Blockchain bonanza? India's cryptocurrency dilemma

Since the Y2K "crisis", India has established itself as one of the world's foremost technology hubs. With the emergence of Infosys, Wipro, TCS and Tech Mahindra amongst several others, India has risen up value chain of technology and software. However, since the emergence of AI, machine learning and internet of things, India has lagged behind the global technology industry. But opportunity could be around the corner. India is therefore well positioned to capitalize on the blockchain era.

To set the scene - over the last 6-7 years, India's technology industry has become mainly a service provider to large multinational corporations, rather than an innovator. This is in spite of over $5bn of venture capital investment in the country. The issue is that many of these investments are made into 'copycat' ventures, or large scale service providers. I am an angel investor, and many VCs that I speak with bemoan the lack of innovation; and the problem of scalability, in a country which has several potholes in the execution of new ideas.

The blockchain era could change all that. However, I have listed the four main challenges below:

Talent pool and acquihires: India does not have a durable eco-system of upskilled engineers; the talent pool it does have is getting more expensive; and a spate of acquihires have led to big corporations swallowing up innovative entrepreneurs. Entrepreneurs commonly sell out to corporates due to a lack of other acquirers in the market, and the lack of support from the business ecosystem.

Cryptocurrency is Taboo – Many traditional financial investors in India have ignored (or undermined) the idea of cryptocurrencies becoming a viable alternative for transacting. Although there is some validity in their perspective, it needs to be highlighted that embracing crypto-currency opens a gateway to the Blockchain world. Crypto-currencies are the first viable application of Blockchain, and the only transactional method in the Blockchain environment.

Blockchain represents 'immutable' transactions, with binary validation of events and a subsequent exchange of value for the contractual obligation that the event represents. In the blockchain world, the value of contractual obligations cannot be exchanged in 'fiat' currency, because fiat currency cannot be made 'smart' or 'blockchained' - for lack of a better word.

Cost of Hardware – Hardware and energy costs are prohibitively high for mining, or recording public blockchains. India's Venture ecosystem is not designed to support investments in hardware to mine or transact on a public blockchain.

Copycat Venture Capitalists – In Silicon Valley, venture capitalists are encouraged and incentivised to take risks – and their organisations, fund-structures and incentivisation methods are built to reflect that: the higher the risk, the higher the reward (if it pays off). VCs in India are designed in a traditional and bureaucratic manner, and are therefore more encouraged to play it safe – so they either invest in copycat ideas, or simply follow the theme of the month.

This forces the innovation burden back on to large corporates, which are typically family run, and can afford to invest on 'hunches' and take measured risks on ideas and people. The same corporate then owns and dominates the technology or intellectual property, and does not allow the entrepreneurial zeal and expertise to reach its logical conclusion.

The next step: India's choices

If India needs to embrace the blockchain era wholeheartedly. Not only because it will be a huge job supplier to our decaying IT talent-pool, but it will also incentivise engineers to upgrade their skills to be ready for the new age.

India's Information Technology ministry needs to work with global and Indian technology giants to create centres of excellence for Blockchain. This way, the next generation will be prepared for the economy of the future, and will fare far better when competing with China.

Blockchain up-skilling will also force the mandarins of the finance ministry, the banking sector, the insurance sector, the taxman and the e-governance sector to adopt and prepare for the changing world of transactions. They need to lose the fear of cryptocurrencies, and embrace them in a transparent and controlled way. Most importantly, support must not come with a rider of regulation, but a rider of transparency.

In his budget, The Finance Minister candidly accepted that cryptocurrencies need to be investigated further before they are accepted as a viable alternative for investments, savings, or transactions. However, as we enter Internet 3.0, it will not matter what the government plans to do if the usage of currencies such as bitcoin or ethereum continues to increase – it will become unignorable.

Although the majority of crypocurrency payments are harmless, it is worth mentioning that India needs to be proactive in creating a strong strategy to counter the black marketeers, so it can fully and safely embrace the technology for its applicability to so many sectors in India.

Time is running out, and we don't have enough libertarian economists in India to work with the technologists to come up with a viable mechanism: it is time to import ideas and talent so we can be ready for the future.

Mr. Modi's dream of a digital India will not be realised unless we learn to embrace technology, not be fearful of it - I hope his esteemed advisors are listening.

Rudra Dalmia an angel investor, technology mentor and philanthropist, he is an Advisor to Fineqia – A blockchain investment company in Canada, Consultant to Swordfish Investments – a Private Equity vehicle in London and the former MD of Saxo Financial Services (Saxobank India) one of the worlds largest currency market places.