Will Bitcoin, Ethereum Change The Payment Landscape In India?

by Sohini Bagchi    Jun 13, 2017

bitcoin

Digital currency is gaining acceptance in India, unlike in the past and the trend is likely to grow. While the bitcoin prices in the last decade have been volatile, the current rise is remarkable, according to industry experts. In fact, Bitcoin is the most prominent cryptocurrency, Gartner mentioned in its report, defining cryptocurrencies as “a subset of digital currency that is decentralized, and based on a set of algorithms and protocols that enable a peer-to-peer, cryptographically based payment mechanism, medium of exchange and store of value.”

Bitcoins are here to stay

There are several players in the market such as digital currency and payment network Unocoin, Zebpay, BTCXIndia and Coinsecure. Zebpay, an app-based bitcoin exchange, recently announced that bitcoins have reached an all-time high of $3000 mark. “Amidst positive global adoption, bitcoins globally have seen 300% increase in value over the last one year,” Sandeep Goenka, co-founder and chief operating officer, Zebpay.

“In the recent past, countries around the world including, Japan, Russia and Australia have shown greater acceptance to bitcoin as mainstream currency, with bitcoins continuing to dominate cryptocurrencies market with overall market capitalisation of over $46 billion,” he said, adding that last month, Japan declared bitcoins as a legal tender resulting in price of cryptocurrencies rising by 80%. Further, Australia declared that it will accept bitcoins as a legal currency from July 2017, while Russia is planning to adopt bitcoin as a legal payment method in 2018.

The company believes that closer to home, the demand for bitcoins in India is rising exponentially with Indians actively exploring bitcoins as an alternative investment option. “Trade volumes at Zebpay are significant for India but still tiny compared to global trade volume of Rs 20000 crore per day,” he said. Zebpay claimed that it has crossed 500,000 downloads and is adding 4500 users every day.

Unocoin, which has tied up with over 2,00,000 merchants worldwide, sees around 200-250 trades a day. From flight tickets, bus tickets to vouchers from e-commerce majors such as eBay, Flipkart, Snapdeal, Unocoin offers several options to users.

Govt to drive Blockchain

Recently, the Indian government set up a committee to study the virtual currencies including bitcoins and deliberate guidelines unlike in the past when it exercised caution in use of this digital currency. Also, concerned over the adverse impact of virtual currencies such as bitcoin on the consumer, the government is planning to look into ways of regulating the fast-growing segment to curb money laundering.

The Digital Asset and Blockchain Foundation of India (DABFI), a self-regulatory body jointly set up by India-based bitcoin startups Zebpay, Unocoin, Coinsecure and SearchTrade that attempts to lay down regulatory regimes for the digital currency businesses,  too has urged the government to allow them to showcase the benefits this technology can bring to India. It seeks to actively create and propagate best practices that digital asset businesses must follow in India based on consultations with industry, regulators and other stakeholders.

The committee have been asked to suggest measures for dealing with virtual currencies including issues relating to consumer protection and money laundering, the finance ministry said in a release.

The security challenges

Currently, use of virtual currencies such as bitcoins are yet to be authorized by the Reserve Bank of India (RBI) and likely result in breach of anti-money laundering provisions. The RBI has cautioned users, holders and traders of virtual currencies in India, including bitcoins, about the potential financial, legal and security risks arising from their usage.

Several Indian companies compromised by the WannaCry cyber-attack were unwilling to pay in bitcoins to recover their data, fearing that using the unregulated virtual currency to settle the ransom would only invite more trouble.The bitcoin digital crypto-currency is not yet a part of the mainstream banking system. In India, it is neither legal or illegal to trade in bitcoins and it continues to be a grey area.

However, experts believe, despite a spurt in usage of bitcoin for criminal activity, it was more pronounced at a time when mining bitcoin was fairly easier, and the price of bitcoin averaged below 100 USD a piece. It happened that people could mine their own bitcoins, and once you have that capability you are answerable to no one. The scenario changed soon after, thanks to government intervention and regulation.

“Blockchain has evolved into the whole Bitcoin space. As a technology, it looks very secure as there is a distributed database, distributed ledger and appropriate control around encryptions. In essence, the concept is secure and robust, but it’s the implementation that will really test the game. How the blockchain is implemented and how secure it would be, will differ from organization to organization,” Kartik Shinde, Partner – Cyber Security, Financial Services, EY said in a recent interaction with CXOToday [Read the full interview here]. He was referring specifically to the banking sector.

A recent report by World Economic Forum (WEF) shows that 80 percent of banks are predicted to start blockchain projects by 2017 and $1.4 billion has been invested into the technology over the past three years. 90 central banks are looking at the technology. RBI too is optimistic about advantages of using blockchain to prevent cheque frauds. There are many identity-related blockchain projects where organizations are focusing on know-your-customer (KYC) for banks. 

The rise of Ethereum

Alternate digital currency ethereum is also competing with bitcoin after posting a sharp jump at $233, from $8.24 in January. The new currency picked up along with bitcoin, which crossed the $2,700 level last week. Bitcoin fell from an all-time-high to $1,800 in two days before settling at $2,400 on Thursday. Meanwhile, ethereum signalled higher strength than bitcoin by posting a sharp recovery from $100. 

While bitcoin has been getting support from governments and investors, the Ethereum blockchain has been backed by corporates including JPMorgan, Microsoft and Intel. The new currency has been designed to support smart contract applications, which is a computer program that can automatically execute the terms of a contract when certain conditions are met. 

A group called the Enterprise Ethereum Alliance (EEA) was recently founded to connect large companies to technology vendors in order to work on projects using the blockchain. EEA announced the joining of another 86 firms in the alliance, which in turn helps the cryptocurrency gain legitimacy.

While there is a global debate on which is more superior between bitcoin and ethereum, many believe the digital currencies will coexist and continue to disrupt the payment space in India. But whether these technologies will enter mainstream business anytime soon is still debatable. Some seem confident that these are here to stay, with proper security and regulatory mechanisms. Only time and suitable measures would determine its success in India.