RBI's diktat on virtual currencies: Here's what cryptocurrency startups have to say

The central bank said in its statement that virtual currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity, and money laundering, among others.

"The RBI statement will negatively impact startups, because no matter how great an idea they have, investors will be wary of putting money into a crypto-venture given their uncertain future in uncertain regulatory environments," said Nehaa Chaudhari, Public Policy Lead, TRA, a technology policy and law firm.

After these RBI guidelines, Shetty added that this will exclude India from global crypto revolution. There will be massive wealth erosion of all the tax paying people who have invested in cryptocurrencies.

"Gullible investors will now try to buy cryptos through cash and other OTC means where they would have no buyer protection and end up falling for scams. This will also make illegal trades almost impossible to track," said Shetty.

Atulya Bhatt, Co-founder of BuyUcoin, a multi cryptocurrency wallet and exchange, said: "There will be a parallel economy and in few months people will find unregulated ways of cashing out. Some investors are in utter shock because the government has given only three months to handle the transactions. "

As for startups, he said, "It disturbed the whole structure of crypto exchanges. We have plans and we are discussing it. But banning it is an unfair step."

"The alternate way for the cryptocurrency exchange will be to do crypto to crypto trading," said Bhatt.

Ravi Kikan, COO, Panaesha Capital, said: "If you look at the complete circular it first talks about RBI exploring the desirability and feasibility of introducing its own crypto currency (a fiat-digital one). In fact, it has set up a panel to review the proposal and come up with suggestions by June.

"The RBI is more concerned about the other side of negatives like speculative trading, Consumer protection, Ponzi Schemes, Money laundering and terror financing that can pop up through this un regulated market, which I think is a very fair stand to safeguard the public at large. In the long run keeping the above in light the digital currencies which have a certain usefulness towards their utility/usage will be the ones that will have a shot at the silverline and more prone to acceptability."
In its budget speech, Finance Minister Arun Jaitley clarified in his budget speech that it is not a legal tender and the government will discourage its use. However, he had mentioned that the government will look at the utilisation of blockchain.

(Neha Alawadhi also contributed to this report)