On April 5, 2018, a blow to bitcoin occurred when the Reserve Bank of India (RBI) banned banks and regulated financial entities from dealing with cryptocurrency.
Despite the media report that 10 percent of Bitcoin transactions happen in India, the news does not come as a surprise, considering how the nation has clamped down on cryptocurrency regulation so far this year. Since 2013, the nation’s financial regulators have warned about the difficulties of controlling cryptocurrencies and, like most other stricter regulatory governments, preventing the new asset classes’ most nefarious use cases: money laundering and terrorist financing.
The Indian regulators’ treatment of cryptocurrency is even less of a surprise when considering what they have done in the past to their own fiat currency, the Indian rupee. Back in 2016, the RBI announced the demonetization (stripping a currency of its value) of all ₹500 and ₹1,000 banknotes of the Indian rupee, stating the action would help crack down on murky shadow economy activity (counterfeiting, terrorism, etc.).
Based on this information, it’s not a stretch to assume that a seemingly anonymous and sovereignless computer currency should seem out of RBI’s monetary policy comfort zone. Taking the time to perform due diligence might also be a detracting task for a government that wants to maintain tight regulatory control but also has other, more politically crucial projects to execute.
India’s Other Political Projects
In a 2018 world economic report, the International Monetary Fund stated that Asia accounted for over half of the world’s economic growth within the last year; within Asia, India has been recognized as the fastest-growing nation.
Another report indicated that to meet its accelerating growth, India has invested a record $18 billion this year (March 2017-18) to build and improve roads. These efforts are a part of Indian Prime Minister Narendra Modi’s greater goals and promises to increase employment and connectivity through increased government spending on infrastructure.
Even as the RBI is banning financial entities from dealing with cryptocurrency, it continues to explore blockchain technology and the utility of employing its own cryptocurrency. One company that worked as an advisor and eventually contributed to a white paper RBI published on blockchain technology is MonetaGo. On its website, MonetaGo describes itself as “simple blockchain integration with legacy systems,” that “works with financial institutions and central banks around the world to provide permissioned blockchain solutions.” In a word, MonetaGo does private blockchains. Also, they take credit as the first real (meaning live with no fall-back system) blockchain deployment solution in India and one of a few worldwide.
While the MonetaGo CTO Brendan Taylor explicitly stated that the Reserve Bank of India had “nothing to do with this particular deployment,” he did state that “the RBI has been publicly supportive of exploring blockchain technology for the use cases we [MonetaGo] are examining.”
Hashing to Prevent “Shotgunning”
Bitcoin Magazine spoke to Taylor to find out more about MonetaGo’s deployed blockchain solution. Essentially, MonetaGo provides a platform that prevents fraud when financing receivables. The Reserve Bank of India has provided three licenses to three exchange entities: RXIL, A.TReDS and M1xchange. (Note: These licenses are not directly related to the MonetaGo platform; they are for operation of the exchanges normal business.) Even though each of these exchanges competes within India’s receivable financing market, they can use MonetaGo to prevent systemic fraud, financing the same receivable on multiple exchanges simultaneously.
“It’s a pretty common flaw in the U.S. and anywhere else in the world where you’re financing an asset. It’s called ‘shooting the gap’ or ‘shotgunning.’ Someone tries to finance an asset multiple times as quickly as possible by as many financiers as possible,” said Taylor.
In a nutshell, the platform hashes information necessary for each receivable to be identified as a “digital fingerprint” then shares it across the platform — meaning among the three exchanges — so that duplication can be flagged. For those who know slightly less about financing assets than they do about cryptocurrencies, MonetaGo’s value can be thought of as preventing a double-spend in India’s receivable financing market.
For cases in which the information of an existing invoice is altered to appear new, MonetaGo's network doesn’t block the financing, but it does still alert exchanges so they can perform additional due diligence. MonetaGo doesn't participate itself in the network. Since it’s decentralized across the exchanges, MonetaGo does not control the data: It simply built and maintains the platform.
No Tokens, No Regulators, No Problems
According to Taylor, it’s difficult to say how often this type of fraud happens in India. Exchanges like these have only been operating for about a year. And though this use case of preventing fraud in financing receivables might seem minor compared to the more ambitious blockchain applications that have been conceptualized, Taylor admitted they will continue assessing the financial supply chain for more opportunities.
In the simplest terms, MonetaGo’s regulatory advantage is that they do not use tokens.
“The only purpose of the network is to transfer information between people and ensure the integrity of that data,” said Taylor. MonetaGo’s role is to transfer information among the three competitive exchanges.
He then laid out the fundamental difference between what MonetaGo does versus a blockchain enterprise solution that uses a token:
“A token essentially allows for accounting arithmetic to be performed on a blockchain to maintain value of a particular asset while transferring ownership of it. We [MonetaGo] are not doing that because we are not transferring any value or ownership of anything. We are just transferring information from one party to another — that’s the fundamental difference.”
He went on to explain that although this live deployment lined up just as RBI banned financial entities from dealing with cryptocurrencies, MonetaGo has been working on its blockchain solution platform since 2015. According to Taylor, deploying a tokenless blockchain solution takes significant time and effort, “It’s no mean feat to get a bunch of competitors to agree upon the same technology to use.”