{"id":22304,"date":"2018-04-10T14:21:39","date_gmt":"2018-04-10T14:21:39","guid":{"rendered":"http:\/\/ci027cfe7a400e2697"},"modified":"2025-01-28T17:09:19","modified_gmt":"2025-01-28T17:09:19","slug":"law-abiding-blockchain-alternative-indias-financial-exchanges","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/business\/law-abiding-blockchain-alternative-indias-financial-exchanges","title":{"rendered":"A “Law-Abiding” Blockchain Alternative for India\u2019s Financial Exchanges"},"content":{"rendered":"
<\/div>
<\/figure>\n

On April 5, 2018, a blow to bitcoin<\/a> occurred when the Reserve Bank of India (RBI) banned banks and regulated financial entities from dealing with cryptocurrency.<\/p>\n

Despite the media report<\/a> 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<\/a> so far this year. Since 2013, the nation\u2019s financial regulators have warned about the difficulties of controlling cryptocurrencies and, like most other stricter regulatory governments, preventing the new asset classes\u2019 most nefarious use cases: money laundering and terrorist financing. <\/p>\n

The Indian regulators\u2019 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 \u20b9500 and \u20b91,000 banknotes of the Indian rupee, stating the action would help crack down on murky shadow economy activity (counterfeiting, terrorism, etc.). <\/p>\n

Based on this information, it\u2019s not a stretch to assume that a seemingly anonymous and sovereignless computer currency should seem out of RBI\u2019s 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.<\/p>\n

India\u2019s Other Political Projects <\/h3>\n

In a 2018 world economic report<\/a>, the International Monetary Fund stated that Asia accounted for over half of the world\u2019s economic growth within the last year; within Asia, India has been recognized as the fastest-growing nation.<\/p>\n

Another report<\/a> 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\u2019s greater goals and promises to increase employment and connectivity through increased government spending on infrastructure.<\/p>\n

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<\/a>, MonetaGo describes itself as \u201csimple blockchain integration with legacy systems,\u201d that \u201cworks with financial institutions and central banks around the world to provide permissioned blockchain solutions.\u201d In a word, MonetaGo does private blockchains. Also, they take credit as the first real<\/em> (meaning live with no fall-back system) blockchain deployment solution in India and one of a few worldwide.<\/p>\n

While the MonetaGo CTO Brendan Taylor explicitly stated that the Reserve Bank of India had \u201cnothing to do with this particular deployment,\u201d he did state that \u201cthe RBI has been publicly supportive of exploring blockchain technology for the use cases we [MonetaGo] are examining.\u201d<\/p>\n

Hashing to Prevent \u201cShotgunning\u201d<\/h3>\n

Bitcoin Magazine<\/em> spoke to Taylor to find out more about MonetaGo\u2019s 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\u2019s receivable financing market, they can use MonetaGo to prevent systemic fraud, financing the same receivable on multiple exchanges simultaneously.<\/p>\n

\u201cIt\u2019s a pretty common flaw in the U.S. and anywhere else in the world where you\u2019re financing an asset. It\u2019s called \u2018shooting the gap\u2019 or \u2018shotgunning.\u2019 Someone tries to finance an asset multiple times as quickly as possible by as many financiers as possible,\u201d said Taylor.<\/p>\n

In a nutshell, the platform hashes information necessary for each receivable to be identified as a \u201cdigital fingerprint\u201d then shares it across the platform \u2014 meaning among the three exchanges \u2014 so that duplication can be flagged. For those who know slightly less about financing assets than they do about cryptocurrencies, MonetaGo\u2019s value can be thought of as preventing a double-spend in India\u2019s receivable financing market.<\/p>\n

For cases in which the information of an existing invoice is altered to appear new, MonetaGo’s network doesn\u2019t 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\u2019s decentralized across the exchanges, MonetaGo does not control the data: It simply built and maintains the platform.<\/p>\n

No Tokens, No Regulators, No Problems<\/h3>\n

According to Taylor, it\u2019s 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.<\/p>\n

In the simplest terms, MonetaGo\u2019s regulatory advantage is that they do not use tokens.<\/p>\n

\u201cThe only purpose of the network is to transfer information between people and ensure the integrity of that data,\u201d said Taylor. MonetaGo\u2019s role is to transfer information among the three competitive exchanges.<\/p>\n

He then laid out the fundamental difference between what MonetaGo does versus a blockchain enterprise solution that uses a token:<\/p>\n

\u201cA 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 \u2014 that\u2019s the fundamental difference.\u201d<\/p>\n

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, \u201cIt\u2019s no mean feat to get a bunch of competitors to agree upon the same technology to use.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The Reserve Bank of India has been publicly supportive of exploring blockchain technology for the use cases MonetaGo is examining.<\/p>\n","protected":false},"author":3410,"featured_media":10389,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[556,126,3465,219],"class_list":{"0":"post-22304","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-blockchain","9":"tag-india","10":"tag-rbi","11":"tag-regulation"},"author_data":{"id":3410,"name":"David Hollerith","nicename":"david-hollerith","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/david-hollerith-promo-image-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/a-law-abiding-blockchain-alternative-for-indias-financial-exchanges.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/22304","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3410"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=22304"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/22304\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/10389"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=22304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=22304"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=22304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}