India was recently ranked fourth by research firm Chainalysis in its 2022 Global Crypto Adoption Index. That puts it ahead of the U.S and China. Still, the country has a long way to go in terms of drafting a crypto policy. In an exclusive interview with The Hindu, CoinDCX COO Mridul Gupta spoke about India’s crypto policy, the Ethereum Merge, and how the industry is moving past coin crashes.
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Edited excerpts from the interview below:
With Ethereum transitioning to a proof-of-stake consensus mechanism, do you see other cryptocurrencies making this change?
Mridul Gupta: I don’t see Bitcoin moving to proof-of-stake model because it’s kind of helping solve for store of wealth in a decentralised manner. Ethereum solves a very different use case, which is building the whole block, on top of which further decentralised projects can be built. So it has to be fundamentally proof-of-stake because otherwise it’s not scalable enough and it burns too much energy. So proof-of-stake, as you move forward, will become increasingly popular because it fundamentally creates an ecosystem which is self-sustained and can grow as you move forward. Proof-of-work will remain there for Bitcoin and you know, few other crypto assets out there, but it will be a few large assets which will be proof-of-work. We will not see a lot of newer assets coming up on proof-of-work.
What are the immediate effects of Ethereum’s transition to proof-of-stake?
MG: So I think number one by major impact which has happened is just the lower energy consumption. But what’s very, very important to understand is how the community around crypto - the crypto enthusiasts, software developers, and Web3 developers - can now participate and fundamentally create value out of the Ethereum ecosystem, which was otherwise not possible. We see how in a proof-of-work environment, if you have to generate value out of the ecosystem, you will end up putting so many servers and so many mining networks, which is a very high capital investment.
Countries like Palau and Bhutan are working with private blockchain companies to develop CBDCs. Can India do the same? What are the advantages or disadvantages of such partnerships?
MG: India is, I think, at a slightly more evolved stage in the world, say as compared to other countries when it comes to the currency and the money movement in the country. So UPI and IMPS have been able to do a lot of things in India which are not possible at any other place in the world and this is a model we are now exporting to the world. So I don’t know, I don’t think the solution is partnering with a public player or a private player. What private players definitely bring to the table is understanding of blockchain, scalability of blockchain, and understanding of tokenomics. I think in India, the view RBI is taking on CBDC, is it seems like it’s being used more for international trade versus internal trade, right? Which is a very different equation altogether. When you do international trade there are so many other parties involved that invariably there will be private partnerships. I don’t think private participation is the question. What kind of private participation will happen, is a question to answer.
When looking at proposals for crypto laws in the U.S., do you think India will come up with any similar regulations for cryptocurrencies and stablecoins?
MG: Unfortunately, we are lagging behind the global ecosystems in terms of crypto policy. At least 30 countries are ahead of India. If you look at U.S, Germany, Dubai, the UK, Singapore, the top 20 or 30 countries out there - everybody has some kind of view on crypto, right? And they are coming up with more nuanced views around the detailing of crypto. And some of this policy has been very beneficial to the ecosystem. Think about the unicorns, think about the software jobs getting created in the world because of crypto, think about the efficiency in the tech industry. There needs to be a more concentrated effort from the government policymakers and the industry in terms of defining the next frontier for growth for crypto in India.
Stablecoins obviously will be an important area to discuss, but I think it’s just a larger policy which we need to answer first. And this is a policy around taxation, a policy around adoption, a policy around a new set of jobs. This is the policy around giving incentives to various global organisations to come and set up their office in India. If not done, I think we will miss the bus on crypto and blockchain and we’ll be lagging in this field which is very, very fast-evolving.
What kind of crypto scams do you most commonly see in India?
MG: I think it’s not so much about scams; it’s about lack of education. And then with this lack of education, people think it is a quick-rich scheme. And most of the things are driven by greed, is what I feel. So when it is a quick-rich scheme, people will come and invariably put their money in a lot of meme coins, right? They would go to an international platform, and buy the coin which is launched, let’s say, two weeks back in the hope it will become 100x more successful.”
“Second what we have seen is that a lot of local players in various countries and also in India, sometimes end up not doing the KYC for the user which basically results in malicious people coming on the platform and asking you funds for giving you crypto. So this is the second big thing which we have seen and to counter that, what we have done on the platform is very, very enhanced KYC which includes your Aadhar check, PAN check, email check, phone number.
Did CoinDCX let go of any employees the way Coinbase and BlockFi did due to the crypto market crash and bear market?
MG: We didn’t let any people go. We are in fact hiring right now, so if you have any references, please do send it our way. Bull and bear will keep happening. The internal motto we end up following is that bear cycle is for building. So you build the right things, you scale the platform, you make it completely fool-proof so that when the bull cycle comes and people participate in the ecosystem, [and] participate in the investment markets, you are ready for that and the system is ready for that, and the compliance is ready for that, and this management is ready for that. We have enough finances to last us for like four years or four and a half years even if the revenue goes completely to zero.
The collapse of TerraUSD [UST] has damaged people’s trust in stablecoins. Can the industry move past that?
MG: Definitely, I think every stablecoin has a different way of putting in the capital so they are actually stable. There are a lot of improvements happening in the stablecoin algorithms. There’s lots of governance changes also happening, which leads to more transparency on the capital front. So overall we are improving the transparency, governance and the innovation around stablecoins. Is it enough to sustain? Let’s say 30x market size and crypto over the next few years. No, definitely not. I think there will be a lot more innovation required. There will be a lot of governance required.
