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A Brief History of RBI’s Research on Blockchain and Cryptocurrency

I woke up to news from Economic Times about a new unit setup by the Reserve Bank of India for research in emerging technologies like Blockchain, Cryptocurrency and Artificial intelligence. 

Soon after, many influencers picked up the story. Even CCN published an article on it. Nischal Shetty, the founder of WazirX exchange tweeted 

RBI now has a blockchain unit! I hope they get more insights and understand how crypto is the future and there’s no way to stop it. Revolutionary technologies that do good for the world cannot be buried. You can only adopt and adapt #isupportcrypto

@NishchalShetty

Crypto publisher and educators CryptoKanoon asked the question whether this could be a corrective measure?

RBI has reportedly formed a research unit for emerging technologies like Crypto, Blockchain and AI. Can it be seen as a corrective measure for Crypto Community’s sulk over RBI??

@CryptoKanoon

Now, I have always been vocal about my disbelief in anonymous sources. So, I cannot credit or discredit the story. However, what I can do and what I insist everyone to do is Research. This would definitely be a first of its kind approach, by building an entire wing for research in technology RBI can definitely stay ahead in the race, but blockchain isn’t something they are looking at just right now. 

I consider the news to be very positive, if true. Maybe an RTI can get us to the bottom of it, but until I get a response on the RTI, I want to share that RBI has always been Bullish on Blockchain and sceptical of cryptocurrency.

History of RBI’s Blockchain Research

Reserve Bank of India has been aware of Blockchain and Cryptocurrencies for a long time. The first ever advisory published by RBI was back in December, 2013. RBI cautioned traders and investors about the “potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.” 

It was later that RBI dipped its toes into emerging technology we call Blockchain. Here’s a brief history with some important events/reports. 

June 2016: Payments and Settlement Vision-2018

Back in June, 2016 RBI published a report on Payments and settlements with a vision for 2018. Before the demonetisation, RBI had published this report on how it aims to achieve ‘less cash’ based economy by 2018. The report also includes a paragraph dedicated to Blockchain. 

In order to ensure that regulations keep pace with the developments in technology impacting the payment space, the global level developments in technology such as distributed ledgers, blockchain etc. will be monitored, and regulatory framework, as required, will be put in place

Reserve Bank of India, June 2016

January 2017: IDRBT Publishes White Paper on Application of Blockchain in Banking and Financial Sector

The Institute of Research in Banking Technology established by the Reserve Bank of India published a very comprehensive Whitepaper on how Blockchain can be implemented in the Banking sector. The whitepaper goes on to share insights on kinds of blockchain, their implementation, digital currencies and ends with a POC where a customer is able to secure a line of credit from Bank over Hyperledger Fabric based interface. 

Importantly, this was the first time, it was recommended that Indian Rupee can be put on blockchain and issued as a central bank digital currency. Something the media (including us), only highlighted in April 2018 after the Banking Ban was announced. 

March 2017: Deputy Governor on RBI Brushes the idea of Virtual currencies replacing currencies off as ‘Pipedream’

At the ‘Fintech Conference 2017’ RBI’s deputy governor Ram Subramaniam Gandhi spoke about Blockchain technology, the importance of it and possibly a bright future. However, he dismissed the idea of virtual currency killing the actual currency by saying unless an authority supports it, it can never gather the confidence of masses and it is also not truly anonymous as people claim it to be. 

The speech briefly mentions the history of Virtual currency designs by ‘Cyberpunks’ like Timothy May, Eric Hughes, Wei Dai and Nick Szabo. Gandhi goes on to list the risks of cryptocurrencies, the same that have been repeated over months and months now regarding volatility, loss of passwords, loss of funds by hacking and so on. But it was a well researched speech given almost 1.5 years ago. RBI was doing its homework on Blockchain even then.

February 2018: Report on Fintech and Digital Banking lists out Advantages of Blockchain and how it can be adopted in India

Come February, on one hand the media has misinterpreted Finance Minister Arun Jaitley’s speech and has already spread fear in the masses about ‘Bitcoin’ being ‘Illegal’. On the other hand, RBI published the report of inter regulatory department from November 2017, that includes the need for Blockchain in Banking. 

The committee was setup in July 2016 and the report was submitted a year later in November. This is how much time it requires to formulate a properly researched report. What was interesting about this report is that besides blockchain and its benefits, the report also acknowledges the presence of cryptocurrency exchanges. 

India being a more conservative market where cash transactions still dominate, usage of digital financial currency such as ‘bitcoin’ has not seen much traction when compared to international markets. There are, however, a few bitcoin exchange startups present in India – Unocoin, Coinsecure, and Zebpay.

Inter regulatory Department Report, Published by RBI in February 2018

Another interesting thing I want to quote from the article regarding the importance of Blockchain and Artificial intelligence is

Digital transformation and innovation in the BFSI space will ride on three pillars – BlockChain, Artificial Intelligence and Internet of Things.

Inter regulatory Department Report, Published by RBI in February 2018

It merely means that RBI setting up a new unit for Blockchain and AI is the outcome of months of research in the space and also an agreement of the fact that the industry does have potential. 

In 2018, RBI approved TReDS exchanges have already deployed a blockchain solution to fight fraud and are using it. The application of blockchain has moved from being just a PoC to actual pilot implementation. But these are private of permissioned blockchains without an underlying token or cryptocurrency.

To RBI’s credit, the risks associated with Cryptocurrency mentioned in the reports are all real and have affected users. A blanket ban was never a solution, but it was smart move to discourage cryptocurrency traders and combined with the 8 month long bear market, it may as well have. 

What are your thoughts on the new RBI Research unit for Blockchain and Artificial Intelligence? Let us know in the comments below

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