BENGALURU: Indian cryptocurrency firms such as WazirX and Koinex have resorted to peer-topeer trading even as they await a Supreme Court hearing on Tuesday, which will take up a petition against the Reserve Bank of India for blocking banking services for bitcoin trading.
The Internet and Mobile Association of India (IAMAI), which represents internet firms has filed a writ petition against the RBI move that has set a July 5 deadline for banks and payment gateways to stop working with cryptocurrency, affecting exchanges and traders.
“If banking is something the exchanges are not allowed to do, then the solution is something that direct banking doesn’t come in,” said Nischal Shetty, chief executive of WazirX, an Indian crypto exchange that is set to introduce P2P trading.
Traditionally, all trade on exchanges happen through online banking channels where users can buy and trade bitcoins. The exchanges charge a transaction fee on every trade. The Reserve Bank of India (RBI) circular on April 6 mandates banks against offering services to exchanges, pushing them toward a peer-to-peer exchange.
In P2P trade, the buyer and seller can deal with each other directly while WazirX act as an escrow account that holds the cryptos during the transaction to avoid cheating.
“We built an escrow system, where before you sell 1 bitcoin, you (A) deposit the bitcoin to our escrow for safekeeping. Once the buyer (B) pays rupees to you (A), WazirX releases the crypto to the buyer (B), after getting a confirmation from you (A),” said Shetty.
WazirX allows only registered users, with verified KYC details to trade on their platform. They claim that this is different from websites like localbitcoin.com that allows strangers to exchange their local currency for bitcoins.
While the regulatory uncertainties is a cause of concern, and has forced many day traders to cash out their investments, experienced traders remain unfazed. “We must understand that only withdrawal (of rupees) will be stopped but other functions like buy and sell/send and receive crypto in Indian exchanges will work,” said, Avinash Baboo, who has been a crypto trader for three years.
Besides WazirX, another exchange Koinex has introduced its escrow solution called Koinex Loop. Both WazirX and Koinex escrow solution will go live as soon as the RBI ban on banking services comes into effect.
For the Indian crypto and blockchain community, the coming week is crucial: On July 3, the SC will hear a writ filed by IAMAI against RBI for blocking banking services for cryptocurrency businesses. If the SC rules against IAMAI, the July 5 deadline for banks and payment gateways to stop working with cryptocurrency will take effect, affecting exchanges and traders.
“The court could allow the plea application and stop the RBI directive in which case banks can continue to offer services to exchanges until July 20,” said Mohammed Danish, advocate and crypto analyst. The top court has directed the transfer of multiple writ petitions challenging the constitutionality of the RBI circular to be heard on July 20.
The government is coming up with a draft related to crypto by first week of July, said Subhash Chandra Garg, the secretary of the department of economic affairs in a recent TV interview with ET Now. But a few believe, the regulatory overhead for Indian exchanges is costing them dearly as non-Indian players enter the market. Korean cryptocurrency exchange Bithumb has started displaying regional language ads in India. Hong Kongbased exchange Binance is expanding into international markets and is recruiting people in India to strengthen their marketing initiatives.