On June 18, Facebook unveiled its plans to launch a new cryptocurrency, Libra, next year. This should be a wakeup call for the Reserve Bank of India (RBI). RBI’s views have been quite regressive on the subject, vacillating between woeful under-estimation of the potential of technology, and its unfounded fear of fringe ‘bad-actor’ use cases.
But, first, why is the announcement of Facebook Libra significant, given that bitcoin has existed for a decade now? In 2018, about $2.4 billion in bitcoin transactions were processed by payment processors. This was a tiny sliver of the $2.8 trillion e-commerce sales worldwide that year. In addition, after the early run-up in prices, a certain ‘crypto-fatigue’ has set in, especially among late adopters who flocked to the market in 2016-17.
The predominantly technical nature of the ‘crypto-community’ has also resulted in the average user being faced with a subpar user experience, and with no way to discriminate between a legitimate cryptocurrency with a realuse case, and a get-rich-quick scheme your friend forwarded on WhatsApp. It is this rate of adoption that will be accelerated by Libra’s scheduled launch in 2020, making it a game-changer.
Libra’s advent marks a completely different level of engagement by a corporation with the blockchain. Facebook has about 2.38 billion monthly active users, with about 10% from India. The social media app is estimated to be installed in over 85% of the world’s smartphones.
In the initial founders’ cohort of 28 association members, Libra has forged partnerships with payment giants (PayPal, Stripe, Mastercard and Visa), Silicon Valley majors (Uber, Spotify, eBay), telecom giant Vodafone and even afew venture capitalists. These entities are incentivised to driving users within the massive networks and ecosystems they control towards using Libra as their primary mode of payment.
An Uber or a Spotify, for instance, is incentivised to offer discounts to Libra-users for a ride or a download. These companies, and other partners, are also incentivised to work along with Facebook to influence policy and regulation across key international capitals and financial centres.
Facebook, however, may not be able to deploy Libra in India, given RBI’s current regulations for cryptocurrencies. This is not to advocate that Facebook should be the ‘chosen one’ to carry the world from an era of pre-crypto darkness to post-crypto enlightenment.
Nor can we ignore the fact that Facebook does not exactly have the best track record in terms of its relationship with consumer data. But there is now validation to back up the initial promise of cryptocurrency technology from some of the largest companies in the world.
As is common with power law curves, adoption will be quicker than expected after a certain inflection point. When this happens, it can upend entire industries. Early-movers will benefit immensely. Those who gain are not just platforms, but also users and developers on these platforms. If India were to play a part in this revolution, its approach to cryptocurrency technology will need to nourish this emerging technology.
India’s regulatory approach towards emerging technology needs to be bifocal: keep its focus on risks, but without losing sight of the long-term potential and benefits of innovation. A large part of the current ham-handed approach is due to the fear of the unknown. This can be solved by providing room for innovation inside safe, secure and lowrisk environments.
For starters, the RBI sandbox explicitly disallows ‘cryptos’, in stark contrast to a number of regulators across the world that allow crypto experiments within their fintech sandboxes. There is no harm in allowing innovation, within the direct line of sight of the regulator and at low scale and volumes. That is the only way to run controlled experiments, and learn more about the risks involved, both for industry and regulator.
Further, the crypto-community needs to step up and police itself against emerging risks. This has happened before. Initial opposition to the development of early web technology, such as secure socket layers (SSLs), from regulators and governments was broadly similar to that in the current crypto scenario. There were fears of the enhanced security being misused by terrorists, smugglers, etc.
But technology companies stepped up community and self-policing efforts to actively identify and prevent any misuse. It makes eminent sense to let something like cryptocurrencies flourish in a controlled environment, rather than to completely drive it underground — which will only result in legitimate usage going down, without any real effect on the fringe ‘bad-actor’ use cases.
Indian developers and entrepreneurs are now flocking to Singapore, West Asia, the US and Europe to work on cutting-edge cryptocurrency technologies.
Given how critically such technology interplays with Internet of Things (IoT), machine learning (ML) and artificial intelligence (AI), there is also an undesirable second-order effect to suppressing cryptocurrencies. There also needs to be better coordination across the alphabet soup of regulatory bodies policing the system in India.
There may even be a case for a private-public advisory body, or a Blockchain Advisory Council, with a wide ambit to coordinate, inform and advise policy and implementation across various enforcement and regulatory arms, while liaising closely with the emerging industry.
astogi is managing partner, Ikigai Law, and Ramachandran is CEO, ZPX, aSingapore-based blockchain firm