Notes from a busy, immutable, year!

1. Blockchain in India: Looking through the Regulatory Crystal Ball
In 2018, India emerged as the global development centre for the blockchain revolution. It is hard to avoid
overhearing the catchphrases “nodes”, “verification”, “immutability”, and “Satoshi” in any café in Indiranagar
(Bangalore), Baner (Pune), or Gachibowli (Hyderabad). Service providers, building the global blockchain
architecture, have sprouted in every corner – from Bangalore to Kerala to Kashmir.
And while this services revolution rages on, more traditional companies have been grappling with the
implications of blockchain in their business,industry widebodies have been striving to build consensus around
the technology, blockchain centric start-ups have“flipped”to friendlier jurisdictions,tax authoritieshaveraided
multipleDEXs operating in India,and the Reserve Bank of India has issued a notification thatit has admitted in
court was not well thought out.
It has, indeed, been an eventful year for our Blockchain & Cryptocurrency Team.
ICOs?
2018 speltthe end of the global ICO goldrush. Global regulatory action squeezed the joy out of the fast paced
and inexpensive fundraising option that token generating events had been in 2017. Of course, that did not
restrictthe risk takingentrepreneur from attempting to reaffirmfaith in “blockchain asa singlesourceof truth”,
law notwithstanding. Indian regulators have not taken any severe action as of date – although their patience
should not be confused with any lack of enforcement ability. We anticipatesecurities lawprosecution,should
any entrepreneur attempt an onshore ICO in India.
STOs?
With the end of the ICO gold rush,we are now witnessingmore enterprises offering Security Token Offerings,
with the offer typically based in one of the many islands that do not restrict it. Singapore, Malta, Estonia, the
Cayman Islands,and theBritish Virgin Islands aresomeof the more popular options.For US lawpurposes,these
are usually Reg D or Reg S offerings and typically do not accept investments from India, Singapore, Korea , or
China. The money is typically brought into India in a manner that is compliant with India’s foreign investment
laws.We expect this trend to pick up pace, although regulatory complexities have rendered structures around
these offerings more complicated than listing on a recognised stock exchange.
Investors
Urban myths indicatethat investments in crypto-currencies aremade by individuals who believe in a particular
technology, invest out of their desireto see that technology evolve, and who wish to remain anonymous. That
myth was effectively killed in 2018.Today,our clients who wish to invest in blockchain companies includesome
of the world’s largest technology funds and some of India’s oldest and most respected venture capital and
privateequity funds.We expect this to continueand expect to see traditional high net-worth individualsto jump
on the bandwagon.
KYC and Anti-Money Laundering
The advent of institutional investorshaveresulted in enhanced KYC and anti -money laundering cheecks.Sellers
of crypto-currencies no longer permit all and sundry to purchase coins but would insist on fairly thorough
background checks.Digital solutions havemushroomed with many of them offering compliancewith AML / KYC
laws of over a hundred countries (including India).
Crypto-exchanges
The industry has come to accept that crypto-exchanges are regulated entities and that there are legitimate
reasons for such regulation.Most of India’s fly-by-nightcrypto-exchanges have come under regulatory scrutiny

2. and have either ceased operations or moved offshore. The move offshore has typically been to Singapore – a
jurisdiction where we understand that crypto-exchanges require regulatory approval.
The knee jerk reaction of the “faithful” has been the evolution of a DEX – a decentralised exchange. A simple
way to visualisea DEX is as a peer to peer exchange, a Napster for cryptocurrencies. We expect DEXs to come
under further regulatory scrutiny (both in India and globally).
Digital Security
The Indian enforcement authorities dealt with the firstmajor hack and theft of a crypto-exchange in India.We
can continue to expect similar actions and those who have been negligent to be the subject of criminal
prosecution. It is therefore appropriate for exchanges, fiduciaries, wallets, and other intermediaries to
undertake necessary steps to ensure that digital security is consistent with global standards.
Industry Adoption
2018 was also the year that blockchain caught the fancy of the traditional Indian company. We are advising
multiplelarge publicly listed Indian financial services and real estate companies on the adoption of blockchain
for purposes other than fundraising. Our B&C team expects this trend to continue with companies replacing
traditional digital security,storage, identity management, and clearanceand settlement with blockchain based
systems.
Blockchain Consortia
We sawthe emergence of the firstblockchain consortia in India.Whilethis trend has largely been restricted to
financial services, we expect multiple industries to evolve consensus based industry wide systems to drive
adoption of a common blockchain based standard. Along with this, we expect to see the Competition
Commission of India to examine these developments closely.
2019?
2018 bought in fairly serioustechnological advances and widespread acceptancethat blockchain represents an
increasingly maturetechnology that has legitimateuses. It also broughtin increased regulatory scrutiny and an
industry acceptance that it is a technology that can be misused. We expect 2019 to see the mushrooming of
standard-setting industry wide blockchain consortia, technological advancements that will result in more
efficient use of blockchain, successful attempts at melding AI and blockchain, more detailed regulatory
interventions, and the first Indian litigations revolving around blockchain and smart contracts.
Spice Route Legal’s Blockchain & Cryptocurrency Team is recognised as a market leader in the application of
blockchain in India and the legal regime that governs such application. Do contact Mathew, Aashima, or Aadya
for any questions you may have.
Mathew Chacko Aashima Johur Aadya Misra
mathew@spiceroutelegal.com aashima.johur@spiceroutelegal.com aadya.misra@spiceroutelegal.com