Episode 184 - Future of blockchain in India with V

Welcome to Crypto Nights. Will we help you finally make sense of the trending world of cryptocurrencies? Hi, everyone. Welcome to Crypto Nights podcast. We are so excited to have you today on our podcast. And hey, everyone, Warren Ceti is from India, he's a lawyer and he's one of the experts in the area of blockchain with all the things happening in India. We could not have found

a better person to talk to. So we're very excited to have Warren here and my co-host today will be Chuck Akane. With that, Warren, you want to take a quick bet and give us your background and then Chuck and I and you can have a conversation. Thank you for having me. I've been a startup consultant. I started off in 2012 when the startup scene in India

was not too great at that time. Since then, lots of things have changed. I like hanging out with techies and lawyers. So as much as I'm a lawyer, I'm also a techie. I'm a level 3 certified ethical hacker as well, other than being a lawyer. In 2015, something, 2014-15, something very exciting happened in India. For the first time, the word startup was defined in the Indian

law. And the startup action plan was made by the prime minister. It was inaugurated by the prime minister. So all of a sudden, people who were earlier called unemployed had a name and they started calling themselves startup entrepreneurs. As more and more people grew from being relabeled as from being unemployed to startup entrepreneurs, I found that this feel of startup, especially tech-based startup, consulting and helping

them illegal and accounting and taxation aspects, would be an exciting feel. So that's how I jumped into this field. Then people grew from startups or tech enabled entities to maybe blockchain. That's when the blockchain bug hit me. This was 2016 when I first heard the term blockchain and crypto assets and bitcoins with that matter. Since then, we've invested about one year purely in understanding the technology,

researching about this technology will load lots of letters to the government to understand what is the use of it. There's tons, we've been part of private and public forums that to speak, understand blockchain technology, speak about it. Last one year, I've been exciting. There are lots and lots of things happening at the Indian space. We find that initially, the government was likely reluctant in understanding this

technology. So during that time, we realized that it's mid-2017. There was a huge boom in the cryptocurrency space. In December 2017, the Indian government woke up to what was disrupting the financial system of the country. Then since then, there have issued lots of public notifications, sort of in light of investor protection. And since then, there's been slightly, it's affected the normal workings of blockchain entities, cryptocurrency

entities. So currently, what we're doing is that, we're trying to communicate with the government, trying to make them understand what the technology is. And it is not just limited to cryptocurrencies or crypto assets. There's something more to it. Bitcoins or other cryptocurrencies, only one of the use cases of blockchain. We find that smaller states like Telangana and Bangalore have actually taken precedence in understanding this thing.

There was a very nice event that happened in August 2018, where about 4,500 delegates attended that conference in Hyderabad. That was one thing. That was the first public forum where government officials were there and private individuals were there. Tech entrepreneurs were there. We were also part of that from a legal perspective. And since then, people have been publicly talking about Bitcoins and blockchain. So that's an

exciting feel to be in. Wow. Great one. This is a checker, Danny. First of all, it's an honor and a pleasure to meet you. Somebody that is well-versed in law, practicing and also in the technology area, it is just fascinating for me to see people from this, it's like a eclectic mix of backgrounds. So just looking forward to this great conversation along with the host of

this Dr. Khan's Miriala. So I just wanted to say one thing to send the context. What you said is very interesting. India has come a long ways in terms of being a startup country. In fact, I was reading about the ecosystems Silicon Valley, California, the way area being the number one ecosystem for startups. Because the ecosystem, the Stanford University, there's other universities that are all these

startups, venture capital, VCs, it's the ecosystem. And then Cambridge. In the UK is skilled the number two, because I think it's they got the momentum from the past or whatever. But India, Bangalore, Hyderabad, some other places, especially Bangalore, is now touted, is now written as number three ecosystem for startups in the world, which is absolutely fascinating. This is exactly what is needed for India. All the

potential, all the energy that can be unleashed in the organization. One of the, as we talk about technologies, people must have heard of AI, machine learning, big data, and robotics, all this stuff, even space exploration. There's space products in India startups. So, and then there is blockchain and cryptos, which actually represents all the strengths. So it's a cutting edge of the cutting edge, and we talk

about blockchain and cryptos. So I'm very excited to see that we can have a great discussion on this. But I just, I'm excited that this is a great time to be in this kind of field in India, and challenging times too. Exactly. As you rightly pointed out, it's surely challenging, as well as it's a great time to be part of it. With every challenge comes the

opportunity. So I think it's opportunity for young Indian tech entrepreneurs to actually offer their services to the world, not just Indian, but not just Indian companies, but to the world. There are some initiatives that are being taken, especially, say Indian developers are able to offer their services to the world at maybe one force of the cost of a US developer at the same quality. That's one

competitive advantage that India has. Apart from that, we find that companies like IBM in India, or the underpudentia and the Bangalore governments are taking some steps, especially in the blockchain technology. So the challenge here is that the government surely wants to embrace blockchain technology, but don't only talk about cryptocurrencies. So that's the balance that they are trying to maintain. They want to avoid the Bitcoin risk,

however, they want to surely utilize and use and benefit from the blockchain technology. So, kind of normally between the two, but I think it's a good time to be in. Absolutely. And let me have a take a segue. What is the risk, if you really think about it, yes, it's a risk. It's risky, but it's risky for whom for entrenched and vested interests, which are which

control money, right? Because ages long, you know, Dr. Kant and I did a podcast on history of money and banking and origins of this. Right. We did this come from. And it's very interesting that money has been centralized and currency of exchange of value in the society has been centralized. So whenever we are going to be able to do this, we are going to be able

to do this. So there's a threat to that centralized system that exists for all these years. People don't know how to respond. And we all know public interest and protecting the common person, Amar Me, as we call India, has been abused and this is used to such a large extent. It's just unbelievable because every a lot of kinds of incompetent apparently protecting the common man. In

fact, there are some. And it will be there of what's the intent behind it, you know, because common man is extremely common sense for it to be. So that brings me the question of the law. The purpose of law is to protect rights of people. It's not to protect common man. I've started balance, you know, injustices because everybody has their own version. They have been interested.

It is to protect rights of every single person, right? And Indian constitution being one of the progressive constitution. gives freedom of speech. And to what we see Bitcoin, Ethereum, all these protocols in blockchain are called their programs. Programs running out there in the cloud, right? On the internet. And code and program is a expression of speech, right? So when somebody writes a protocol and people participate

in the protocol. And if somebody comes in and says you cannot have this problem, you cannot have this problem. It's in it's hitting the fundamentals. It's coded the form of speech. Program is a form of speech. That means you are hitting free speech. Which the last I know is unconstitutional in India, right? And in all civilized countries, India being one of the upcoming stars in the

in these nations. So what do you say about that one? Is that true? My assessment might understand it. So let's just break that question to free parts. Okay. You mentioned about the freedom of speech. It is true that, yes, the constitution of India provides the rights to any individual to exercise the freedom of speech. But I would rather take you back to the initial part of

your query. Let's just put that to what happened in 2013. So in 2013, for the first time, crypto currencies words was used by the Indian government. There was a circular in 2013 by Reserve Bank of India stating that Indian investors, if they are dealing in cryptocurrencies, which basically mentioned or you use the term virtual currencies. So these was the virtual currencies that was the term used.

It is there in public domain. It's a public notification that was issued by the Reserve Bank of India. And it stated for the first time that in case you are dealing with the word. virtual currencies, then such any risk that is there, the RBI or any other government body will not be there to help you out in case there's a breach of contract between individuals who

are dealing in such virtual currencies. So the initial part of your query, the discussion was that. What is the risk that you're talking about? So RBI issued post that 2013 public notification. It has issued five more notifications. One every year or one or every alternative years. Till about 2000. And 18 before ultimately banning all crypto entities from accessing banking accounts in India. So since 2013, what

RBI has done is that it has issued one notification, public notification. Does not mention what virtual currencies are, but just mentions that virtual currency like Bitcoin's and Ethereum, etc. That's it. So anyone dealing is under a huge risk. And only in the lighter investor protection. Is Reserve Bank of India actually asking only requesting there's no public notification stopping that in case you're dealing with these virtual

currencies, you will not be given the protection that is given in the general law. That's one. So the risk is as per the government, it's the investor is that they are protecting the investor protection under the investor protection guidelines that are there. That is one thing. The second is that yes, of course you mentioned why is the regulatory things going on? They going slow or while

they're coming up with these things. Well, it's normal. It's general. I would say India being a risk adverse country. There has to be resistance to change. The resistance to change is primarily because it actually the technology, the blockchain technology, actually questions the very promise of financial system of the country. So. One, it also questions the very central nature of the country. So when you see India,

India, India. Even though it's a democracy, you will realize that all the government systems are centralized. So when you talk about say, say, we said he was formed 1991. Why was it formed? The preamble states that it was primarily done in light of the scam that happened during 90s and 1991 when the Indian economy was opened up to the world. And the stock market became accessible

to public. That was the first time that lots of investors were exposed to huge risk. And a big scam happened at that time. So, again, now when a new technology has come up, again, there are risks of some scams or some some wrongful things happening by unethical people. So to again, in the light of investor protection, government authorities are coming forward stating that we want to

protect the retail investors. Because if you analyze the average of the average age of a investor investing in cryptocurrencies in India or dealing in exchanges in India is less than 25 years. So, I believe these are not these are not institutional investors who are investing in India. So, most of the exchanges rather do not even allow institutional investors to register their account. The most thing do

it in private names and using the personal accounts and all that. So, the average age is something close to 23-24 years of age. Well, the KYC initially was very poor. So, people might have picked up their age as well. But let's assume it's in the mid-20s and not mid-40s. So, when you have I also have heard cases, I have also come across cases where are 22-year-old,

23-year-old without much knowledge about law. Boros money from parents and then invests in cryptocurrencies. So, that is those are the kind of people that the government claims to protect from. So, hence these notifications by Reserve Bank of India to some extent are correct also. So, I think those things can surely be questioned whether what is constituted as a youngster in the Reserve Bank of India has

to at 25-year-old is considered to be a youngster. How old should you be before the electric future has ended? I think three ages which are relevant at 80 years, you can actually vote. By 21, you can marry and by 25, you can actually consume. What are the common sources that can be going down in the country? So, how the course is actually allow you to start

training as early as 15 years' wage? Exactly. So, we are lucky to be able to like it right. And the last point that you touched upon was the freedom of speech. That's amazing right that has been offered by the Constitution of India. Let me talk about the Constitution of India briefly here. Now, the Indian Constitution, as we know is the longest Constitution in the world. It's

handwritten. It is considered to be one of the finest constitutions in the world. Why? Because it runs the world. It runs the principle of democracy. And given the country, the heterogeneous nature of people here, we've got huge knots out, divide, language barriers, despite that, irrespective of your age, caste, greed, religion. You are given the rights under the Constitution to practice any business of profession which is

within the lawful parameters. And another right that is offered by the Constitution itself is the right to freedom of speech. These are two major rights that have been provided by the Constitution. So, when you look at the government notifications, the restricting crypto-drages or blockchain-based entities, and vis-a-vis if you analyze what the Constitution allows as a right to every citizen, we find that there's an anomaly between

the two. So, this anomaly can surely be questioned in the court of law. Currently, yes, there's a Supreme Court litigation that has been filed by the representatives of the cryptocurrency exchanges in India. It has been heard in the Supreme Court currently. The latest date of hearing was 10th of September since then, there have been some other proceedings that have been going on. So, this case has

been legalized since then. But what is important in this case is that there's an effrida bit that has been filed by the Reserve Bank of India. So, let me just give you a slight brief. This case was filed post Reserve Bank of India coming up with a ring-fencing notification in April 2018. In the ring-fencing notification, it stated that any entity dealing in cryptocurrencies in India will

not be offered any banking support by any entity which is supported or controlled by the Reserve Bank. So, thereby, all the exchanges in India were asked and given a three-month-time frame to shut down all their bank accounts. And post this three-month-time frame, there will not be any support to any crypto-based work in India. So, it is not just exchanges, but any crypto-based work. So, only what

happened was that it sucked out the entire liquidity out of these crypto exchanges. Now, as a result of this, the representatives from these crypto exchanges had filed a litigation in Supreme Court on the same parameters that it hinders the freedom of speech and the freedom to practice any business of profession for that matter. Suppose that there's a effrida bit that has been filed by Reserve Bank

of India. To the Supreme Court, which states that again, it goes back to the same story that it is in light of investor protection and it is disruptive in nature. It might result in huge losses to retail investors who may not be aware of the risks in this technology. Now, the case, as of date, is on a very interesting stage wherein the Supreme Court is yet

to take a call on whether to allow relief to the state. And to allow relief to the exchanges and allow them backing access. That's one. Second, either the Supreme Court in the light of investor protection just reject the case. Or it can, what we are expecting, it can constitute a special committee with experts from the cryptocurrencies field and experts from the government to work together, give

them three or six months time frame, analyze or make a regulatory framework. And then issue that regulatory framework because currently what has happened is that, well, just like I think I should quote another case law, just like what happened in Bihar. So in Bihar and interesting thing happened, liquor was banned in Bihar in around 2015, 16. So post that what has happened is that illicit import

of liquor is increased in Bihar. So whenever you, whenever you restrict or impose an uncertain action on people, you realize that people find illegal ways to actually circumvent the law and still get the work done. And what if I can say one thing about that? Before 1991 in India, we had the quota ranch, the two foreign businesses are restricted, because the government in the policies of

that kind, these are luxury items. In years don't need this. We need to have agriculture, sugar, rice. So control economy. So that's the point. Centralized control economy, the social style we had in India until it opened to market forces with the legalization of in economy in 1991. And if you remember that time, some of us are old enough to have grown up in India and remember

that time. And there was a lot of smuggling in all these areas. So market will always find a way to supply the goods that are demanded. So there's a demand for serious systems. I remember when I was a youngster, in India, a kind, stereo system. So the stereo system was, would be smuggled from Ngun from Burma, loaded up the boats in the east coast of India.

And coming and people would have this tens of thousands of rupees, what is boom box. And every kid can now go to the supermarket and buy it because some some store and buy it. And so what we, and now they say India is a great market. So now they are entrepreneurs. Same entrepreneurs are forced to be smugglers at that time. It's crazy depending on how you

draw the line. So you're so right. Correct. So it's always about the resistance to change. And India being a conservative country, especially when it comes to making regulatory frameworks. It is, if you look at it from a historical perspective, there hasn't been the long one, as always, been a follow up to the technological changes. So it has never come up India or say has never come

up with the forward looking law. It's always looked up to the west in the east, because if we hear in India call it, we make the law, which is the best from the west in the east. So the best of the west in the east has to post make the line. Then we try to mix all those things up and then drop the law. And there's

a hybrid terms that would be good sometimes. Even when you talk for the Constitution of India, it is around the same principle. Boros, certain federal powers, just like that are there in the west. And it also takes some precedence and some influence from the eastern law. So it talks about the best of the west in the east. Even in the regulatory framework, in this case, we

are expecting the west to come up with something, the east to come up with something. Perhaps the US and Japan may be the two countries. Yes, we can draw a side. If I can say something, sometimes courts, if nobody can predict the future, how this will go. But sometimes courts have a tendency. Supreme court, we hope it's much more deeper in thinking. And that's how usually

happens. It's much more common than the legislative cattle and all the cacophony of the legislative, the shouting and the screaming and back and forth of the legislative. And the executive plan saying, okay, we're going to have a conversation. He has a gun down. He has a stick and the executive branch in which our boss, okay. Then there's a legislative, the Indian parliament. And there's a court,

the judiciary. So, and the last resort in any civilized nation is the judiciary. We all go to the judiciary and say, please give us a verdict. Right. And judiciary will think deep and investigate calmly without the noise. Right. And and take to the root of issues. But, sometimes as a result, courts sometimes have pushed a wall back to the legislature and said, this is not a

judiciary she is not to be educated here. Go to your legislative and ask parliament to come up with a crypto law or something. They can push it back to parliament. And one thing though, when executive branch acts, they're acting out of vacuum. They're not law based. They may be. They're taking up things as can goes on, right. Because if industrial protection is the thing in India,

we have ample law, ample regulation in India to deal with that. You know, see regulation, and please cut me for the wrong happens. Use the strip and action before the kindness committed. A proper law, you know, punish us after the kindness committed. Because if regulation is the answer for everything, then we'll stop all action and all innovation dies. But a proper law will not penalize you

before you act. A proper law will penalize you to the fullest extent. We are all against fraud. We are all against fraudulent acts. But in the disguise of stopping fraudulent acts, you cannot stop all innovation and all action by all people. Right. That's what regulation does. And I thought it's interesting. If I mentioned regulation versus law, and see what you think about it. I think there

are two relevant points that you raise. One comment of that. One is that if you see in the last one month or so, the current bench of the Supreme Court, they've actually come with very interesting judgments. One of the far reaching judgments and forward looking, I would say, judgments only last last week was decriminalization of same gender sex. So that was the first time in the

history that the same gender into course was the same. It was considered to be a non criminal offense. Previously, it was considered to be criminal offense. And forward looking judgment that was passed. That's one. Second, there's an interesting case that is going on the Supreme Court, which says that whether mosque is a necessary religious monument for Muslims, whether it is a mandatory thing or not. So

that's an interesting thing. That's an interesting case. That is going on in the Supreme Court. Another very interesting forward looking judgments that have come up from Supreme Court. Also, as an identity has been decriminalized. Yes. So adultery, that's the third case law that has happened in the last week, which mentioned in the last week, which mentioned that adultery courts say, should not be considered as a

criminal offense. It can be a wrong. And it mentioned a very nice code along with passing this judgment that we're still living in. It seems that when it comes to the husband for the wife, it still feels that we are living in the 19th century. The husband is still a child for the wife. So I think we've moved on from there. So when you look at

this, look at this. I didn't know that this was actually a crime. You know, I'm afraid. So when you look at these judgments, there are some some precedents or some. So in the references that you can draw from these judgments, one of the very basic inferences that you can draw from the judgment is that the judiciary is free and independent of the existing government or any

other system in the country. Super. So this is one of the greatest achievements that the Indian democracy has achieved despite say tussles between the two national parties of India, the top notch national parties of India. The judiciary has always continued to be independent, whether it was the International Congress schooling or now the Barthi Jinta party ruling, we still find that in any case, they respect the

judiciary. And the Supreme Court has been given the respect by the constitution that the Supreme Court is the ultimate power. And it has the right to direct the existing incumbent government to take steps and actions. So in this case, especially in light of blockchain technology and cryptocurrencies, if Supreme Court says that a special committee is to be set up, then the government is bound to set

up that committee and they are not even liable to question whether the committee is to be set up or not. So that's one one thing that can be done by the Supreme Court. So if in the next hearing, the Supreme Court says that I do not buy the point of investor protection as you rightly wondered are there are 20 or 25 year old is good enough

to marry and vote then why is it that he's not doing well? So, so exactly. So why is it that a 25 year old is not able to judge the financial prudence in a transaction or analyze its financial risk in a transaction. And of course, there are there are finance consultants whom we can refer. So this takes us to a very interesting thing that whether the

Supreme Court, is now actually looking forward for a regulatory framework in the country. So what we expect is that autonomous bodies like Sabhi or Reserve Bank of India can come up with their reports. They are free to do it. They are they have the legal rights to do it. And they can continue issuing notifications of public notifications, staging that in the light of investor protection is

stopping this action, we not allowing this action. But if the Supreme Court passes an interim judgment also, there are a lot of final judgments stating that a special investment, special team or committees to be constituted by the representatives from the from the tech industry and from the government authorities as well. So maybe a special committee can be formed with some representations from Sir Reserve Bank, some

representation from securities and exchange board of India. And some people who are doing good work ethical work in the blockchain or technology or even cryptocurrency space for that matter. Now that committees give the opportunity to come up with a white paper on on this aspect of cryptocurrency, then how this can be regulated. So we're not saying allow it in a free manner and you're not saying

in ban it. So there can be a regulation within the parameters of banning it or allowing it in a free manner without any regulation. So India can surely come up with a regulation in this matter. There's also another reason by the regulation in India's necessity. If you look at the number of tech developers which are hired by US entities, which are Indians and were able to

offer their services at almost one fourth of the cost of the same developer in US and roughly the same quality. So by banning all these actions outrightly, of course, it can be argued that it is unconstitutional, but let's just keep unconstitutional or the rights under a constitution at there for some time. So we are losing out on a huge business opportunity. Young people who are not

allowed to work in this space, if this happens, then there was a report about 20 days back which I totally agree with. The research said that about 80% of the tech developers may actually move out of the country. So we are actually looking forward to the next brain drain from India. The first brain drain that happened was during the 1990s when there was a software company

boom in India. And we found that lots of Indian smart brains were lost to the US and the other Western countries. So, it's better than the other countries. So, if we look at it or analyze things here, there are global opportunities available for Indian developers. And we are looking forward to if the regulations do not come in time or if the regulations are ambiguous, we are

surely looking forward to the next brain drain in India, which might sweep out of 80 to 85% of the smartest brains in blockchain or cryptocurrency space. So, the Indian government has surely got to act an act past. I hope that it doesn't come to that day, it doesn't come to it. And say in a sense, you prevail. And you mentioned about regulation. Would you prefer regulation

or a law by Indian party? Because it can go either way. So, please quote and say, form a committee, give a regulatory guidelines. Or because is it better for a law that is the more long term than regulation, which is a bandaid kind of fix? What do you think about it? Subscribe to Donites. Never miss an episode. Subscribe now at www.cryptonites.io.