The Indian Crypto Space is Evolving for Better

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Last month, we discussed the surge of crypto mining centers in the United States prompted by the ban on cryptocurrencies and mining in Russia and China. In addition, we also highlighted how India could also seize this opportunity.

A robust cryptocurrency ecosystem would be ideal for India to generate new job opportunities and attract investments. Yes, there are several hurdles like regulatory uncertainties and underdeveloped infrastructure. But, if we overcome those challenges, India has the potential to become the world’s crypto epicenter (1). 

However, cryptocurrency also brings tons of questions about the Indian government proposals, scalability, profitability, and the market’s future. 

These questions don’t have any straightforward answers, and that’s why we spoke with Nischal Shetty, Co-founder and CEO of WazirX, India’s leading cryptocurrency exchange (2). He sees recent developments in the crypto space as the key stepping stones for where India should go next.

Crypto Mining Adoption is Unlikely to Preclude

Amid the rising wave of miners to the US, reports emerged suggesting that crypto mining may not be profitable in the upcoming years (3). And anyone in India looking to start crypto mining is likely to be disappointed. 

However, advocates believe any miner can profit if the cryptocurrency’s price exceeds the cost to mine them. In addition, several factors determine the profitability of crypto mining. It includes the cost of electricity to power the mining machines, the price and availability of machines, and mining difficulty, among others. 

“There is a limitation on how much Bitcoin, for instance, can be produced at a time. When more players enter the market, the profitability will drop because of increased mining difficulty,” says Shetty. 

“And considering the extreme computer power requirement and its environmental impact, blockchains like Ethereum and newly built blockchains are all shifting towards the proof of stake model, away from energy-intensive mining rigs.”

As the adoption and network of cryptocurrencies expand, mining becomes more complex because of increased difficulty for block validation. In turn, it needs higher computation power at increased power consumption. It creates a scenario that is not ideal for the long-term growth of the crypto ecosystem.  

Therefore, Ethereum and other blockchains developers started working on the PoS mechanism to reduce energy consumption and address other issues like network scalability. 

“Yes, that means proof of work mining will be less widely adopted; but it doesn’t mean miners won’t be able to make profits,” says Shetty, adding that miners can move to other chains still using the PoW model or start staking. 

Since blockchain technology is still in its nascent stage, it is impossible to predict how technology will evolve in the next decade or two from now on. However, there is one certain thing. We will have more projects implementing different consensus mechanisms (in a healthy competition) to find that one perfect system that works for all.

There will always be other profitable chains to mine. However, Shetty cautions that potential newcomers need to be more considerate of these barriers. 

Unclear Crypto Taxes are Making Things Awkward

In the Union Budget 2022, our finance minister, Nirmala Sitharaman, announced a 30% tax on cryptocurrency income. 

While sharing his thoughts on the development, “it was a positive move for the Indian crypto industry, an indication towards the government recognizing crypto assets. However, an outright 30% tax on crypto-assets is concerning.” 

Shetty recognized two major concerns with this move. He believes that the compliance of 30% tax and 1% TDS needs to be smoothed out. 

While it doesn’t mark any changes for investors who already fall under the 30% tax slabs, it is a huge blow for others, particularly the 18 to 25-year-olds, the biggest investor bracket of the Indian crypto space. These young investors are mostly college students or those who have just started working. 

His second major concern is the 1% TDS on payments made for every crypto transaction. Though it keeps track of crypto transactions happening in the country, it is a nightmare for active traders.

Since day traders make several trades every day, often with small margins, the TDS payouts volume could be substantial, and this exercise may need considerable time and effort. 

While dealing with TDS is straightforward in any other transaction, things are a bit (a lot, really!) tricky when it comes to crypto when people are trading on both international and national decentralized exchanges. It appears that crypto investors are waiting for a guideline to manage TDS before it comes into effect from July 2022. 

Meanwhile, Blockchain and Crypto Assets Council (BACC), the industry body representing the cryptocurrency market in India, has reached out to policymakers about the complications associated with 1% TDS on all crypto transactions. Their overwhelming view was that it could dent crypto trading volumes and drive small traders towards P2P trading and decentralized exchanges (4). 

Since most crypto exchanges, including WazirX, make a huge chunk of their revenues from frequent traders, their liquidity may disappear as soon as the TDS law comes into effect. Again, it might lead Indian exchanges to go back to the P2P model and force buyers to deduct TDS from the total payment. 

Nonetheless, he is positive that the government would make amendments once they see how reducing the tax bracket would increase their revenues by encouraging more people to enter the space. 

E-Rupi is a Game Changer for the Indian Economy

As digital payments became prominent in India, with UPI witnessing enormous growth, the government has decided to leverage this infrastructure to make India a digital economy. 

The Indian economy, which has always been cash-dependent, has taken its first step towards digital currency with the e-Rupi platform launch. While much remains to be done, the Indian government aims to accelerate digital adoption and decrease the cash to GDP ratio.

Nonetheless, this development will have a massive, positive impact on the Indian economy.

“I believe e-Rupi will be a game-changer for the Indian economy, especially with regards to financial inclusion,” said Shetty. 

“You see, even today, India has about 190 million adults without a bank account, and out of the total unbanked population, at least 30 million+ have smartphones. This is where e-Rupi will cause a disruption since, unlike UPI, one doesn’t need any internet banking, debit, or credit card to use it,” he explained. 

NPCI developed the e-Rupi platform with the Department of Financial Services, National Health Authority, and Ministry of Health and Welfare to digitally connect beneficiaries and service providers, making it a personal purpose-specific payments platform (5).

It securely conducts transactions by keeping beneficiaries’ information confidential and being trackable by the issuer. We can also compare it to a QR-based or SMS string-based prepaid voucher redeemable at specific centers and authorized by a verification code. 

“Digital INR is a catalyst to boost financial inclusion in India, and one of the biggest advantages it offers is the penetration of digital transactions, which has also been a focus on fintech,” said Shetty. “Fintech, which has already emerged as one of the prominent enablers of extending financial services to the underserved, we can now cast a wider net with e-Rupi.”

With the benefits like wider inclusion and more data, e-Rupi is welcomed by the financial services industry. In addition, with a new contactless and cashless digital payments platform, we can expect to see accelerated growth for the sector. We will also use this digital ecosystem to reduce the current tech divide between the urban and rural populations. 

“This flexible and scalable framework will pave the way for the use of e-Rupi in public, private, and corporate setups. And as more people start digital transactions, it will build a massive financial footprint, leading to the advent of more financial services and products tailored to the needs of particular and previously untapped market segments,” clarified Shetty. 

In other words, “as more people adopt tech-driven platforms like e-Rupi, it will create the stepping stone for the success of CBDC (Central Bank Digital Currency). Hence it will also end up mitigating fraud risks, reducing settlement issues in the banking sector, and increasing transaction efficiency without any third party.”

Resolving Blockchain Scalability Issue

Last month, Shetty launched a new Web 3.0 platform called Shardeum to tackle one of the biggest issues of Web 3.0 platforms: scalability (6). 

“Scalability is one of the significant obstacles to widespread decentralized adoption as the present blockchain infrastructure is expensive and slow. And as major blockchain networks become slower with the growth in user numbers – network congestion, it also becomes more expensive to maintain.”

These storage constraints and expenses or gas fees associated with cryptocurrency transactions have led to scaling issues (7). Shardeum aims to solve this issue by sharding the blockchain, dividing it into smaller parts called shards, and further distributing the processing burden.

“Instead of focusing on sustainability with increased transaction fees, Shardeum is a blockchain that grows with the number of people, maintaining low fees and faster transactions,” said Shetty. 

“This is an innovative tech which has never been applied on a decentralized platform that supports more than a billion people,” he added.

Further, Shetty explained multiple use cases of Shardeum, including:

  • P2P Transfers: Shardeum’s innovative architecture enables immediate finality and fast throughput, encouraging more peer-to-peer transfers and digital asset exchanges on the network with lower transaction costs.
  • DApps: Decentralized Applications can be built on Shardeum irrespective of the underlying codes. Existing Ethereum apps will also work seamlessly on Shardeum through EVM, Ethereum Virtual Machine, which provides developers with a different and accommodating experience.
  • DiFi: Decentralized finance protocols for lending, borrowing, trading, and other activities can be designed, with the Shardeum network providing transparency, accessibility, fairness, and freedom.
  • NFT: In the future, Shardeum plans to develop its own version of NFTs and build a bridge to transfer such assets between other blockchains.

According to our conversation with Shetty, Shardeum is looking at an alpha launch by April and opening up to everyone by the end of 2022. 

The project plans to use PoS and PoQ (Proof of Quorum) as a consensus and a native token called SHARD (SHM) for running transactions on the network, running DApps, incentivizing validators, and more. 

“With Shardeum, we are aiming to make crypto affordable for everyone without compromising the core principles of decentralization, allowing for global-scale democratization. We look at Shardeum as an infrastructure on which Web 3.0, the next iteration of the internet, will be built.”

It is an Excellent Time to Jump on Crypto Bandwagon

The global crypto market continues to skyrocket, with more people worldwide, including India, diving into the market (8). 

More than 5 billion people are using the internet worldwide, and only about 300 million are on the blockchain. However, as we see more growth in the crypto space, more users will come on board, and it would help blockchain solutions to enter the mainstream.

While exact user figures for cryptocurrency owners are not available, estimations suggest that the user base of all cryptocurrencies worldwide has increased by over 190% between 2018 and 2020 (9). And over the next few years, we can expect a 3x to 5x jump in user numbers to reach the 1 billion mark (10). 

“I believe that’s what makes the recent developments in the Indian crypto space attractive. Compared to a decade earlier, there is less risk with cryptocurrencies and blockchain solutions. It offers a large growth window, especially for early movers,” said Shetty. 

“Despite the progress made, the industry is still new and growing, which means there will be plenty of opportunities for new players to enter and for existing players to extend their offers,” he highlighted. 

We ended the conversation with Shetty explaining that it is an excellent time to jump into the bandwagon and take advantage of the massive opportunity blockchain offers now that the initial fear is gone!

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Rucha Joshi, currently managing a team of over 20 content writers at TimesNext is fueled by her passion for creative writing. She is eager to turn information into action. With her hunger for knowledge, she considers herself a forever student and a passionate leader.

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