Indian cryptocurrency exchange WazirX, part of the Binance Group, regulates cryptocurrency trading in 180 countries. The cryptocurrency trading firm claims to have completed six to seven million trades in a single month when crypto prices were on the rise. In a conversation with FE.com’s Ritarshi Banerjee, Rajagopal Menon, VP of WazirX, talks about the impact of blockchain technology on cryptocurrencies and the company’s future prospects. (Edited excerpts)
What impact has blockchain technology had on the fintech industry, especially cryptocurrencies?
The fundamental problem with digital currency is its duplicability, which leads to double spending. With the creation of bitcoin, the problems of double spending were solved. A digital ledger has been created that is connected to multiple computers around the world, and the creation of miners has helped validate transactions taking place on this chain by verifying wallet addresses for coins to be traded in real time. Miners are incentivized to protect the chain by solving complex algorithmic problems, and once solved, the solution is broadcast to the network which continues. Registries around the world are also updated. Its transparency allows everyone to know the wallet balances present in the world. Thus, the creation of Bitcoin led to the storage and transfer of value. There are only 21 million bitcoins that cannot be increased. People say blockchain is good and cryptocurrency is bad, while cryptocurrency is the incentive one gets to secure blockchain.
How does WazirX instill confidence in Indian markets that lack regulations and policies?
India demands cryptocurrency with regulations because people want to invest but they cannot due to lack of regulation. With regard to the current tax system, we want regulation because it will make people believe and they will have a feeling of confidence in the government to invest money. We believe the 30% tax is higher, but we also believe there is some discussion regarding the 1% withholding tax deduction (TDS) imposed by RBI on cryptocurrency transactions. It can be imposed in the form of a securities tax which occurs in stock markets and should be negotiable. High frequency and day traders in the cryptocurrency markets will lose out on the 1% TDS. What worries us is that volumes are collapsing but the big exchanges are surviving. Small exchanges will lose. This is problematic, but we hope governments will provide clarification as all exchanges are KYC driven and we have money laundering mechanisms in place.
How will the financial scenario change if cryptocurrency is centralized?
There are two ways of looking at things. Traditional currency was believed to depreciate because governments printed more cash, which increased inflation and lowered the value of money. Bitcoin was founded because it mimics gold, as the supply of gold is fixed. Bitcoin inflation is around 2%. Bitcoin was designed as an alternative to gold to specifically circumvent any government’s centralization efforts. There are chains like the Binance smartchain which is centralized. Thus, there are pros and cons to centralization and decentralization, which is known as the blockchain trilema consisting of scalability, security, and speed issues. To solve it, there are different centralized blockchains. RBI has announced a plan for central bank digital currencies (CBDCs). CBDCs can be used for intrabank settlements. The most important case that CBDCs can potentially solve is that of stablecoins. The supposed presence of a digital Indian National Rupee (INR) would facilitate the purchase of cryptocurrencies. It basically depends on the use cases.
Global cryptocurrency revenue raked in $163 billion for FY21, and WazirX had $44 billion in trading volume for the same year. What contributed to these revenue margins?
It is the volume of market capitalization we are talking about, which is equivalent to the value of a currency in its number of units. The market cap of the cryptocurrency was $1 trillion. To understand how the cryptocurrency markets work, it depends on bulls and bears. When cryptocurrency prices were rising, WazirX made around six to seven million trades in a single month. In the Indian stock markets, there are circuit breakers which are used when a stock goes above 8%, and then trading is called off. In cryptocurrency, volatility can be seen at a rate of 200-300% in a single day. Moreover, cryptocurrency markets operate 24/7. For example, when the price of bitcoin goes up, everyone rushes, when ethereum or other coins go up, the overall market stabilizes. The cost of bitcoin is actually determined by the demand and supply function. When many people want to buy bitcoins, the price increases, which is driven by other unpredictable factors.
How does WazirX tackle the knowledge constraint of people who are still unsure about cryptocurrency?
What happens is that people are interested in the prospect of making quick money, but in WazirX cryptocurrency is like any other financial asset. We must continue to invest in cryptocurrency. The trick is to invest in long-term, gold-plated, viable projects. There are approximately over 10,000 tokens currently in circulation, and WazirX has around 200. Our Youtube channel also helps people learn how to invest in cryptocurrency and how to go about it. We don’t rely heavily on marketing. We did not do massive publicity, but focused on educating the public about this space.
In terms of policies and regulations, how difficult is it for Indian cryptocurrency exchanges to operate?
This is not a new phenomenon. If you look at recent start-ups, they are all headquartered in India. There is so much attention being given to the Web3 space due to the regulations in place and the issues companies are facing regarding FIAT oriented solutions. When it comes to cryptocurrency exchanges in India, the policies are conservative and the founders want their freedom to experiment. The rule of the Indian space is that regulation precedes innovation, which leads to the brain drain of cryptocurrency innovators.