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A Small Risk With Peer to Peer Exchanges No one is Talking About

Remember December 13, 2017? No, not because Bitcoin was on its way to $20000. Think again. I’ll give you a hint. It happened in India and it made news worldwide. Figured out? I am talking about the Income Tax Surveys that all the cryptocurrency exchanges were a target of. Remember now?

After those surveys, the IT department carried with them the details of all transactions that took place on the exchange. Almost all exchanges like Zebpay, Koinex, Coindelta, Unocoin, Throughbit and many more had to comply. Based on the data acquired, the IT department even sent notices to High net-worth individuals.

Fast forward to today. RBI’s banking ban is effective. Major exchanges have already shut down deposits and withdrawals of INR. Some of them are are launching their own peer to peer exchanges.

We have discussed numerous times and we keep on debating what’s right and what’s wrong with them. But there is one thing that no one really talks about.

The Risk of Indian KYC based P2P Exchanges

I had been sitting on this thought for over a week. Spoke to many people from different domains and finally decided to write this. If history has taught us something in India, it is that government organisations are powerful. Powerful enough to make things difficult for people, like the Banking ban made trading in crypto tad bit difficult.

With exchanges like Koinex, Coindelta, Giottus and WazirX having or launching their own P2P exchanges for KYC complied users, we must ask one question.

Can RBI acquire your Trade history?

The first question to ask is that can RBI, if they want to, acquire the details of the transactions that took place on P2P exchanges in India like the IT department did?

“Justifying the move is for user protection, they can”, says Varun Sethi, a lawyer and RTI activist.

Not just the trade history, RBI can also acquire the bank accounts details of the traders who used these platforms to trade.

According to Tushar Patel, a financial planner at Crowdfire and WazirX exchange, RBI cannot issue directions to exchanges. They can only do it for the entities regulated by them like banks. RBI is not a law enforcement agency, it is a regulator. Patel says there is “no chance” for RBI to seek information from exchanges.

Mohd. Danish, a lawyer who regularly shares opinions on Crypto regulations in India says that all RBI was able to do is close one door and open another for exchanges to operate freely.

Coin Crunch was the first to report the moves taken by exchanges to circumvent the RBI banking ban. We also shared all the possibilities of trading even after RBI ban. The news is recently being reported by various popular news outlets too. I am sure, the news haven’t gone unnoticed by the RBI officials.

Many members of the community believe that RBI can indirectly influence other agencies to force the exchanges into providing transactional data. Exchanges have to comply if its a government body asking for it.

What will RBI do with Banking Data?

Let us go with the worst case scenario and assume somehow RBI is able to gather the transaction and bank accounts details from exchanges. What happens then?

No one will be penalised, Sethi and many other sources that spoke to Coin Crunch believe.

The only move they may take is forward the details to respective banks and ask them to close the accounts of these traders. After-all the RBI diktat includes both businesses and individuals,

Entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs.

RBI Circular

So, there is a chance, albeit small, of RBI taking this up, if they notice a significant amount of trades taking place via various Peer to Peer exchanges.

Multiple exchanges have not responded to a request for comment from coin crunch.

Crypto May Soon Be Regulated

Now that I have shared what some of you might call FUD, let’s talk about the other news circling in the market. For a past few weeks, interestingly after the unsatisfactory response of the RBI to an RTI application came to light, news about the government’s intention to regulate cryptocurrency is doing rounds.

It was discovered in an RTI reply that RBI hasn’t done sufficient research on cryptocurrencies before ring fencing the entities from trading. Only a day later an anonymous source told Cogencis that the Committee setup by GoI is rooting to regulate crypto.

A few days later, the committee head and the secretary of Dept. of Economic Affairs told ETnow that a draft on regulating cryptocurrency is almost ready and will be wrapped up within first two weeks of July.

Yesterday, Quartz, based on yet another anonymous source reported about the Government’s inclination to allow crypto to trade like commodities.

The crypto community is eagerly waiting for a response from the government.

“Let us wait for this much awaited report”, says Vikram Subburaj, co-founder of Giottus crypto exchange. Giottus is one of the very few exchanges that are still accepting INR deposits and withdrawals. The question is, when will the report be shared?

The DEA secretary’s office declined to comment on call and have not answered several emails from Coin Crunch.

Despite the hype, not everyone shares the same opinion about regulations. Danish said RBI is being made a scapegoat in the whole scenario.

What should a Trader do?

Quite frankly. The trader is the safest of all entities right now, that is if you are not laundering money or scamming people. There is no law banning traders from trading. There is circular banning banks from dealing with entities trading crypto.

The worst that can happen is your bank will identify the transactions done for cryptocurrency trade and send you a notice of account closure.

Update: We have updated the article with more inputs received from people working in the area. 

Read more:

Crypto is not a Dead Asset, Traders can Transfer, Use Cash to Trade: Secretary of Economic Affairs



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