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A Crypto Kind of Year: Regulating India’s e-Retail Markets

December 10, 2018

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Arun Jaitley is having a crypto kind of year. First he popped up with dramatic effect in this year’s Union Budget Debate, sending the price of Bitcoin spiralling worldwide, and the Finance Minister had barely sat down at this week’s meeting of the Financial Stability and Development Council when the “B” word came up again. Sir Humphrey Appleby (of “Yes Minister” fame) would surely have been proud of the gloriously opaque press release issued after the meeting: “The Council has deliberated on the issues and challenges of crypto assets and currency and was briefed about the deliberations in the high-level committee chaired by the Secretary of Economic Affairs to devise an appropriate legal framework to ban use of private crypto currencies in India”. That rarest of political beasts: a limp statement with a punch.

But what does it actually mean, and what does it mean in particular for the future of e-retailing in India?

The subcontinent’s lawyers are already enjoying a feeding frenzy on crypto currency regulation (more of that in a moment), so this type of woolly language is unlikely to stifle further legal challenges. What, for example, does “use” mean? Will it be acceptable to hold a crypto currency if you don’t actually use it? Will it be like having a gun under the bed with a vague intention of using it to shoot ducks out of season, or more like having a gun in a holdall on your way to rob a bank? Nobody knows.

What we do know for certain though is that India’s financial sector is unlikely to be comfortable with this level ambiguity in such a key policy area where, like their counterparts worldwide, the subcontinent’s banks have for some time been edging closer to accepting (and investing heavily in) a Blockchain based e-retail market, and crypto currencies are an integral part of the Blockchain platform. That’s why Bank of America’s Kash Rangan stated last month that Blockchain technologies will eventually be embedded into every software platform globally; and its why IBM and Microsoft already have Blockchain offerings on the market, and why in India the likes of Apurva Enterprises (a building supplies company lets remind ourselves) is following their lead and investing heavily in its Tradescrypt affiliate.

And its also why the Reserve Bank of India (along with everyone else) has been expecting the subcontinent’s Crypto Currencies Panel (“CCP”) to come up with a workable regulatory regime for the sector by its (self imposed) deadline of July this year. That’s why in February the Reserve Bank restricted future crypto dealings engagements in the firm belief that the CCP would have done something by the beginning of August. In fact it has done nothing and this bewildering inactivity seems to the real behind this week’s consignment of crypto fudge from the Financial Stability and Development Council.

But don’t bet against the fudge melting away as quickly as a Chequers Brexit.

First of all, the simple fact is that Blockchain and Crypto Currencies now have too much potential simply to be ignored which is the reason why IBM and Microsoft have been investing so heavily in the technology, and India alone has more than 6 Million crypto currency users: all of them ready and willing to deal with more or less whatever platforms these behemoths have to offer. The market is simply way bigger than any quick political fix (whatever its flavour), and as Milton Friedman so ineloquently put it: you can’t buck the market.

Secondly, the very public failure of the CCP to come to a conclusion by July rapidly caught the attention of all those voracious lawyers (acting for Indian Crypto Exchanges), and they’ve brought an action before the Supreme Court asking for an order that the Reserve Bank of India should “clarify its position”. The Court ordered last week that the Minister should file an affidavit doing just that by the end of next week. This is most likely the real reason behind the statement issued from New Delhi.

The deliberate vagueness of the statement’ language seems not so much intended to be market resilient as to buy the Government more time to arrive at a final position before going back to Court. Not only that, the more astute observer may already have spotted that the Securities and Exchange Board of India has now dispatched delegates to Japan, Switzerland and the United Kingdom to study and make recommendations on regulatory structures relating to cryptocurrency trading. Why do that if crypto currency trading is never going to happen?

And finally, just take a look at the sheer scale of e-retail markets on the subcontinent: projected to have more than 50 Million trading participants by the end of 2018 and with sales in the two weeks running up to Diwali alone running at over $2.3 Billion. Between them Amazon and Flipkart have spent £54.01 Million on Diwali related promotions, Amazon has invested $79.8 Million this quarter in its digital payment arm and Flipkart invested $65.8 Million in its own payments wing (PhonePe). Amazon has also sold well over 1 Million mobile devices in India in the last six months, not just to the urban middle class but in rural and semi rural areas as well, helping fuel the rise of an entirely new electronic economy on an entirely new scale. As Milton Friedman would probably say, that’s an awful big market to buck.

It might just be unbuckable…

Nobody understands this market potential quite like Red Ribbon, which has placed India at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on a pool of established expertise on Indian market conditions, Red Ribbon Asset Management offers a unique opportunity to share in that potential.

Red Ribbon CEO, Suchit Punnose said:

Whatever the virtues or otherwise of Bitcoin, and everyone has their own views, the role crypto currencies will have to play in the development of future Blockchain technologies is something regulators simply cannot ignore. And that applies particularly to India, where the opportunities offered by its rapidly expanding e-retail markets are likely to be exponentially greater than in most other economies worldwide. Together Blockchain and e-retail combined are a formidable agent for growth.

So I have no doubt that Blockchain technologies will ultimately change the way we all do business: it’s a question of ‘when’ and not ‘if’. And on that point I agree with Kash Rangan of Bank of America, at some stage these technologies will become embedded in every software platform so India is now in an almost unique position to take a lead in its global regulation. I will be looking with interest to see what happens next…

 

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India as Blockchain Capital of the World

September 14, 2018

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In June this year at the London Business School, the Chairman and Managing Director of Egypt’s Commercial International Bank anticipated his Regulator’s response to any attempt to pursue the Blockchain strategies he and others (rightly) believe to be key to the future of international banking: the Regulator, he smiled, would shoot him. Hisham Al Arab is no stranger to firearms, having fronted down an armed contingent of workers in his banking hall in the aftermath of the Arab Spring, but it’s unlikely he would take any such threat from the Regulator seriously. But he was right to highlight the significance of regulatory drag as a key feature of emergent Blockchain technologies, and also right to look across admiringly at burgeoning technology markets in India, which are rapidly making the subcontinent the Blockchain capital of the world.

All of which might seem a little odd given the Reserve Bank of India announced on 6th April this year that the subcontinent’s Banks should stop offering services to crypto exchanges and crypto related businesses. That, however, was merely a strident coda to last year’s demonetization policy and on closer analysis the directive was always going to be more of a pause than a full stop. Since the Union Budget was delivered in April, India has made huge strides to becoming a world leader in Blockchain technologies and no Government (or Central Bank for that matter) can afford to ignore this practical reality. Mr Al Arab was right to be envious.

And of course Blockchain technologies have profound implications for Central Banks too as they strive to remain relevant in a digital world. The Reserve Bank has since adopted a much more nuanced and structured acceptance of digital business platforms and, crucially, their regulation all of which is helping bring to fruition Prime Minister Modi’s vision of a digital subcontinent: what is now being characterised as the Internet of Value.

For example, the Modi Government is currently backing an initiative using Blockchain technology to manage its own agricultural subsidy programme. The National Institute for Transforming India, an influential Policy Think Tank on the subcontinent, has now signed an MOU with Narmada Valley Fertilizers that will both improve the efficiency of distribution of resources in this hugely important sector and also improve transparency of the overall subsidy process. That has been made possible through Blockchain technology.

And hard on the heels of this announcement Telangana’s Technology and Electronics Department also last week signed an agreement to launch India’s first Blockchain District: structured specially to incubate start ups in the sector as well as developing a variety of strategies designed to resolve market issues including future regulation. Telangana’s IT Minister wasn’t coy in expressing the scale of his ambition: “It is a huge step in reskilling the future. Blockchain experts will be our crown jewels, working together to make India the Blockchain Capital of the World”.

And as a still further example, more than 24,000 farmers in Guntur have bartered their land as part of an initiative by the newly formed state of Andhra Pradesh to pool 53,000 acres for construction of a new capital city at Amaravati: the whole complicated process is based on Blockchain technologies which are streamlining every stage of the transfer process, circumventing the existing creaking system of paper based land registration. The new digitised registry also reduces the risk or malevolent intervention and increases transparency. It would not be possible without Blockchain.

So a lot has changed since April. The Government, far from distancing itself from the technological economy, is now fully embracing the required changes and putting its full weight behind India’s Blockchain revolution…and it won’t need a gun to get its way.

 

Red Ribbon CEO, Suchit Punnose said:

I think we were all a little surprised at the Central Bank’s announcement in April this year, delivered shortly after similar comments were made by the Minister of Finance as part of the Union Budget debate (no surprise there), but as the article rightly points out this was not so much a policy imperative as a straw in the wind. The Minister and the Bank were in truth putting down a tough marker on their resistance to crypto markets becoming an outlet for money laundering after demonetization, and quite rightly so. But neither Government nor Bank can afford to ignore the importance of the Blockchain sector.

Events since April have proved that they haven’t in the slightest ignored its importance.

With initiative after initiative now being actively supported and indeed promoted by the Modi Government, there is every reason to believe India will indeed become the Blockchain capital of the world. Blockchain technologies are steadily and irreversibly being placed at the heart of the subcontinent’s powerhouse economy.

As I have said before, there is no doubt that the key innovations Blockchain has to offer will fundamentally change the way that we all do business in the future and I’m very proud that Red Ribbon will now play a part in that process. As the article rightly says, India is now at the forefront of key developments in the Blockchain and Crypto Currency sectors and I want our investors to be able to share in the exciting opportunity that offers.

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India’s Blockchain Revolution

August 16, 2018

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The social philosopher Slavoj Zizek thought money was a problem with most modern markets: not the lack of it, but that we have to use it at all. Zizek thought coins and cash, what economists call “fiat currencies”, were undermining social engagement between buyers and sellers, relieving them of the burden of setting their own terms without recourse to an intermediary (including cash). And if that all sounds a bit far fetched, just call to mind the toe curling reticence of your average European tourist who is driven to negotiate face to face with a Levantine carpet salesman or the same tourist trying to buy petrol abroad when the pump is worked by an attendant: how much easier to have a clear price tag attached to a reliably defined product. Then we wouldn’t have to talk together at all. Of course that’s an extreme position and we’ll all have our own views on the strength or otherwise of Professor Zizek’s argument, but at heart it neatly exemplifies the key challenge confronting the Blockchain revolution. Fiat currencies and commercial intermediaries of all kinds will have little or no part to play in a Blockchain World, and that will fundamentally change the way that we all do business.

Blockchain technologies have a unique and broadly unparalleled potential to remove all economic intermediaries from economic transactions. In theory sovereign based monetary systems (fiat currencies in other words) will give way to more adaptable and universally acceptable crypto currencies; banks won’t be required to clear funds so will play little part in completing transactions, and a whole slew of internet intermediaries from price comparison websites to international brokerages will simply cease to exist. Instead Blockchain will enable the supplier and consumer to be placed in direct touch with each other: talking together over the Internet.

So how is that all going to work?

Well, imagine a (hypothetical) spreadsheet, an enormous spreadsheet that records a near infinite number of transactions and is endlessly getting bigger across a chain of individual computers across the world. This ledger is not designed to “close off” data in the hands of any single user (like a bank) or to store the data as it grows: its function is to keep the data open to all, update the data series and ensure its overall integrity. That, in essence, is what Blockchain is all about: a universally shared store of constantly evolving data that can be updated and reconciled. Nothing is stored in any central location; everything is public, easily verifiable and available.

So in any commercial transaction conducted on a Blockchain platform, there will never be a central intermediary like a Bank or a Government agency (or at least there is no need for one) because nobody controls the data except for the parties to the transaction themselves. Blockchain enables full end-to-end implementation of transactions (including validation and authorisation of counterparties). No wonder then that former US Treasury Secretary Larry Summers was enthusiastic about its future:

Is Blockchain technology going to be fundamental? I think the answer is overwhelmingly likely to be yes”.

Identifying a sufficiently resilient platform is obviously of crucial importance in all of this, given Blockchain is a decentralised system with no regulating agency having control over all of the material data. The market has not been slow to react with several platforms that tick all those boxes and as you might expect from the fastest growing large economy in the world, India is at the forefront of the process.

Thirty Banks on the subcontinent have already launched projects for exploring and implementing segmented platform solutions based on Blockchain technology all of which are proving robust and verifiable: including platforms for public sharing of KYC data, streamlining loan syndication procedures and securing real time trade finance. Yes Bank has launched a Blockchain platform to digitize vendor-financing issues on behalf of Bajaj Electricals and ICICI Bank has also introduced international trade finance and remittance platforms using Blockchain. And as a good example of what can be achieved in terms of transactional speed, look no further than the platform recently launched by Kotak Mahindra Bank that reduces the time taken to issue a letter of credit from 30 days to 2 hours.

Whilst other developed economies, and particularly the Federal Exchange in Washington seem to hesitate in embracing Blockchain as part of the new economic order, it would seem that India is already grasping the opportunities it offers with both hands.

 

Red Ribbon CEO, Suchit Punnose said:

I watched with interest earlier this year when apparently throwaway comments made by India’s Finance Minister in a debate on the Union Budget caused the value of Bitcoin to soar on international exchanges. It seemed to me then that whatever the virtues or otherwise of Bitcoin, and we all have our own views on that, the global reaction sent a strong message of support for India as a future powerhouse of the Blockchain Revolution.

I have no doubt but that the innovations Blockchain has to offer will fundamentally change the way that we do business and I’m very proud that Red Ribbon will now play a part in that process. As the article rightly says, India is now at the forefront of key developments in the Blockchain and Crypto Currency sectors and I want our investors to be able to share in the exciting opportunity that offers.

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