Earlier in October, the developers of India’s first Bitcoin ( BTC )
“ATM” were arrested in the city of Bangalore under criminal
charges, in a case that has shaken the local startup community and cast
a spotlight on the lack of clarity surrounding “the law of the land”
in regard to crypto.
While the official Freedom of Information Report (FIR), detailing the
charges against the men, is not in the public domain, the mainstream
media has reported that they were booked under serious criminal
charges, including criminal conspiracy, cheating, and forgery.
From the gravity of the alleged charges, you’d be forgiven for
assuming the suspects were deceitful fugitives, yet they are two of the
co-founders of the country’s first cryptocurrency exchange, Unocoin.
Described by Kashif Raza, of the local blockchain advisory duo
“Crypto Kanoon,” as being among India’s “brightest” tech
pioneers, and an “icon of the crypto industry.”
Their high-profile arrest and remand in police custody for seven days
thus carries undeniable symbolic clout, perceived as being tantamount
to putting innovation itself behind bars.
Cointelegraph spoke with Kashif Raza to unravel the story, as well as
consulting with local cyber expert lawyer, Prashant Mali, whose
periodic interjections, “yeh kahan se aa gaya?” (“where did this
come from?”), encapsulate the local crypto community sentiment in
the wake of the arrests.
The backstory
Bangalore, which earned the sobriquet of India’s “Silicon Valley”
for its buzz of tech startups and venture capital firms, is perhaps
unsurprisingly the home turf of the country’s “first entrant into
the Bitcoin industry,” Unocoin, founded in the city in 2013.
Four years after its inception, the startup says it now employs 120
full-timers to run its BTC-INR (rupee) trading platform, to process
transactions worth over 2 billion INR monthly, for over 1.3 million
users.
Recent years were propitious for initiatives like Unocoin, which began
to attract significant venture capital investment in fall 2016, just as
Indians’ interest in Bitcoin was hitting a fever pitch as the
government ushered in its bold — and still highly contentious —
demonetization policy.
In a bid to clamp down on tax evasion, in November 2016, the Prime
Minister, Narendra Modi, announced the invalidation of 500 and 1,000
rupee bills — which accounted for 86 percent of the currency in
circulation at the time. Demand for crypto in the heat of the
“cashless chaos ” of that year soared, catapulting Bitcoin’s valuation
to a 12 percent premium on the Unocoin exchange.
Unocoin president, Sunny Ray, revealed that Bitcoin trading doubled
in the midst of a tumultuous, demonetized economic climate that was
yet further stoked by that winter’s rumors of impending curbs on
domestic gold holdings and possible restrictions on gold imports.
Trading euphoria showed little signs of letting up the following year ,
with popular Indian exchanges, such as Zebpay, forced to cap Bitcoin
purchases in spring 2017 as their supplies failed to keep pace: the
Zebpay Bitcoin Wallet India hit over half a million downloads in May,
eclipsing many of the country’s stalwart banking incumbents on the
Apple app store.
By mid-June, data showed India accounting for 10 percent of the
preceding month’s global USD/BTC trade volumes.
Yet 2017 also presaged an unfolding, increasingly crypto-skeptic agenda
on the part of India’s government and monetary authorities. In
February, the Reserve Bank of India ( RBI ) — steward of the
country’s notoriously strict capital controls — chose to reiterate its
2013 warning against the dangers of investing or trading in virtual
currencies, yet nothing in the statement as of yet went beyond
striking an official note of circumspection.
Then, in March, a member of the ruling Bharatiya Janata Party (BJP),
Kirit Somaiya, characterized Bitcoin as a risk-ridden “hypothetical
currency” before parliament, urging RBI, the Securities and Exchange
Board (SEBI), and the Finance Ministry, to step in as a matter of
“urgent need” to rescue the populace from yet “another big Ponzi
fraud.”
Somayia soon tipped over from alarmism to outright fallacy, when he
falsely claimed that crypto was “illegal ” in ensuing weeks,
dismissing the robust self-regulatory initiatives of the country’s
thriving exchanges as “nonsense .” And he wasn’t the only minister
to do so .
Yet even as politicians whistled the tune of illegality, ASSOCHAM,
one of the country’s most veteran trading bodies, devoted a global
summit to the topic of Bitcoin’s status in India that April.
An Inter-Disciplinary Committee within the Finance Ministry was
formed to proactively investigate the legal status of Bitcoin, and in
May, the government appealed to the public to provide input as it
evaluated the possibility of regulating the market.
Positive glimmers on the crypto regulatory front surfaced that summer,
yet soon lapsed into inconclusive inertia, and from there, to an
increasingly bleak prognosis. An as-yet-undisclosed draft of proposed
regulations was rumored to lean towards a more stringent stance, just
as the failures of Modi’s botched demonetization were widely
becoming incontrovertibly apparent.
With crypto’s future in the country in limbo, Unocoin nonetheless
sealed a partnership with major wallet provider, Blockchain, in
September 2017: the bullish news was paired with signs that RBI was
mulling the issuance of its own digital rupee-backed coin, while
continuing to voice its unease with regard to decentralized, so-called
“private” cryptocurrencies.
In October, tight-lipped officials were still refusing to comment on
the authorities’ evolving crypto regulatory plans, yet the following
month, word of a Chinese-style exchange ban was leaked to India’s
mainstream media.
Even with seemingly implacable negativity continuing to spill out from
central bank officials that November, some were accusing the
government and regulators of inexplicable dithering on the crypto
front; landing the matter in the country’s highest judiciary , the
Supreme Court.
Yet the inauspicious backstage drama and regulatory purgatory did
little to dampen Indian investors’ enthusiasm in the winter 2017
crypto bull run, with exchanges reporting “unprecedented” droves of
as many as 400,000 new traders per month entering the market.
On the cusp of the new year, the Finance Ministry steeled itself for
an antagonistic stance, condemning cryptocurrencies as Ponzi-like
threats to investors’ hard-earned money. The tone would turn out to
be the dominant chord for the rest of 2018, with RBI issuing its now-
notorious circular April 6, directing all domestic banks to extract
themselves from existing relationships with crypto exchanges and
traders “within three months.”
The central bank’s controversial blockade came into force this July,
and has prompted both public and industry-led petitions, with some
appealing to the courts on the grounds that the decision is
unconstitutional .
As the final verdict on the RBI prohibition continues to be repeatedly
stayed by the Supreme Court, the judiciary has now thrown the ball
back in the executive’s court, setting a deadline for the government
to clarify and finally cement its official position on crypto by mid-
November.
Sowing the seeds of confusion
While April 6 is thus well-known as a red-letter day for crypto in
India, the extraordinary welter of half-truths that have circulated in
response to the country’s first Bitcoin “ATM” can in fact be
traced back to February, to the immediate aftermath of finance
minister Arun Jaitley’s 2018 budget speech.
On Feb. 1, the minister addressed parliament, stating that:
“The government does not recognize cryptocurrency as legal
tender or coin and will take all measures to eliminate the use
of these crypto assets in financing illegitimate activities or
as part of the payments system.”
The mainstream press responded at the time by declaring the “end of
the road ,” for crypto in the country: Quartz India cited a local
lawyer who said he expected “a legislative mechanism […] to ensure
that dealing and trading in cryptocurrency is made illegal and to
penalize entities and individuals who are involved in their trade and
circulation.”
The social media echo chamber only compounded the flurry of
misunderstandings:
Anjana Om Kashyap
@anjanaomkashyap
Bitcoin to be banned. Crypto currency illegal in India says
@arunjaitley
#Bitcoin #DigitalCurrency #budget2018
2,910 7:49 AM - Feb 1, 2018
1,267 people are talking about this
Unocoin presciently took pains to clarify a panic-stricken public, as
the price of Bitcoin plummeted from $10,300 on Jan. 31, to around
$9,500 on Feb. 1:
Unocoin
@Unocoin
Based on the #UnionBudget2018 announcement, there is no
change in government's stance with respect to
#cryptocurrency . It is business-as-usual at @Unocoin
#Budget2018
217 10:15 AM - Feb 1, 2018
184 people are talking about this
Unocoin’s claims of “business-as-usual” may, with the benefit of
hindsight, appear overly optimistic.
Yet at the time, all the founders of India’s crypto exchange
triumvirate — Unocoin, Zebpay, and Coinsecure — were attempting
to calm investors and to underscore that “not being legal tender”
did not warrant the FUD-like furore that had erupted. It was, rather,
an alegal classification, which applied equally to traditional stores of
value such as gold.
In the ensuing weeks, a fresh spate of alarmist reports from the likes
of the Financial Times and Quartz again stoked investors’ anxiety by
falsely reporting on the government’s redoubled and “aggressive”
pursuit of crypto tax “evaders.” The action at hand was in truth
simply a “going through the motions” of a pre-agreed plan that had
been announced the previous year.
Fact and fiction continued their song and dance throughout winter
2018, with the latter more often than not appearing to shape the course
of events.
Citibank India banned the use of credit cards to purchase crypto on
Feb. 14, with HDFC applying the same restriction on both debit and
credit card clients in March. That month, two smaller Indian
exchanges, BTCXIndia and ETHEXIndia, announced they would be
stopping trading activities, blaming the “stress” caused to their
businesses by the government’s negative stance.
In its correspondence with clients, BTCXIndia itself compounded the
already loose extrapolations of Jaitley’s words, writing that “as we
heard in the budget speech, the Indian government is discouraging
cryptocurrency trading” — without including the caveat that the
minister had highlighted crypto’s potential financing for criminal
activities as its chief concern.
The former Secretary of Economic Affairs again fanned the flames of
FUD in a media interview March 12, stating that crypto — which is
“created out of a vacuum” — should be banned outright since it is
impossible “to regulate it effectively.”
In a country that had suffered the devastating shocks of 2016’s
demonetization, the verdict of Bitcoin “not being legal tender” had
thus taken on a particular charge, even ahead of RBI’s April action.
‘Necessity is the mother of invention’
In July, with the RBI prohibition now in full force, the country’s
exchanges adopted various strategies: Zebpay preempted the official
July 6 deadline by freezing rupee deposits and withdrawals July 4.
That same day WazirX revealed it would transform into a peer-to-peer
( p2p ) platform so as to avoid in-house crypto-fiat conversion. On July
23, Unocoin itself suspended fiat deposits, until “an alternative
method of funding [would be] identified and deployed.”
Activities that did not depend on banks’ provisions nonetheless
continued on Uncoin: crypto asset deposits were active on its crypto-
rupee trading platform as well as its partner crypto-crypto exchange
Unodax.
At the end of September, Unocoin’s peer Zebpay, announced it would
be shuttering its operations, giving customers just several hours’
notice ahead of the decision coming into effect. The platform cited
the “extremely difficult” recent past, saying that RBI’s “curb on
bank accounts has crippled our, and our customer’s, ability to
transact business meaningfully.”
Unocoin, meanwhile, as Kashif Raza stressed, was “unusual,” and set
to work on an “ATM” machine that would circumvent banking channels
altogether, but still allow users to deposit and withdraw fiat
currencies.
On Oct. 9 Crypto Kanoon was given the go-ahead to pre-empt
Unocoin’s official announcement, posting a photograph of the new
machine to its Twitter handle, with palpable excitement:
Crypto Kanoon
@cryptokanoon
Is this the next big thing in Indian crypto space ? @Unocoin
you have earned respect from the crypto community for taking
this bold step at a time when nothing is clear ahead of
you. #Bitcoin
594 6:23 AM - Oct 10, 2018
283 people are talking about this
The Unocoin “ATM,” installed at the Old Kemp Mall in Bangalore,
was officially unveiled on Oct. 14. It was subject to customary cash
handling restrictions, thus limiting the sums of daily withdrawals and
deposits, and did not accept debit or credit cards in order to avoid
any interaction with the banking system.
A KYC-verified Unocoin customer could enter their user ID and a one-
time password delivered via text message, and deposit INR into the
machine: the funds would be instantly reflected in their Unocoin
account balance, and could be used to buy BTC or ETH, or to place
BID orders on 30 different Unodax-supported cryptos.
Withdrawals followed a similar protocol that relied on SMS
verification, and would need to be initiated on Unocoin’s online
platform before the user could access cash at the machine.
Crypto Kanoon
@cryptokanoon
1st video tutorial on how to Deposit/ Withdraw Rupees (INR)
with @Unocoin 's Crypto ATM. #cryptoatmindia
327 9:20 AM - Oct 14, 2018
164 people are talking about this
In the days after the machine’s unveiling, Twitter was as ever a good
litmus test of an excited public’s response.
On Oct. 18, CEO Sathvik Vishwanath confidently told the Deccan
Herald that two more “ATMs” were planned for Mumbai and Delhi,
with reports of ambitious plans for a total of thirty in the future.
Speaking with the Times of India, he clarified:
“The finance minister’s statement was very clear. He said,
cryptocurrencies are not legal tender in India. He did not say
illegal tender. There’s a huge difference. It only means you
bear the risk of your investment and there’s no regulation for
the industry.”
Vishwanath’s point was reinforced by cyber lawyer, Prashant Mali,
who affirmed in correspondence with Cointelegraph that India has
“neither a law nor regulation directly banning ownership of
cryptocurrency.”
What’s in a name?
While the official press release forthrightly dubbed the new machine an
“ATM,” two of Unocoin’s tweets, dated Oct. 15 and Oct. 16,
struck a note of ambiguity, oscillating as they did between calling the
machine first an “ATM,” and then switching to the more neutral
“kiosk.”
By Oct. 20, the Times of India was similarly noting that Unocoin, as
distinct from its official press release on Oct. 14, now “prefers” to
call the machine a “kiosk.”
Loose media reporting exacerbated the confusion: below is a screenshot
of a Business Standard article calling the machine both an ATM and a
kiosk, and — equally misleadingly — summarizing the machine’s
functions as enabling the “buying and selling” of crypto.
One local crypto journalist reported on his father’s bemused response
after reading an unnamed “Gujarati newspaper,” puzzling aloud:
“How are they selling Bitcoins on an ATM?”
Screenshot of Business Standard’s Oct. 19 article on the Unocoin
machine
By Oct. 20, Unocoin had tweeted:
Unocoin
@Unocoin
Our Machine didn't go well with few mainstream media reports
who projected it under a negative light. The machine is still
under final testing mode and it will be up and running in the
upcoming week. The machine has been temporarily moved from
its original place of installation.
274 8:27 PM - Oct 20, 2018
126 people are talking about this
The name choice was to transpire as having been crucial: virtually all
ATMs in India are governed by RBI, and the central bank outlines
specific provisions for any non-banking entity wishing to operate a
so-called “White Label” machine, requiring their authorization ahead
of installation.
Coupled with the imprecise local mainstream press reporting,
Unocoin’s choice to advertise its invention as an ATM was in
retrospect a significant misstep: as Crypto Kanoon has argued , the tool
was after all highly limited in its function:
“We ask whether any approval is required for assigning the job
of a cashier to an automated machine for deposit/payment of
cash to my customers?”
On Oct. 22, unconfirmed rumors were surfacing on social media that:
Naimish Sanghvi
@ThatNaimish
Rumours coming in from Bangalore. Unocoin exchange's INR
Kiosk being examined by the Cyber Crime.
No comments from Unocoin yet.
19 4:56 PM - Oct 22, 2018
See Naimish Sanghvi's other Tweets
By Oct. 24, news had broken of the arrest of Unocoin’s co-founder
and chief compliance officer (CCO), Harish BV., As corroborated by
multiple local sources, the ATM had not yet been operational ahead of
the police action: Harish was nonetheless briskly whisked before an
ACMM (Additional Chief Metropolitan Magistrate) court, which sent
him to police custody for seven days.
A press statement from the police Central Crime Branch (CCB),
asserted the ATM installation had not received “any permission from
the state government and is dealing in cryptocurrency outside the
remit of the law." Mainstream press accented the police’s claims as
to the alleged “illegality” of the machine, with the Times of India
further reporting that:
“According to police, the kiosk was a platform for Bitcoin
buyers and sellers. Police requested the public not to be lured
by the prospect of making huge profits and invest money in
cryptocurrencies.”
CCB officials were said to have seized the “ATM” itself, “two
laptops, a mobile, three credit cards, five debit cards, a passport,
five seals of Unocoin company, a cryptocurrency device and Rs 1.8 lakh
($2,460).”
The sleuths nabbed CEO Vishwanath the following day, with the Times
report this time citing Deputy Commissioner of Police (DCP) S
Girish’s comments that RBI had allegedly “stated that
cryptocurrencies are illegal.”
Notably, in the case of both arrests, the police had chosen to act
“suo moto” (of their own accord), despite the ATM not even being
functional as of yet.
As noted, while the FIR has not been been formally released, the
Times of India has claimed that the police booked the case under
Section 66 of the IT Act (ITA) (computer-related offences), Section
120b (criminal conspiracy), 420 (cheating), 465 (forgery), 474
(possession of forged documents), and 471 (fraudulently using forged
documents) of the Indian Penal Code ( IPC ).
Prashant Mali has confirmed that “when public order is to be
maintained or if the police suspects a cognisable offence is about to
be committed then they are able to take suo moto action as per Indian
law.” He nonetheless reflected on the seemingly disproportionate
measures:
“Since all the relevant sections of the chargesheet carry
punishment of below 7 years, police as per the law should have
sent notice for investigation, summoned the accused owners of
the ATM, and in the event of their failing to appear at police
station, then they could have have arrested them. The arrest of
the Unocoin directors is just sensationalism on the part of the
media and senior police officers.”
Commenting on the charge sheet, Mali exclaimed in response to section
420 that “no one has been cheated as yet! Nor defrauded. The kiosk
was yet to start functioning.” With regard to “forgery” (465),
“yeh kahan se aaya!”
Moreover, he suggested, if charges of criminal conspiracy (120b) are
indeed pressed, then, given that Unocoin had sealed funding from
multiple venture capital (VC) firms, the VCs themselves could
potentially face arrest for allegedly “financing a criminal act.”
The advocate concurred with Kashif Raza’s view that “the word
“ATM” created a problem for Unocoin,” and was misleading, given
that visas and other payment cards were not accepted.
Mali added that “if “kiosk” had been written, then the
applicability of RBI’s regulation for White Label ATMs would have
fallen into a grey area of the law. If however, money deposited in the
kiosks was not accounted for, or was intended to be sent abroad, then
indeed, other prevailing laws would have been engaged.”
Given the “pulse” of the local administration and Indian
government, Mali remarked that Unocoin would have been wiser to first
announce its plans before attempting to proceed with installation.
The nature of that “pulse” was made all the more glaringly apparent
the following day, Oct. 25, when the president of a major Indian
nonprofit trade organization, the National Association of Software
and Services Companies (NASSCOM), was cited by local newspaper, the
Hindu, as saying that, from NASSCOM’s perspective, “it is very
clear that cryptocurrencies were illegal”:
“It is law of the land and hence, we have to work with it. If
we do not agree, we have to go back to the government and
speak about why cryptocurrencies aren’t correct”
Somewhat softening her stance, she added that “the genesis of this
problem lies in the failure of policy making not keeping pace with
rapid technological changes,” saying that “synergizing” the two
would be NASSCOM’s focus.
In response to the startup community’s “backlash ,” NASSCOM was
soon forced to promptly issue an official clarificatory statement
“regarding cryptocurrencies,” tweeting:
NASSCOM
@nasscom
NASSCOM statement - 'Regarding crypto-currencies'
68 6:13 AM - Oct 26, 2018
78 people are talking about this
The aftermath — and future?
As of press time, both Vishwanath and Harish BV have been released.
The former has given a short statement on Twitter, confirming that the
troublesome term of “ATM” was “the trigger” for the police
attention:
Sathvik Vishwanath
@sathvikv
You know the story so far. From my understanding, main
stream media calling crypto assets illegal & comparing our
Kiosk with a bank ATM [that needs RBI perm as it is like a
bank branch] was the trigger. Now that I am out,will try my
best to give clarifications & move on. @Unocoin
429 10:47 PM - Oct 26, 2018
201 people are talking about this
While grim rumblings in the press continue to stoke FUD, the Supreme
Court has given a firm deadline for the Ministry of Finance’s inter-
disciplinary committee to file an affidavit clarifying two points, as
Crypto Kanoon’s post on Oct. 26 indicates:
Crypto Kanoon
@cryptokanoon
Read ORDER of the Supreme Court!
Govt. to file Affidavit within 2 weeks stating:
1. the stage at wch Committee is deliberating the matter;
2. the estimated time within which the Government will
ultimately come out with its policy decision. @coindesk
@Cointelegraph
77 7:16 PM - Oct 26, 2018
25 people are talking about this
The committee, as noted, was established in spring 2017, and is headed
by Subhash Chandra Garg, secretary at the Department of Economic
Affairs, with members including SEBI chairman Ajay Tyagi and RBI
deputy governor BP Kanungo.
After almost seven months of lingering uncertainty over the future
fate of crypto in India, much havoc has already been wrought.
In mid-October, Zebpay registered its office on the crypto-friendly
island of Malta, providing trading services for residents of 20
countries, excluding India — a move that arguably bears out tech
investor Tim Draper’s April warnings that RBI’ stance would cause a
brain drain and prove to be “a huge mistake.”
Kashif Raza nonetheless considers that “the court’s intervention
will help the industry have some clarity on this matter, positive or
negative, whatever the outcome… right now there is a lot of
confusion, so the step taken by the Supreme Court is very good news
for the industry.”
Prashant Mali concurred, and added his own specific proposal that:
“I feel India should declare crypto to be a commodity, with
SEBI regulating in equal measure. The RBI and government may
have their own issues, but killing innovation is not good when
‘Digital India ’ is purportedly a flagship program. The more
the government keeps crypto in a lawless vacuum, the more it
will be used in the black market and in hawala* transactions.
This also means a loss of tax and revenue for the government,
not to mention the loss of the progressive attitude for which
it is known.”
*Hawala is defined as “an alternative remittance channel that exists
outside of traditional banking systems,” which relies heavily on trust
between brokers.
In its latest annual report, SEBI in fact revealed it had been
organizing study tours to help its officials “engage with
international regulators and gain deeper understanding of the systems
and mechanisms” of crypto and initial coin offerings ( ICOs ).
Recent reports have further indicated the government is mulling a ban
on the trading of anonymity-oriented cryptocurrencies, leaving open
the question of whether or not crypto trading more broadly may be
permitted. The question remains moot. Local innovators can only hope
that such inklings of proactive engagement will translate into a bold
and progressive final verdict come November.
“ATM” were arrested in the city of Bangalore under criminal
charges, in a case that has shaken the local startup community and cast
a spotlight on the lack of clarity surrounding “the law of the land”
in regard to crypto.
While the official Freedom of Information Report (FIR), detailing the
charges against the men, is not in the public domain, the mainstream
media has reported that they were booked under serious criminal
charges, including criminal conspiracy, cheating, and forgery.
From the gravity of the alleged charges, you’d be forgiven for
assuming the suspects were deceitful fugitives, yet they are two of the
co-founders of the country’s first cryptocurrency exchange, Unocoin.
Described by Kashif Raza, of the local blockchain advisory duo
“Crypto Kanoon,” as being among India’s “brightest” tech
pioneers, and an “icon of the crypto industry.”
Their high-profile arrest and remand in police custody for seven days
thus carries undeniable symbolic clout, perceived as being tantamount
to putting innovation itself behind bars.
Cointelegraph spoke with Kashif Raza to unravel the story, as well as
consulting with local cyber expert lawyer, Prashant Mali, whose
periodic interjections, “yeh kahan se aa gaya?” (“where did this
come from?”), encapsulate the local crypto community sentiment in
the wake of the arrests.
The backstory
Bangalore, which earned the sobriquet of India’s “Silicon Valley”
for its buzz of tech startups and venture capital firms, is perhaps
unsurprisingly the home turf of the country’s “first entrant into
the Bitcoin industry,” Unocoin, founded in the city in 2013.
Four years after its inception, the startup says it now employs 120
full-timers to run its BTC-INR (rupee) trading platform, to process
transactions worth over 2 billion INR monthly, for over 1.3 million
users.
Recent years were propitious for initiatives like Unocoin, which began
to attract significant venture capital investment in fall 2016, just as
Indians’ interest in Bitcoin was hitting a fever pitch as the
government ushered in its bold — and still highly contentious —
demonetization policy.
In a bid to clamp down on tax evasion, in November 2016, the Prime
Minister, Narendra Modi, announced the invalidation of 500 and 1,000
rupee bills — which accounted for 86 percent of the currency in
circulation at the time. Demand for crypto in the heat of the
“cashless chaos ” of that year soared, catapulting Bitcoin’s valuation
to a 12 percent premium on the Unocoin exchange.
Unocoin president, Sunny Ray, revealed that Bitcoin trading doubled
in the midst of a tumultuous, demonetized economic climate that was
yet further stoked by that winter’s rumors of impending curbs on
domestic gold holdings and possible restrictions on gold imports.
Trading euphoria showed little signs of letting up the following year ,
with popular Indian exchanges, such as Zebpay, forced to cap Bitcoin
purchases in spring 2017 as their supplies failed to keep pace: the
Zebpay Bitcoin Wallet India hit over half a million downloads in May,
eclipsing many of the country’s stalwart banking incumbents on the
Apple app store.
By mid-June, data showed India accounting for 10 percent of the
preceding month’s global USD/BTC trade volumes.
Yet 2017 also presaged an unfolding, increasingly crypto-skeptic agenda
on the part of India’s government and monetary authorities. In
February, the Reserve Bank of India ( RBI ) — steward of the
country’s notoriously strict capital controls — chose to reiterate its
2013 warning against the dangers of investing or trading in virtual
currencies, yet nothing in the statement as of yet went beyond
striking an official note of circumspection.
Then, in March, a member of the ruling Bharatiya Janata Party (BJP),
Kirit Somaiya, characterized Bitcoin as a risk-ridden “hypothetical
currency” before parliament, urging RBI, the Securities and Exchange
Board (SEBI), and the Finance Ministry, to step in as a matter of
“urgent need” to rescue the populace from yet “another big Ponzi
fraud.”
Somayia soon tipped over from alarmism to outright fallacy, when he
falsely claimed that crypto was “illegal ” in ensuing weeks,
dismissing the robust self-regulatory initiatives of the country’s
thriving exchanges as “nonsense .” And he wasn’t the only minister
to do so .
Yet even as politicians whistled the tune of illegality, ASSOCHAM,
one of the country’s most veteran trading bodies, devoted a global
summit to the topic of Bitcoin’s status in India that April.
An Inter-Disciplinary Committee within the Finance Ministry was
formed to proactively investigate the legal status of Bitcoin, and in
May, the government appealed to the public to provide input as it
evaluated the possibility of regulating the market.
Positive glimmers on the crypto regulatory front surfaced that summer,
yet soon lapsed into inconclusive inertia, and from there, to an
increasingly bleak prognosis. An as-yet-undisclosed draft of proposed
regulations was rumored to lean towards a more stringent stance, just
as the failures of Modi’s botched demonetization were widely
becoming incontrovertibly apparent.
With crypto’s future in the country in limbo, Unocoin nonetheless
sealed a partnership with major wallet provider, Blockchain, in
September 2017: the bullish news was paired with signs that RBI was
mulling the issuance of its own digital rupee-backed coin, while
continuing to voice its unease with regard to decentralized, so-called
“private” cryptocurrencies.
In October, tight-lipped officials were still refusing to comment on
the authorities’ evolving crypto regulatory plans, yet the following
month, word of a Chinese-style exchange ban was leaked to India’s
mainstream media.
Even with seemingly implacable negativity continuing to spill out from
central bank officials that November, some were accusing the
government and regulators of inexplicable dithering on the crypto
front; landing the matter in the country’s highest judiciary , the
Supreme Court.
Yet the inauspicious backstage drama and regulatory purgatory did
little to dampen Indian investors’ enthusiasm in the winter 2017
crypto bull run, with exchanges reporting “unprecedented” droves of
as many as 400,000 new traders per month entering the market.
On the cusp of the new year, the Finance Ministry steeled itself for
an antagonistic stance, condemning cryptocurrencies as Ponzi-like
threats to investors’ hard-earned money. The tone would turn out to
be the dominant chord for the rest of 2018, with RBI issuing its now-
notorious circular April 6, directing all domestic banks to extract
themselves from existing relationships with crypto exchanges and
traders “within three months.”
The central bank’s controversial blockade came into force this July,
and has prompted both public and industry-led petitions, with some
appealing to the courts on the grounds that the decision is
unconstitutional .
As the final verdict on the RBI prohibition continues to be repeatedly
stayed by the Supreme Court, the judiciary has now thrown the ball
back in the executive’s court, setting a deadline for the government
to clarify and finally cement its official position on crypto by mid-
November.
Sowing the seeds of confusion
While April 6 is thus well-known as a red-letter day for crypto in
India, the extraordinary welter of half-truths that have circulated in
response to the country’s first Bitcoin “ATM” can in fact be
traced back to February, to the immediate aftermath of finance
minister Arun Jaitley’s 2018 budget speech.
On Feb. 1, the minister addressed parliament, stating that:
“The government does not recognize cryptocurrency as legal
tender or coin and will take all measures to eliminate the use
of these crypto assets in financing illegitimate activities or
as part of the payments system.”
The mainstream press responded at the time by declaring the “end of
the road ,” for crypto in the country: Quartz India cited a local
lawyer who said he expected “a legislative mechanism […] to ensure
that dealing and trading in cryptocurrency is made illegal and to
penalize entities and individuals who are involved in their trade and
circulation.”
The social media echo chamber only compounded the flurry of
misunderstandings:
Anjana Om Kashyap
@anjanaomkashyap
Bitcoin to be banned. Crypto currency illegal in India says
@arunjaitley
#Bitcoin #DigitalCurrency #budget2018
2,910 7:49 AM - Feb 1, 2018
1,267 people are talking about this
Unocoin presciently took pains to clarify a panic-stricken public, as
the price of Bitcoin plummeted from $10,300 on Jan. 31, to around
$9,500 on Feb. 1:
Unocoin
@Unocoin
Based on the #UnionBudget2018 announcement, there is no
change in government's stance with respect to
#cryptocurrency . It is business-as-usual at @Unocoin
#Budget2018
217 10:15 AM - Feb 1, 2018
184 people are talking about this
Unocoin’s claims of “business-as-usual” may, with the benefit of
hindsight, appear overly optimistic.
Yet at the time, all the founders of India’s crypto exchange
triumvirate — Unocoin, Zebpay, and Coinsecure — were attempting
to calm investors and to underscore that “not being legal tender”
did not warrant the FUD-like furore that had erupted. It was, rather,
an alegal classification, which applied equally to traditional stores of
value such as gold.
In the ensuing weeks, a fresh spate of alarmist reports from the likes
of the Financial Times and Quartz again stoked investors’ anxiety by
falsely reporting on the government’s redoubled and “aggressive”
pursuit of crypto tax “evaders.” The action at hand was in truth
simply a “going through the motions” of a pre-agreed plan that had
been announced the previous year.
Fact and fiction continued their song and dance throughout winter
2018, with the latter more often than not appearing to shape the course
of events.
Citibank India banned the use of credit cards to purchase crypto on
Feb. 14, with HDFC applying the same restriction on both debit and
credit card clients in March. That month, two smaller Indian
exchanges, BTCXIndia and ETHEXIndia, announced they would be
stopping trading activities, blaming the “stress” caused to their
businesses by the government’s negative stance.
In its correspondence with clients, BTCXIndia itself compounded the
already loose extrapolations of Jaitley’s words, writing that “as we
heard in the budget speech, the Indian government is discouraging
cryptocurrency trading” — without including the caveat that the
minister had highlighted crypto’s potential financing for criminal
activities as its chief concern.
The former Secretary of Economic Affairs again fanned the flames of
FUD in a media interview March 12, stating that crypto — which is
“created out of a vacuum” — should be banned outright since it is
impossible “to regulate it effectively.”
In a country that had suffered the devastating shocks of 2016’s
demonetization, the verdict of Bitcoin “not being legal tender” had
thus taken on a particular charge, even ahead of RBI’s April action.
‘Necessity is the mother of invention’
In July, with the RBI prohibition now in full force, the country’s
exchanges adopted various strategies: Zebpay preempted the official
July 6 deadline by freezing rupee deposits and withdrawals July 4.
That same day WazirX revealed it would transform into a peer-to-peer
( p2p ) platform so as to avoid in-house crypto-fiat conversion. On July
23, Unocoin itself suspended fiat deposits, until “an alternative
method of funding [would be] identified and deployed.”
Activities that did not depend on banks’ provisions nonetheless
continued on Uncoin: crypto asset deposits were active on its crypto-
rupee trading platform as well as its partner crypto-crypto exchange
Unodax.
At the end of September, Unocoin’s peer Zebpay, announced it would
be shuttering its operations, giving customers just several hours’
notice ahead of the decision coming into effect. The platform cited
the “extremely difficult” recent past, saying that RBI’s “curb on
bank accounts has crippled our, and our customer’s, ability to
transact business meaningfully.”
Unocoin, meanwhile, as Kashif Raza stressed, was “unusual,” and set
to work on an “ATM” machine that would circumvent banking channels
altogether, but still allow users to deposit and withdraw fiat
currencies.
On Oct. 9 Crypto Kanoon was given the go-ahead to pre-empt
Unocoin’s official announcement, posting a photograph of the new
machine to its Twitter handle, with palpable excitement:
Crypto Kanoon
@cryptokanoon
Is this the next big thing in Indian crypto space ? @Unocoin
you have earned respect from the crypto community for taking
this bold step at a time when nothing is clear ahead of
you. #Bitcoin
594 6:23 AM - Oct 10, 2018
283 people are talking about this
The Unocoin “ATM,” installed at the Old Kemp Mall in Bangalore,
was officially unveiled on Oct. 14. It was subject to customary cash
handling restrictions, thus limiting the sums of daily withdrawals and
deposits, and did not accept debit or credit cards in order to avoid
any interaction with the banking system.
A KYC-verified Unocoin customer could enter their user ID and a one-
time password delivered via text message, and deposit INR into the
machine: the funds would be instantly reflected in their Unocoin
account balance, and could be used to buy BTC or ETH, or to place
BID orders on 30 different Unodax-supported cryptos.
Withdrawals followed a similar protocol that relied on SMS
verification, and would need to be initiated on Unocoin’s online
platform before the user could access cash at the machine.
Crypto Kanoon
@cryptokanoon
1st video tutorial on how to Deposit/ Withdraw Rupees (INR)
with @Unocoin 's Crypto ATM. #cryptoatmindia
327 9:20 AM - Oct 14, 2018
164 people are talking about this
In the days after the machine’s unveiling, Twitter was as ever a good
litmus test of an excited public’s response.
On Oct. 18, CEO Sathvik Vishwanath confidently told the Deccan
Herald that two more “ATMs” were planned for Mumbai and Delhi,
with reports of ambitious plans for a total of thirty in the future.
Speaking with the Times of India, he clarified:
“The finance minister’s statement was very clear. He said,
cryptocurrencies are not legal tender in India. He did not say
illegal tender. There’s a huge difference. It only means you
bear the risk of your investment and there’s no regulation for
the industry.”
Vishwanath’s point was reinforced by cyber lawyer, Prashant Mali,
who affirmed in correspondence with Cointelegraph that India has
“neither a law nor regulation directly banning ownership of
cryptocurrency.”
What’s in a name?
While the official press release forthrightly dubbed the new machine an
“ATM,” two of Unocoin’s tweets, dated Oct. 15 and Oct. 16,
struck a note of ambiguity, oscillating as they did between calling the
machine first an “ATM,” and then switching to the more neutral
“kiosk.”
By Oct. 20, the Times of India was similarly noting that Unocoin, as
distinct from its official press release on Oct. 14, now “prefers” to
call the machine a “kiosk.”
Loose media reporting exacerbated the confusion: below is a screenshot
of a Business Standard article calling the machine both an ATM and a
kiosk, and — equally misleadingly — summarizing the machine’s
functions as enabling the “buying and selling” of crypto.
One local crypto journalist reported on his father’s bemused response
after reading an unnamed “Gujarati newspaper,” puzzling aloud:
“How are they selling Bitcoins on an ATM?”
Screenshot of Business Standard’s Oct. 19 article on the Unocoin
machine
By Oct. 20, Unocoin had tweeted:
Unocoin
@Unocoin
Our Machine didn't go well with few mainstream media reports
who projected it under a negative light. The machine is still
under final testing mode and it will be up and running in the
upcoming week. The machine has been temporarily moved from
its original place of installation.
274 8:27 PM - Oct 20, 2018
126 people are talking about this
The name choice was to transpire as having been crucial: virtually all
ATMs in India are governed by RBI, and the central bank outlines
specific provisions for any non-banking entity wishing to operate a
so-called “White Label” machine, requiring their authorization ahead
of installation.
Coupled with the imprecise local mainstream press reporting,
Unocoin’s choice to advertise its invention as an ATM was in
retrospect a significant misstep: as Crypto Kanoon has argued , the tool
was after all highly limited in its function:
“We ask whether any approval is required for assigning the job
of a cashier to an automated machine for deposit/payment of
cash to my customers?”
On Oct. 22, unconfirmed rumors were surfacing on social media that:
Naimish Sanghvi
@ThatNaimish
Rumours coming in from Bangalore. Unocoin exchange's INR
Kiosk being examined by the Cyber Crime.
No comments from Unocoin yet.
19 4:56 PM - Oct 22, 2018
See Naimish Sanghvi's other Tweets
By Oct. 24, news had broken of the arrest of Unocoin’s co-founder
and chief compliance officer (CCO), Harish BV., As corroborated by
multiple local sources, the ATM had not yet been operational ahead of
the police action: Harish was nonetheless briskly whisked before an
ACMM (Additional Chief Metropolitan Magistrate) court, which sent
him to police custody for seven days.
A press statement from the police Central Crime Branch (CCB),
asserted the ATM installation had not received “any permission from
the state government and is dealing in cryptocurrency outside the
remit of the law." Mainstream press accented the police’s claims as
to the alleged “illegality” of the machine, with the Times of India
further reporting that:
“According to police, the kiosk was a platform for Bitcoin
buyers and sellers. Police requested the public not to be lured
by the prospect of making huge profits and invest money in
cryptocurrencies.”
CCB officials were said to have seized the “ATM” itself, “two
laptops, a mobile, three credit cards, five debit cards, a passport,
five seals of Unocoin company, a cryptocurrency device and Rs 1.8 lakh
($2,460).”
The sleuths nabbed CEO Vishwanath the following day, with the Times
report this time citing Deputy Commissioner of Police (DCP) S
Girish’s comments that RBI had allegedly “stated that
cryptocurrencies are illegal.”
Notably, in the case of both arrests, the police had chosen to act
“suo moto” (of their own accord), despite the ATM not even being
functional as of yet.
As noted, while the FIR has not been been formally released, the
Times of India has claimed that the police booked the case under
Section 66 of the IT Act (ITA) (computer-related offences), Section
120b (criminal conspiracy), 420 (cheating), 465 (forgery), 474
(possession of forged documents), and 471 (fraudulently using forged
documents) of the Indian Penal Code ( IPC ).
Prashant Mali has confirmed that “when public order is to be
maintained or if the police suspects a cognisable offence is about to
be committed then they are able to take suo moto action as per Indian
law.” He nonetheless reflected on the seemingly disproportionate
measures:
“Since all the relevant sections of the chargesheet carry
punishment of below 7 years, police as per the law should have
sent notice for investigation, summoned the accused owners of
the ATM, and in the event of their failing to appear at police
station, then they could have have arrested them. The arrest of
the Unocoin directors is just sensationalism on the part of the
media and senior police officers.”
Commenting on the charge sheet, Mali exclaimed in response to section
420 that “no one has been cheated as yet! Nor defrauded. The kiosk
was yet to start functioning.” With regard to “forgery” (465),
“yeh kahan se aaya!”
Moreover, he suggested, if charges of criminal conspiracy (120b) are
indeed pressed, then, given that Unocoin had sealed funding from
multiple venture capital (VC) firms, the VCs themselves could
potentially face arrest for allegedly “financing a criminal act.”
The advocate concurred with Kashif Raza’s view that “the word
“ATM” created a problem for Unocoin,” and was misleading, given
that visas and other payment cards were not accepted.
Mali added that “if “kiosk” had been written, then the
applicability of RBI’s regulation for White Label ATMs would have
fallen into a grey area of the law. If however, money deposited in the
kiosks was not accounted for, or was intended to be sent abroad, then
indeed, other prevailing laws would have been engaged.”
Given the “pulse” of the local administration and Indian
government, Mali remarked that Unocoin would have been wiser to first
announce its plans before attempting to proceed with installation.
The nature of that “pulse” was made all the more glaringly apparent
the following day, Oct. 25, when the president of a major Indian
nonprofit trade organization, the National Association of Software
and Services Companies (NASSCOM), was cited by local newspaper, the
Hindu, as saying that, from NASSCOM’s perspective, “it is very
clear that cryptocurrencies were illegal”:
“It is law of the land and hence, we have to work with it. If
we do not agree, we have to go back to the government and
speak about why cryptocurrencies aren’t correct”
Somewhat softening her stance, she added that “the genesis of this
problem lies in the failure of policy making not keeping pace with
rapid technological changes,” saying that “synergizing” the two
would be NASSCOM’s focus.
In response to the startup community’s “backlash ,” NASSCOM was
soon forced to promptly issue an official clarificatory statement
“regarding cryptocurrencies,” tweeting:
NASSCOM
@nasscom
NASSCOM statement - 'Regarding crypto-currencies'
68 6:13 AM - Oct 26, 2018
78 people are talking about this
The aftermath — and future?
As of press time, both Vishwanath and Harish BV have been released.
The former has given a short statement on Twitter, confirming that the
troublesome term of “ATM” was “the trigger” for the police
attention:
Sathvik Vishwanath
@sathvikv
You know the story so far. From my understanding, main
stream media calling crypto assets illegal & comparing our
Kiosk with a bank ATM [that needs RBI perm as it is like a
bank branch] was the trigger. Now that I am out,will try my
best to give clarifications & move on. @Unocoin
429 10:47 PM - Oct 26, 2018
201 people are talking about this
While grim rumblings in the press continue to stoke FUD, the Supreme
Court has given a firm deadline for the Ministry of Finance’s inter-
disciplinary committee to file an affidavit clarifying two points, as
Crypto Kanoon’s post on Oct. 26 indicates:
Crypto Kanoon
@cryptokanoon
Read ORDER of the Supreme Court!
Govt. to file Affidavit within 2 weeks stating:
1. the stage at wch Committee is deliberating the matter;
2. the estimated time within which the Government will
ultimately come out with its policy decision. @coindesk
@Cointelegraph
77 7:16 PM - Oct 26, 2018
25 people are talking about this
The committee, as noted, was established in spring 2017, and is headed
by Subhash Chandra Garg, secretary at the Department of Economic
Affairs, with members including SEBI chairman Ajay Tyagi and RBI
deputy governor BP Kanungo.
After almost seven months of lingering uncertainty over the future
fate of crypto in India, much havoc has already been wrought.
In mid-October, Zebpay registered its office on the crypto-friendly
island of Malta, providing trading services for residents of 20
countries, excluding India — a move that arguably bears out tech
investor Tim Draper’s April warnings that RBI’ stance would cause a
brain drain and prove to be “a huge mistake.”
Kashif Raza nonetheless considers that “the court’s intervention
will help the industry have some clarity on this matter, positive or
negative, whatever the outcome… right now there is a lot of
confusion, so the step taken by the Supreme Court is very good news
for the industry.”
Prashant Mali concurred, and added his own specific proposal that:
“I feel India should declare crypto to be a commodity, with
SEBI regulating in equal measure. The RBI and government may
have their own issues, but killing innovation is not good when
‘Digital India ’ is purportedly a flagship program. The more
the government keeps crypto in a lawless vacuum, the more it
will be used in the black market and in hawala* transactions.
This also means a loss of tax and revenue for the government,
not to mention the loss of the progressive attitude for which
it is known.”
*Hawala is defined as “an alternative remittance channel that exists
outside of traditional banking systems,” which relies heavily on trust
between brokers.
In its latest annual report, SEBI in fact revealed it had been
organizing study tours to help its officials “engage with
international regulators and gain deeper understanding of the systems
and mechanisms” of crypto and initial coin offerings ( ICOs ).
Recent reports have further indicated the government is mulling a ban
on the trading of anonymity-oriented cryptocurrencies, leaving open
the question of whether or not crypto trading more broadly may be
permitted. The question remains moot. Local innovators can only hope
that such inklings of proactive engagement will translate into a bold
and progressive final verdict come November.
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