is a substance in the sector,” he added.
He likened the situation with cryptocurrencies to the internet. There are no rules regulating the whole internet, but just parts of it are regulated. Shetty believes something similar will happen with cryptocurrencies as well.
“Parts of crypto will be regulated. Maybe there will be regulations for stablecoins (Tether and USD Coin) first or maybe exchanges. I believe that is the kind of regulations India will bring in. I am hoping for guidelines to come before regulations,” said Shetty.
Guidelines are easier for any authorities to issue as they do not involve the regular logistics of bringing regulations. But if such guidelines are released, it will provide the industry to chart their future more efficiently and also remove the uncertainty to an extent.