Are Bitcoin Ex­changes Le­gal?

Is the Re­serve Bank of In­dia or Supreme Court look­ing whether the bitcoin op­er­at­ing ex­changes are sub­vert­ing rules?

PCQuest - - CONTENTS -

As they say, there are fools, and then there are some spe­cial fools and on top of them all there are reck­less fools who of­ten dis­play their ‘devil may care at­ti­tude’ even in the face of all re­ject­ing all com­mon sense.

All these three types have been pretty ev­i­dent amongst In­di­ans who opted for pur­chas­ing bit­coins and all other forms of crypto cur­ren­cies. Any one with a lit­tle bit of sense or with some ed­u­ca­tion would have re­al­ized that bit­coins would not be pass­ing le­gal muster in In­dia and would be banned sooner or later.

Nev­er­the­less, some semi- ed­u­cated and ill-in­formed fools went for it; you can only have pity and sym­pa­thy on them. Next there were some who knew the pos­si­ble con­se­quences but still went for cryp­tocur­ren­cies hop­ing against hope that there will be a

change of heart from the au­thor­i­ties. And lastly there were the reck­less gam­bling types who picked this as an­other avenue to try their pot lucks, con­se­quences be damned.

With RBI declar­ing trad­ing in crypto- cur­ren­cies null and void in In­dia and with now the Supreme Court too en­dors­ing the RBI or­der to­day, all three types are left with some ‘cryp­tic’ mess only in their vir­tual fan­tasies. It has cost them quite a sig­nif­i­cant real moolah though.

How­ever, as In­di­ans we are ex­pert ‘ju­gadus’ and pro­fi­cient in try­ing to find du­bi­ous av­enues to cir­cum­vent the rules and laws. With the three-month win­dow or­dered by the RBI for banks to stop deal­ing with all crypto- cur­rency trad­ing plat­forms end­ing, the lat­ter are now work­ing on OLX-Quikr model plat­forms or peer to peer trans­fer.

In the lat­ter trans­fer, in­vestors may buy or sell such cur­ren­cies for the ru­pee di­rectly with each other without a hitch and money trans­ferred from a bank­ing chan­nel or other per­mis­si­ble route. So what was the modus operandi here?

In the days af­ter RBI an­nounced its com­ing ban, in­vestors put much more ru­pee de­posits with ex­changes than those who sold bitcoin and with­drew their money. In those days, crypto- cur­ren­cies lost In­dia pre­mi­ums and were quoted at a dis­count to their in­ter­na­tional price. How­ever, the dis­counts have now gone and prices are in equi­lib­rium. This de­vel­op­ment gives ex­changes the con­fi­dence on com­ing up with al­ter­na­tives, rather than wait­ing for the court rul­ing on the is­sue.

WazirX, a new ex­change, started op­er­at­ing a few months be­fore the RBI or­der; it launched 35 cryp­tocur­ren­cies for trade. Two older crypto ex­changes have fi­nalised plans and would be putting these in place for sim­i­lar plat­forms. WazirX has al­ready listed the 35 cur­ren­cies.

How does the plat­form work? The ex­change would keep in­for­ma­tion on in­vestors want­ing to buy and sell crypto cur­ren­cies. The ex­change will lock the cur­ren­cies some­one wants to sell; when a buyer comes, the in­for­ma­tion will be given to him and the deal will be done. Once the buyer trans­fers money to the seller by nor­mal bank­ing chan­nels, the ex­change will re­lease the cur­ren­cies and trans­fer to the buyer. Money trans­fer will be be­tween buyer and seller, the ex­change be­ing a fa­cil­i­ta­tor.

All crypto- cur­rency ex­changes (around a dozen are big and se­ri­ous play­ers) have, as a pre­cau­tion­ary mea­sure thank­fully (at least they are ap­pre­hen­sive of the long arms of the law), is­sued warn­ings to in­vestors to with­draw cash ahead of the RBI ban tak­ing ef­fect. Most of them have listed at least a dozen cur­ren­cies for trad­ing, pro­mot­ing one over the other without involving banks.

All of them are not pro­ceed­ing with ‘Plan B’, the peer to peer plat­form. Zeb­pay, the largest ex­change, is still sur­pris­ingly con­fi­dent on con­tin­u­a­tion of pol­icy. It con­tin­ues to be­lieve that the fu­ture of fin­tech is in to­keni­sa­tion and blockchain. It in fact con­sid­ers its re­spon­si­bil­ity to con­vince the gov­ern­ment that In­dia should not be caught on the wrong side of his­tory by miss­ing this bus.

As of to­day, any de­posits of traders or sale pro­ceeds from crypto- cur­ren­cies such as bitcoin can­not be trans­ferred by the ex­change back to a bank ac­count and nor by in­vestors to an ex­change’s bank ac­count. Banks will close such ac­counts of ex­changes. In re­cent days, in­vestors, es­pe­cially smaller ones, had been seen sell­ing and tak­ing the money back. Smart ones (or should I say the su­per reck­less ones) are hold­ing on to their crypto- cur­ren­cies.

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