Cryptocurrency ban may have collateral impact on other blockchain firms in India

New Delhi: Possibilities of a ban on cryptocurrencies in India has become worrisome for the entire blockchain ecosystem. While crypto exchanges and wallets are obviously concerned, industry stakeholders said a ban could affect non-crypto companies too — those who use the blockchain infrastructure to build decentralized applications (DAPPS). For some, this means delays in raising funds, while others are already considering winding up their India business and setting up shop elsewhere.

Stakeholders said that it’s unclear whether building public blockchain-based products will still be feasible if a ban occurs. A public blockchain isn’t managed by any central entity and is instead run by the public. “A blockchain by definition is a decentralised network, and a token is an integral part of any blockchain project. A blanket ban on cryptocurrencies leads one to believe that all types of crypto assets will be banned,” said Ganesh Swami, chief executive officer of Covalent, a blockchain-based analytics company.

Tokens, in this case, are similar to cryptocurrencies like Bitcoin and Ether. However, while Bitcoin and Ether are meant to be traded or for making purchases, other tokens, often called utility tokens are used to provide the public incentive to support a project. Public blockchain projects need computing power, and in the absence of a central body, this power comes from the public who provide the same in exchange for tokens. Decentralized finance apps are an example of such products. Non-fungible tokens (NFTs) used for selling digital art are another example.

Pruthvi Rao, co-founder and CEO of Zebi, a company that provides public and private blockchains, said the company’s business would be hurt if the bill comes into effect, and it has already considered moving out of India. “For someone like us who’s providing data security, and a public blockchain is an integral part of it, a good proposition of our value proposition will go away,” he said. “We will still provide private and enterprise blockchains, but we know that it’s like a half-hearted solution. It’s like you want to buy a Ferrari and you bought a Toyota or something,” he added.

“Though we are not dealing with tokens directly, all our customers do,” said Aniket Jindal, co-founder and chief operating officer (COO), of Biconomy, a blockchain startup. “Our business mainly caters to apps and protocols who are building products (on top of a chain). If something like this happens then there will be fewer apps and developers from India, which impacts our business significantly,” he said.

Rao also said that the technological innovation in the space will “simply stop” if public blockchains aren’t possible. “People who contribute to a project are rewarded (with tokens). If people aren’t incentivized then why would they do it,” said Rao.

“There could be many public blockchain applications unrelated to cryptocurrency, such as NFTs for art, or land records, and so on,” said tech policy analyst Prasanto K. Roy. “And that is a concern. If there is a ban, with criminal liability thrown in, would startups working on blockchain applications — even non-cryptocurrency ones — have to keep watching over their shoulders? Or have to explain to overeager cops why their work is kosher?"

According to Rao and Biconomy’s Jindal, the ban will also make it difficult to find talent in the space. “Our tech team is based in India and it’s (already) getting very difficult to hire and expand the team. Just because developers don’t want to get into this space just because of these rumours. Moving forward, if one wants to expand in India, it will be very difficult,” said Jindal.