The Supreme Court of India decided on July 3, 2018, to deny a temporary stay in the petition against the Reserve Bank of India’s directive forbidding banks to deal with crypto exchanges.
RBI’s Directive Shocks India
Although the blockchain and cryptocurrency industry seems to be blooming everywhere, India’s financial authorities don’t seem to recognize its enormous potential.
The Reserve Bank of India (RBI) had announced on April 5, 2018, that Indian banks are no longer permitted to provide their services to cryptocurrency exchanges. Under this directive, the traders must sever all their ties with crypto exchanges by July 5, 2018. The regulator had made that decision after two days of deliberation of its monetary policy committee. The news came as a rude awakening for millions of Indian citizens involved in crypto trading.
The RBI had previously stated that it doesn’t recognize dealing in cryptocurrency and that it considers it risky:
“Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time.”
Upset, many exchanges consequently filed an appeal to this decision at the Supreme Court. The Court first decided to hold the hearing on July 20, but given the RBI’s deadline, it instead moved the hearing to July 3, 2018.
The exchanges were all the more irked by RBI’s confession that it had formed no internal committee on cryptocurrency and conducted no research before making the controversial decision.
Exchanges Turn To P2P Trading as Alternative
In the meantime, Indian crypto exchanges, including WazirX and Koinex, chose to begin peer-to-peer (P2P) trading, in their bid to keep the industry alive.
“If banking is something the exchanges are not allowed to do, then the solution is something that direct banking doesn’t come in,” believes Nischal Shetty, Chief Executive at WazirX.
P2P trading is an alternative method of cryptocurrency trading in which the buyer and seller can do business directly with each other. At the same time, the role of exchange, for example, WazirX, is to become an escrow account that holds the cryptocurrency during the transaction. It does this to prevent fraud.
P2P Service, in general, refers to a decentralized platform in which two individuals interact directly with each other, without intermediation by a third-party. In this case, WazirX ensures the crypto transaction goes without a glitch.
As Shetty explains, the exchange has created an escrow system in which before you sell some amount of bitcoin, you first deposit it in their escrow. After the buyer pays rupees to you and you confirm the payment, WazirX will release the crypto to the buyer.
Another exchange has done the same. We’re talking about Koinex, which created its escrow solution even before WazirX and named it Koinex Loop.
In the words of Koinex’s co-founder and CEO Rahul Raj, Koinex Loop is a “Peer-to-Peer network for digital assets transactions using fiat currency.” Loop provides a blockchain-based collateralized escrow, just like WazirX.
As Raj explained:
“ The network will allow users to exchange their fiat currency into a digital asset and vice versa without compromising the seamless experience that they are used to.”
Not only will the Koinex Loop be available via its web platform, but the company will also provide a mobile app.