Bitcoin ban: How cryptocurrency exchanges are circumventing RBI's circular

 Reserve Bank of India's (RBI) deadline given to banks to snap the ties  with entities that deal with cryptocurrencies finally ends 5th July,2018.  Exactly three months ago, India's central bank had instructed the banks  to end the relations (if any) with cryptocurrency-driven companies.  The  RBI released the circular on April 6 that was challenged in the Delhi  High Court, which initially refused to grant an injunction. Even the  Supreme Court declined to issue a stay order on July 3.  The matter is still before the Supreme Court that will hear the matter  on July 20. Ever since the ban was imposed, there was sentiment that the  cryptocurrency market will survive the RBI ban. 

 In April, CCN  reported that the Reserve Bank of India, the country’s central bank,  first imposed its ban on cryptocurrency trading, effectively disallowing  local banks from providing banking services to crypto exchanges. On  July 3, the Supreme Court of India refused to lift RBI’s cryptocurrency  trading ban, reaffirming that banks cannot deal with cryptocurrency  exchanges in India. While the Supreme Court of India is expected to conduct a hearing to  consider the case of the cryptocurrency industry against the RBI’s ban,  until the court officially reverses the existing ban cryptocurrency  trading, local exchanges will not be able to support fiat-to-crypto  trades. 

In an interview with Quartz, Yadav, the founder of a local  cryptocurrency trading platform Coindelta, said that local exchanges  have moved on from fiat-to-cryptocurrency trades to crypto-only trades,  and are currently competing against major exchanges like Binance. 

Consequently, for investors in India to trade digital assets, they are required to rely on peer-to-peer platforms like LocalBitcoins to acquire bitcoin first and then trade other cryptocurrencies on crypto-only exchanges. 

 After the RBI ban:-

A day after the Reserve Bank of India's virtual currency deadline ended, some crypto-exchanges in India have announced peer-to-peer model to continue digital currency trade - which is a clear cut circumvention of the central bank's circular. The RBI had in April directed all the banks to stop dealing with individuals and businesses dealing in virtual currencies in next three months - the deadline ended on July 5. But ahead of the apex bank's deadline, some cryptocurrency exchanges such as WazirX and Koinex Loop had started working on peer-to-peer system to facilitate virtual currency trade without using normal banking channels.

channels.A week before the RBI's ban kicked-in, WazirX CEO  Nischal Shetty revealed peer-to-peer transfer system where the people  can buy and sell crypto directly with each other without any hassle. "In  P2P model, the buyer and seller can deal with each other directly while  WazirX acts as an escrow account for holding the cryptos during the  transaction so that neither party cheats the other," he said. Nischal  Shetty also explained how peer-to-peer method will work. 

He said the  exchange will first connect the person looking to buy crypto for rupee  with someone who's looking to sell crypto for rupee. Then the seller  will have to deposit the virtual currency with the exchange. Then the  buyer will have to pay rupee to the seller directly. And once the seller  receives the payment and confirms to the exchange, the crypto-exchange  will release the currency to the buyer.

In a latest tweet put out  on Friday, Shetty said: "WazirX P2P is coming soon. Don't worry at all.  You can transfer money directly to each other and we will help with the  crypto transfers and trading. India will be part of the blockchain  revolution."Before the RBI's ban, the cryptocurrency investors  were buying and selling the digital currencies through exchanges in  rupee. However, after July 5, all banks and other regulated entities  have stopped their services to the cryptocurrency exchanges. Banks have  also started sending notifications to their customers warning against  the virtual currency trade.

 Sharan Nair, senior vice president at CoinSwitch.co believes that now  trading of cryptocurrency will be restricted to over the counter and  P2P platforms.

"With  the deadline approaching, trading of cryptocurrencies will be  restricted to OTC (over the counter) and P2P platforms. This will be a  setback to both exchanges and blockchain companies aspiring to build  world-class products/services using blockchain technology. The only  thing is to be patient and watch." said Sharan Nair, senior vice  president at CoinSwitch.co.