There’s always a reluctance at the back of your mind when it comes to trying out something new, driven by the fear of the unknown. Let it be sky-diving, entering an abandoned house, or transacting through a new payment method. India is still at a nascent stage in adopting another online payment system, especially virtual currency, where some consumers are yet to try their hands on online payments. For the ones who are privileged enough to conduct transactions through online e-commerce websites, the number of transactions done by online payment systems are rising. Simultaneously, the globally popular virtual currency called Bitcoin has managed to catch a lot of attention in the country among tech enthusiasts and the ones who are fed up with the sinister plight of foreign currency exchange rates. Bitcoin transactions in India have faced several setbacks through the years and now things are looking bright. But in its current state, are we going to witness major e-commerce players such as Amazon, Flipkart, Snapdeal etc, adopt the use of Bitcoin on their websites? We try to delve into the challenges faced by the industry to find out whether this is going to hold true this year.
What are Bitcoins?
If you felt riddled with the words “virtual currency” or “bitcoin”, let’s talk about what they are and how they work. Bitcoin is a decentralised digital currency or a type of peer-to-peer electronic cash that has a number of advantages over the current payment systems. One advantage lies in not having to rely on banks or financial institutions for payments since you can transact from person to person for a lesser amount of transaction fees (1% compared to 3.5% currently in foreign exchange). The best advantage of Bitcoin that has caught everyone’s attention is the blockchain technology it incorporates to remove counterfeiting. Although you can buy Bitcoins using your real money, you can generate Bitcoins by a method called mining. Bitcoins are mined by solving complex mathematical problems. Several portals around the world support payment through Bitcoins and all these payments are stored on a public ledger system which can be accessed by anyone to trace their Bitcoin transactions. Imagine the power of being able to identify and trace your previous payments and how powerful it would stand against any kind of fishy money-laundering business.
The crypto-currency phenomenon is hitting India soon
The current scenario of Bitcoin in India
As Bitcoin garnered popularity in other parts of the world, it saw interest among enthusiasts in India. The Reserve Bank of India (RBI) had issued a cautionary circular in late Dec 2013, showing concern over the use of “Virtual Currencies” or “Decentralised Digital Currency”. The statement read, “The Reserve Bank of India has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.” Basically, it was a blanket statement over the use of virtual currencies, repeatedly mentioning Bitcoins, and they advised users and traders not to indulge in its usage. Their concern was justified since they were still exploring the concept of virtual currencies. After a few days since the release of this statement, the Enforcement Directorate of India raided the office of a Bitcoin trading website – buysellbit.co.in which was based in Ahmedabad. The raid was conducted on the premise of violating the Foreign Exchange Management Act (FEMA) rules of the country, not because of Bitcoins. The investigation revealed that around 400 users were using the website and have recorded over 1000 transactions amounting to a few crores of rupees.
Later in 2014, we saw a Bitcoin real-time trading portal named BTCXIndia come into existence, working in full swing. But soon, in less than a year, BTCXIndia had to shut down operations by the end of May 2015 as their banking partners Kotak no longer wanted to serve Bitcoin businesses, according to their official statement. Coincidentally, during the same time, according to a report by CNBC, Uday Kotak expressed his concerns about the arrival of a disruptive technology in banking which could function without banks. Eventually, BTCXIndia shifted to another bank and are now back in operation. Due to the absence of any legal and regulatory measures from the RBI, BTCXIndia temporarily has set its own regulation policies on Anti-Money Laundering and validating customers.
The positive takeaway is that the RBI isn’t completely rejecting the idea of virtual currencies. In an interview with Raghuram Rajan, Governor of the RBI, when asked about his views on Bitcoins, he confirmed that they are watching the evolution of these type of virtual currencies. He raised the issues faced by Bitcoin talking about security issues and the highly volatile nature of its value. He believes that eventually we are going to move towards a cashless society and reassured that they would consider using virtual currencies even if it meant losing money. Rajan’s statements reflected on how open the RBI is to introduce new concepts of transaction. At the end of Dec 2015, RBI released a reassuring statement by endorsing blockchain technology and virtual currencies. They praised its potential of fighting counterfeiting, overcome the challenges faced by the existing fiat currency system and also believe that it can bring major transformations in the current functioning state of financial markets, collateral identification and payments system. The main intention of RBI here is to promote the potential of technologies that will lead to reducing costs and increasing the efficiency.
Many Bitcoin companies have been cropping up lately which is again an indication to the rising popularity and future-sight for Bitcoin. Recently, a Bitcoin mobile wallet service called Zebpay received funding of $1 million in VC funding. Zebpay is a rebranded buysellbit.co.in and this time they are getting serious about making it easier to buy and sell Bitcoins. A Bitcoin startup receiving funding is a positive sign that there is potential in the market this year.
Bitcoin mining as we all know isn’t easy nor is it cheap. A lot has to be taken into account when it comes to opening up mining farms or just one mining machine. It takes a high degree of computing power now made easier with ASIC chips that are manufactured just for mining. Setting up only one mining machine would take a long time to solve the mathematical problems and generate Bitcoins. Hence, mining farms are set up with an array of machine minting Bitcoins. Such farms require a lot of electricity to run the machines and also cooling systems. Power isn’t cheap in India and being the most important factor, it won’t be easy and economical to mine Bitcoins in India.
Scepticism for online payments still exists in the country. This is one of the prime reasons why cash on delivery (COD) was the most preferred mode of payment on e-commerce websites. In an attempt to lure in consumers to spend money using these online payment methods, e-commerce websites have introduced cashback rewards and huge discounts and they are working out pretty well. The market share of COD transactions is seeing a steady decline with the rise in penetration of credit card/Internet banking payment options. As more consumers submit positive online payment testimonials, people have started considering payment through their credit/debit cards or Internet banking portals. This can be confirmed from a report by IAMAI last year stating only 45 percent of the people who shopped online paid through cash on delivery. Who knew this day would come so soon?
Benefit of Bitcoin? As a crypto-currency, it’s trackable. End of black money era?
Are we there yet?
Already having talked about the benefits of using Bitcoin, there are several barriers that won’t allow its wide-scale adoption in India just yet. The biggest hurdle for Bitcoin is the lack of knowledge about how the entire concept of cryptocurrency works. So, it would be a long shot to assume that people would know the benefits they can enjoy with the introduction of digital currency immediately. Bitcoins became popular as a payment method when it made news with Silk Road, an online black market for drugs. Almost all the illegal transactions in dark web markets were carried out exclusively through Bitcoins which led to the bad rep associated to it.
The popularity of digital payment systems is clear from the reports by IAMAI and PCI with a rise of 40% in the amount of digital payments conducted in a single year from 2013 to 2014. This drastic rise can be credited to transactions carried out on e-commerce websites as they have attracted consumers in large numbers.
It makes us believe that e-commerce players have the capability to encourage a new payment method through their website. A similar case can be presented for the introduction and wide-scale adoption of Bitcoin in the country. Several businesses have started accepting Bitcoins for their products in India, including a University named Dharwad International School in Karnataka. When it comes to e-commerce websites accepting Bitcoin, it really is a chicken and egg situation and there are two ways out of this. The first would be to wait until the e-commerce websites prepare an infrastructure to support Bitcoins and eventually start accepting Bitcoins. They can go on to introduce schemes similar to cashbacks in order to attract more people to use Bitcoins. The second way would be to wait for the Bitcoin user base to grow and flourish. Once it matures well, e-commerce websites can then consider opening up payments in Bitcoins.
“E-commerce websites will see an ocean of success by accepting Bitcoins since this payments platform is instant. So, more liquidity is available to the merchants, it saves them time, credit card and bank fees, and finally it’s safe and accurate”, says Vikram Nikkam, a Bitcoin Entrepreneur and Analyst from Bangalore who’s quite active in the Indian Bitcoin scene.
Even though RBI is optimistic about Bitcoins, it is still under supervision to determine how it turns out. Regulations are yet to be formed covering all the factors encompassing virtual currencies. Without any legal framework or regulation, it would be really difficult to get more people on board. Coinsecure is another real-time Bitcoin trading platform who are about to release their own mobile wallet app and exchange app. On being asked about the growth of Bitcoin this year in India, Mohit Kalra, CEO and Founder of Coinsecure said,”I see Bitcoin growing this year, as Coinsecure will be providing much more services for investors, traders and for merchants. At the end, it depends on how Government or Regulatory Bodies react to this, as per the recent article by the RBI, it’s more of a green signal for Bitcoin companies to expand even further.”
We can surely say that Bitcoin is destined to grow bigger. But we doubt the possibility of e-commerce websites accepting Bitcoins immediately. What do you think? Will you trade in Bitcoins any time soon?