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Revolutionizing Finance – AMA with Neeraj Khandelwal

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Cryptocurrency and Blockchain are the next big step for the FinTech industry. There is no denying that. Though it would be much more suited if we say, the revolution has already paved its path, and we are just on the verge of deciding if we are to be the first within our circles to imbibe the change or if we are to wait for set crypto regulations that the Government of India is hinting at before diving in. 

That being said, it is still a pretty disruptive area when it comes to how one should go about investing in cryptocurrencies, or what defi wallet they should choose. This comes second to the most commonly asked question about Where India stands?  With the RBI’s banking ban in 2018, the proposed ban on private cryptocurrency in the Union Budget 2021, and the recent back and forth conversation of the RBI and the banks of India. 

To bring in a clear perspective to this very ongoing conversation, The Wolf of All Street, Scott Melker, and Neeraj Khandelwal, co-founder of CoinDCX, the largest crypto exchange in India, came together and hosted a live CoinDCX AMA session to answer the most commonly asked questions by the  Indian crypto community and where India stands with cryptocurrency. Is it leaning towards crypto being an asset or is also trying to explore crypto assets like Bitcoin as a currency? 

Scott: Can you tell us, at a high level, what is happening? Do we have to worry about a ban or is that not a reality? 

Neeraj: It is a long story, Scott. And it is a story of how the Indian community had withstood so many challenges. In order to create wealth, one of the very easiest or emerging ways is to invest some of the parts of our savings in Crypto, in this emerging asset class. And Indians have been investing in crypto since 2015. We are talking about a strong community of 10 million people, who have invested billions of dollars in crypto. And after the bull run in 2017, suddenly the Central Bank of India put a banking ban, fearing some kind of economic instability and foreign exchange violations. Post that phase it has been a great deal of hard work put in by the crypto community at large, along with the support of the mainstream media and some of the best lawyers in the country to fight our battles with the Central Bank of India and then winning a case in the Supreme Court on the grounds of fundamental rights to now crypto becoming more mainstream in the past few years. That has been India so far. It is a strong community and it is growing day by day.

We are talking about a strong community of 10 million people, who have invested billions of dollars in crypto. And it is growing day by day.

Scott: You said it is 10 million people. Is that accurate? I mean it is a very small percentage for such a huge country! Right?

Neeraj: This shows the huge potential we have as a country. 10 million, as an absolute number is huge, but as a percentage, it is very small. But 10 million have already invested in crypto assets, while a billion people know about it and they want to invest. They are waiting to invest in this new asset class. 

Scott: So, at this moment what is the status with the banks? This has to be a challenge for you if people are to use your exchange as an on and off for crypto if at any day the bank says that you can or cannot do that.

Neeraj: Yes, it is a huge challenge, not just for exchanges, it is a challenge for the community itself. When the RBI issued a banking ban in 2017, CoinDCX was working with 4 national banks and it caused a few challenges, but we won the battle and then the community had a very smooth run for a year, until recently when the RBI again issued certain restrictions, going with the Parliament, which suggested a full ban of industry and of Bitcoin itself. This resulted in a huge uproar from the community and a huge lashing on Twitter from the industry earning support from big personalities like Nandan Nilekani.

We are working with banks towards providing the right set of compliance to the industry.

Post that, the bill was discarded and the industry had all the access to banks and we picked up our pace. But now the banks and the industry realized that there need to be certain checks in place. Checks to prevent any illicit activities, which we know crypto itself can take care of. So right now we are working with banks towards providing the right set of compliance to the industry. For example, we are now implementing new KYC and AML clauses, AML rules for withdrawal and deposit of the INR. 

Scott: We know that in every country regulation is inevitable. But we want the regulation to be smart. And it really is not a threat to any Government, I think they should embrace it. Do you agree?

Neeraj: Yes, absolutely! Just a few months ago, Nirmala Sitaraman, the FInance minister of India, mentioned that they are open to experimentation with crypto and there have been many hints from the Government that is in favor of crypto. For example, the Ministry of Corporate Affairs had asked institutions that are exposed to the asset class should report to the Government. This is a very positive attitude. The RBI has clearly stated that the banks need to follow very strict AML and KYC policies while dealing with cryptocurrencies. That is what is needed at the moment. All the payment getaways we are working with are working towards strengthening the infrastructure for AML and KYC policies. As soon as we are at par with some great standards of compliance we will be back on track and picking up our pace like before!

Scott: Yes that makes complete sense. Some great questions are coming in from our audience and mostly from the younger generation. Do you really think this a generational thing? Are much of the younger people part of that 10 million?

Neeraj: Yes. It is true, owing to the fact that India has a huge demographic dividend. And we are very far ahead with the internet and mobile penetration in the country. More so with payments. And all of this is driven by the younger generation. Similarly, a lot of crypto investors we come across are those who have never invested in the stock market. We see a lot of young people who have never invested in stock, invest in crypto. So yes, they do occupy a chunk of the crypto investor community. The crypto industry is driven by the vigor and the energy that young people bring into it. 

The RBI has clearly stated that the banks need to follow very strict AML and KYC policies while dealing with cryptocurrencies.

Scott: I am curious, what are the biggest challenges for you, as an exchange, with all these different laws and regulations. What are those?

Neeraj: There are a lot of challenges, the day-to-day ones. Because of the uncertainty that we face, for example, a payment gateway goes down, or they stop supporting the crypto community, or certain banks stop supporting the community and then they start supporting because of the changes that take place, and we need to provide consistent support to our users, it has to be reliable when people want to buy the dip, they want to buy the dip. We don’t want a situation where they do not have the access to INR deposits or withdrawals at the right key moments, and that is what our main objective is.

We essentially went ahead with the manual bank deposit method, where a person will send money to our bank account with a reference number and we manually verified the transactions behind the scenes.

For example, recently, when the banks wanted to pull the plug because of the pressure from the RBI and they wanted to be compliant, for 15 – 30 days, but we wanted to continue to support our userbase. We wanted to continue giving them the right services required. So we essentially went ahead with the manual bank deposit method, where a person will send money to our bank account with a reference number and we manually verified the transactions behind the scenes. And we did this for millions of users and thousands of users per day. In fact, we did it for more than 100,000 transactions every day. In a matter of weeks, we had to build an operational team of hundreds of people, for this purpose. 

Scott: Very specifically, about your exchange, is there anything you wanna share about what you guys are building for the future? As you go to scale, are there any new features in the future that you think the community will be excited about?

Neeraj: Sure Scott, there is something that I would love to share. Even today, CoinDCX is a very unique model. For the Indian market, people can buy, sell, and even invest INR 10 to buy any cryptocurrency on the platform. And we also serve institutions, you can also buy millions of dollars worth of crypto from the CoinDCX platform. And we are not limiting ourselves to just buying and selling. We have already enabled staking services, and we will be growing these services further. YOu can also lend Bitcoin, Ethereum, Tether, XRP, and others. When you want to buy and sell we provide many options. For example, you can buy on Leverage, which means that we also offer Margin trading as a product.

We are doing liquid aggregation at a global level.

We know that the crypto market is very fragmented, even today you will be seeing so many exchanges, like, Binance, Huobi, Kraken, Coinbase, and other Indian exchanges, so we are doing liquid aggregation at a global level. This means, a person just needs to create an account on CoinDCX and you can access any of the markets and any of these platforms without actually creating an account of any of them. The good thing is we are also working on enabling a defi interface. So with the same interface, you will be able to access defi protocols, Binance, you will be able to access Coinbase without moving much of the funds here and there along with the security. That is a global product that we have been working on apart from the Indian market and a lot of other exciting things are going to come up. 

Viewer Questions: 

Has there been any improvement or discussion with regards to onboarding banking partners for Indian exchanges since the banks had stopped provisioning services for the same?

Neeraj: Yes. So right now CoinDCX is in talks with a few more banks and the banks have been very supportive. Right now we are concentrating more on compliance so that we can work on withdrawals and deposits on a larger scale for all of our users. And we are bringing back the UPI service very soon, which is a very highly sorted after method. 

I heard that in India, renewables might play a big role, improving the infrastructure. Will it meet with crypto mining?

Neeraj: Right now, Crypto mining is not allowed in India. Simply because crypto mining needs a lot of energy and India as a country needs to grow its GDP and it needs a lot of energy at the moment to grow its industrial space, IT space, and so on. India typically buys Bitcoin from outside, it does not manufacture its own Bitcoin. Moving forward, as soon as India has surplus energy, as a nation, we would like to mine Bitcoin in some great, great numbers. More importantly, whenever it does, India is going to go for renewable sources of energy when mining Bitcoin, simply because India has a great push for renewable energy. 

Will Bitcoin at some point become too scarce to be a world reserve currency? Would it make more sense for altcoins to also become bank-backed currencies?

Neeraj: The way I think about it is Bitcoin or Money. Money works in a layered manner. Money, at the center, consists of gold and other valuable assets and then comes the money that we use, in the third or fourth layer. Then comes the central money that is backed by gold and then there is money which is used for settlement between the central bank and the public banks, so it is a layered structure. The way I see it, even if Bitcoin becomes scarce, and it will become scarce, that is the whole point, the Bitcoin will then be layered by money, and it will be the most precious money. Then you will have a lot of altcoins that are being derived from Bitcoin, which is used by people for their regular purposes because you will always have to have a balance between security and speed. There has to be a balance between that. And to maintain very high standards of security, Bitcoin might not be used for a day-to-day transaction, there might be layers on top of Bitcoin. And these layers, high-speed layers might consist of altcoins. There is a possibility and I can see a structure evolving. 

Is the commerce accepting crypto now?

Neeraj: No, not really. To answer this question in detail, India has a long-standing debate about whether to accept Bitcoin as an asset class, just like Gold and Stock or to let Bitcoin and cryptocurrency play a role of a currency. As a currency meaning where it is used for payments. And India has already voted. We are all comfortable with Bitcoin and cryptocurrencies being an asset class at the moment and not use it in competition with the Indian Rupees. 

In terms of net crypto ownership India lags much behind, how is CoinDCX looking at this and planning to change it?

Neeraj: Although there is no public figure available to verify that, there is a lot of growth potentials. As we talked about earlier, only 10 million out of this 1.4 billion userbase have actually invested in the asset class. This is very small in percentage but a lot will come, further. More importantly, when Bitcoin and all the other assets become mature further in India when it is fully regulated, institutions will start investing. We are already seeing instances of Institutions on CoinDCX. The net ownership will really grow when the grey area will no longer be grey and the participation from the institution grows. We at CoinDCX are already prepping ourselves for when this happens, where we can serve the institutions and make it easy for the institutions to buy Bitcoin. 

There was some discussion about exchanges self-regulating with the help of India’s Internet and Mobile Association. Has there been any progress on that front?

Neeraj: Yes, there is a lot of progress. We already have a framework, using which we can put in place the right set of rules, which will make the regulators comfortable from the KYC, AML side, and the CFTs side. We already have these structures in place with the IAMAI. As an exchange, we are actively working on that. We are also using that framework to go to the banks and discuss the way forward so that we can build this industry in a compliant manner. 

By making it an asset class, the intention is to make it taxable, correct?

Neeraj: You are right, but that is not the intention, that is just an outcome. The intention is to control the payments in a  much better fashion, simply because it is not well tested as a payment method. And India is very understandable from a regulatory point of view, you know, let it develop as an asset class and then let us gain some kind of confidence of the asset class, on the function and on the technology and then use it for the payments. A country may not use it as a payment and maybe as an asset class for wealth creation purposes and yes, that becomes taxable, as an outcome. 

People don’t understand the usage many of them don’t have trust in decentralization.. what’s your view?

Neeraj: You remember the 1995s of the internet right? People used to use the internet via terminals. IT was very difficult for people to access the internet. Laymen like you or me, we could not access the internet. I mean it would make no sense to have a room-sized machine and write some words onto the mammoth keyboard and just communicate. That was a challenging time, even for the internet. I think defi is at the same stage. I think there is an accessibility problem in the defi sector at the moment. Not a lot of people can access it. Everybody knows about uni-swap or other defi protocols, but very few people actually use it, simply because it lacks accessibility. And I believe decentralization will be like the internet. Like how you use the internet, in the future, decentralization will be the same.

Also read: Industry best security practices for cryptocurrency.

Also read Analysis of Proposed Bill to Ban Private Cryptocurrencies.

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