New Delhi: The dilemma over embracing cryptocurrency and digital asset in India is compelling thousands of developers, investors, and entrepreneurs to leave for other places with more friendly regulation, said Sandeep Nailwal, co-founder of Polygon, the country’s most famous crypto start-up.
Nailwal (34) said, “The brain drain is absolutely crazy. Countries will keep losing new talent capabilities until the time they figure it out.”
Nailwal, whose Polygon runs the biggest so-called Layer 2 protocol for the Ethereum blockchain system, said this to Bloomberg from Dubai.
India, with nearly 1.5 crore active crypto users, has been stuck in regulatory limbo since the Supreme Court in 2020 overturned a central bank ban on digital tokens.
The government in the Union Budget this year unveiled a tax on crypto transactions without formally declaring that it won’t ban trading, a move that became emblematic of the confusion. The government imposed a 30 per cent tax on digital coin transactions.
Finance Minister Nirmala Sitharaman on Tuesday said the government has yet to make a final call on whether to ban digital currencies or regulate them. The minister also acknowledged the industry’s potential as a source of tax income: “Many Indians have seen a future in it, therefore I see a possibility for revenue in it,” she said.
Nailwal, who co-founded Polygon in 2017, relocated to Dubai two years ago. The emirate is aspiring to be a crypto hub for the Middle East, just as it is for traditional financial services, and on Wednesday, it adopted a law for regulating digital assets.
Regarding Polygon, Nailwal said that the company’s eponymous protocol is used by developers to make Ethereum transactions cheaper and faster. It has 7,000 decentralised apps (or dapps), more than 13 crore unique users, and handles over 30 lakhs transactions daily.
In February, Polygon raised $450 million by selling its Matic token to investors led by Sequoia Capital India.
Nailwal said, “I want to live in India and promote the Web3 ecosystem. But overall, the way the regulatory uncertainty is there and how big Polygon has become it doesn’t make sense for us or for any team to expose their protocols to local risks.”
India has the potential to be a crypto powerhouse. The population of 140 crore people skews young, with a growing, well-educated middle class. That, combined with a less-developed traditional financial system, has led to the world’s second-highest crypto adoption rate behind Vietnam, according to blockchain research firm Chainalysis.
Overall crypto transactions jumped 641 per cent between July 2020 and June 2021, Chainalysis said in an October report.
China, the only country with a larger population, last year declared all cryptocurrency transactions illegal.
“Crypto is very disruptive in the sense it has a potential not only to disrupt the concept of money but also the concept of government itself,” Nailwal said.
Bitcoin surged as much as 11 per cent on Thursday as word got out of an impending executive order from US President Joe Biden to coordinate the government’s approach to crypto.
Investors and entrepreneurs around the world have clamored for more clarity. Even as Indians embrace digital assets and the government warms to the potential for tax revenue, the industry still faces determined opposition from the Reserve Bank of India.