As Crypto Exchanges Continue To Face Probes, Experts Urge Caution When Investing

Recently, a cryptocurrency worth Rs 12.83 crore was frozen by the Law Enforcement (ED) Directorate as part of an investigation into allegations of cheating against a gambling app in line. In a separate investigation, Kolkata police froze Bitcoin worth Rs 14.53 crore while investigating a city-based developer of mobile gaming app, E-Nuggets.

Rising instances of fraud and cheating in the cryptocurrency ecosystem are becoming a growing concern. Experts urge utmost caution when investing in cryptocurrencies.

“The total amount of fraud in India in 2019 was a whopping Rs 1.87 lakh crore. It is money lost by the banks and their customers. Therefore, it is very important that authorities and regulators investigate and be very proactive to help protect citizens from scams, crimes, hackers and ensure investor protection at all levels. Currently, there are no investor protections in place for crypto and digital asset investments and trading. The central bank can only protect fiat money and real assets. Therefore, it is very important for investors to do their due diligence before investing in crypto and digital assets. Authorities and regulators need to get better financial insights into these digital asset networks and ecosystems as there is currently no auditing and transaction transparency,” said Sudin Baraokar, Global IT and Innovation Advisor.

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Experts point out that there has been a conscious shift in the crypto ecosystem from speculation in crypto assets to innovative use cases fueling the tokenization of digital assets. “Given the US Federal Reserve’s continued hawkish stance on interest rate hikes to control inflation and the correlation between the crypto and equity markets, overall crypto trading activity will remain subdued. . Some of the forward-looking states like Telangana have been at the forefront in enabling an entrepreneur-friendly ecosystem for Web3 development. The Web3 Regulatory Sandbox is a great initiative by the Telangana government to drive innovation in response digital assets,” said Sharat Chandra, Blockchain Expert, IET Future Tech Panel.

Chandra, however, believes digital assets are here to stay and will co-exist with the TradFi system. “The current crackdown on crypto readers is justified to weed out non-compliant and rogue elements from the ecosystem. Regulatory action on errant entities will not negatively affect those who abide by the law and build for the new financial world order.

Many crypto and industry experts also point out that cryptocurrencies run on the blockchain, a public ledger that records all transactions. However, it only saves the ID of a unique wallet that one must have to transact on the blockchain. So while the transaction being on a public ledger can show how the money has flowed, it will be impossible to link a person to a specific wallet if the service provider does not enforce a Know-Your-Customer (KYC) . KYC is still not required by Indian law, but most exchanges have it in place in case the authorities come knocking.

“The current crackdown on cryptocurrency exchanges is due to the anonymous nature of cryptocurrency. Traditionally, illegal movement of funds across borders was done through hawala. People use Indian exchanges to invest in cryptocurrencies and then transfer them to another exchange that might be registered in a country that might have given them carte blanche.
There have been many cases where people have laundered money overseas by moving funds from their Indian exchange to a foreign exchange,” observed Girish Linganna, Analyst and Director of Aerospace and Defense, ADD Engineering Components India Pvt Ltd (an Indo-German company).

He said one of the main reasons for the crackdown is the loan app scam in which instant loans were given to Indian citizens after which the app disappeared from the app store. “The agents started to extort two to three times more money from those who took advantage of the facilities. These agents often threatened to share with their contacts personal images that the application had copied when it was installed. The Chinese mastermind behind these lending apps and their local accomplices allegedly used the cryptocurrency route to funnel money from India to China,” Linganna said.

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As Crypto Exchanges Continue To Face Probes, Experts Urge Caution When Investing


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