Cryptocurrency could have achieved miracles in the country, but past transgressions almost pulled the lifeline out from the underbanked.

Ashish Mehta, Co-founder, DigitX shares about crypto financial inclusion
Ashish Mehta, Co-founder, DigitX

In early March this year, India’s Supreme Court reached a landmark decision to lift a two-year-old ban on cryptocurrency transactions. The country has seen numerous homegrown and foreign cryptocurrency businesses revive or start up from scratch, and this has helped to gain healthy interest from individuals, institutions and renowned personalities to develop more blockchain-related technologies and businesses. 

In an exclusive interview with, Ashish Mehta, co-founder of cryptocurrency trading platform DigitX, has framed the technology as a tool for improving financial Inclusion.

His firm has come up with a first-of-its-kind B2B Crypto exchange in India, bringing the advantage of the traditional equity and commodity market in crypto trading. The company offers its Trusted Links (brokers) for customers to trade in crypto, as currently customers have to directly engage with the Exchange. DigitX is currently in conversation with around 25 to 30 mid-size entities to engage them to participate in crypto trading through its platform. It has plans to engage around 100 members by December 2021.

DigiconAsia: How can crypto become a tool for financial inclusion?

Ashish Mehta (AM): Cryptocurrency platform is a digital store of value and exchange. The technology has the potential to reach the remotest places delivered over an internet-enabled mobile phone.

Advanced financial applications such as decentralized finance (DeFi), and basic banking activities of lending/borrowing, are also happening more efficiently over the DeFi protocols.

The costs involved in providing such services, and the interest rates applicable, are also much more attractive than the traditional, centralized physical banking networks. A decentralized system that runs without a trusted third party but through a blockchain ledger, can be made secure without the costs and bureaucratic support needed in traditional bank-linked transactions.

So, lower costs and seamless internet-based technology would help this system penetrate into the remotest of locations that maintain a decent internet connection: this will mean the enhancement of financial inclusion. 

DigiconAsia: Currently, crypto assets are costly and may take time to reach mainstream daily usage. What are the pre-requisites for that to take place?

AM: I would like to take this question in the context of Bitcoin which is nearing its all-time-high of US$20,000 today. 

The tokenomics (token economics) of Bitcoin looks like it is very costly at the moment. However, in our honest opinion it is actually not. The total market capitalization of Bitcoin today is only at US$360 billion, which is roughly about 62% of the total cryptocurrency market capitalization of about $576 billion.

This is but nothing when we compare the other investment vehicles like the stocks and bonds. The stock market has just over US$30 trillion in total market capitalization, meaning the value of all outstanding shares, while the total amount of debt owed through bonds is more than US$40 trillion. As an alternate asset class, the total gold market capitalization is US$8 trillion.

So, compared to these assets the market capitalization of the entire cryptocurrency industry is still miniscule. Even the currency circulations of global currencies like USD (19 trillion), EUR (13 trillion) and CNY (215 trillion) are larger than that of Bitcoin which is only 18.5 million in current circulation against a max supply of 21 million which will happen sometime in 2140.

The fiat currencies, which are the current medium of exchange, also do not have any max limit to their supply. However, Bitcoin has a smaller unit, called the satoshi, that is US$0.0002 dollars or US$0.02 cents. If the adoption of Bitcoin as a payment medium has to happen, this value should go up significantly to match the current supply of all fiat currencies (at least the major ones). At this point in time, this seems to be only a distant possibility. 

To achieve it, the adoption of cryptocurrency should be at the basic level, where things like payment for wages and goods and services are widely accepted in Bitcoin. We are already witnessing this at a very small scale. Most of the bitcoin transfers on the blockchain today are investment-related rather than spend related. This must change significantly, and only then can the acceptance of Bitcoin as a medium of exchange effectively occur. 

DigiconAsia: What are the potential and future of cryptocurrencies?

AM: Cryptocurrencies are not just objects but an entire ideology and a phenomenon which has deep socio-politico-economic impact.

The concept has many benefits.

  • As a decentralized financial system – Without the involvement of middlemen, the process is driven at a much lower cost.
  • An efficient global digital ledger – The ledger thus maintained is in digital format and is distributed among the network participants or peers who are themselves are located globally. This means that the ledger is continuously updated and this provides efficiency in terms of usability of the ledger information for securing transactions.
  • A single source of immutable truth – The blockchain nature of the ledger makes it a single source of truth which becomes fault tolerant and also am immutable store of transaction records.
  • A hack-proof social activity for privacy in transactions – The consensus-protocol-driven ledger system is secured by advanced cryptographic techniques and the incentive mechanism (i.e., peer-to-peer sharing of compute resources) makes the ledger hack-proof. This makes the blockchain a social activity that is driven by the community’s majority decisions. The privacy of the participants is rarely compromised by the recording system.

Unlike traditional currencies that are bogged down by bureaucracy and administrative charges, cryptocurrencies are transcending boundaries and can reach out to even those regions that have not yet experienced banking facilities. Governments could function more efficiently with resource-distribution and common people will definitely be encouraged to participate actively in order to reap the efficiencies accorded by the system.

The adoption of blockchain and crypto would help achieve the objectives of ‘minimum government; maximum governance’ utilizing digital devolution in public processes as well as enterprise.

DigiconAsia: You mentioned that the digital ledger records all transactions, so how does it accord privacy if it ever becomes a day-to-day exchange instrument? 

AM: The privacy of the participants is maintained through a pseudonymous account address rather than the name of the participant and other such details. However, the transactions are stored in a digitally-available transparent ledger.

The details of any pseudonym and their actions/transactions can be easily traced by running a bloom filter in the blockchain explorer. Therefore, if any party is identified to be the miscreant using a specific pseudonym (accepting and making payments from that digital account), all the transactions made by that person can be tracked down and the counterparties also identified and tracked down.

In fact, using this immutable transparent ledger, the FBI had tracked down the darknet drugs and arms mafia infamously known as the ‘Silk Road’ and its owner Ross Ulbricht. Only recently, the KuCoin hackers were tracked down following their crypto transactions. Most of the hacked assets were recovered, and the persons responsible were also identified. The Federal Prosecutor of the Silk Road investigation team, Kathryn Haun, noted that the investigations related to crimes involving cryptocurrencies found support from the data and the community involved in that cryptocurrency platform, and played a significant role in bringing the miscreants to justice.

DigiconAsia: Why is crypto an ‘alternative asset class’ and a harbinger of blockchain technology?

AM: In our honest opinion, we feel that the term is a misnomer. Cryptocurrencies are not currencies. They are digital assets. We can group them into the intangible asset category as per classical finance definitions. However, the advantage is that they are not ‘wasting’ assets that depreciate over time, or even bulky valuables which require storage and other security costs.

Holding these assets may require the usual interest costs (opportunity cost for holding any asset), insurance (if one wishes to insure their digital assets from digital theft, etc.) and custodial charges. So, cryptocurrencies are digital assets with low maintenance cost and zero depreciation.

Alternative investments are any other investment asset classes that are not traditional. By traditional, the world of finance means ‘public equities and corporate and government bonds’. Any other asset class, namely private equity, venture capital, real estate, hedge funds, leveraged buyouts, risky debts, land, art, commodities, real estate, structured products and many more, can be termed as alternative investments.

Since the great financial crisis of 2007-08, institutions have been looking at alternate investments in a big way and have been making larger allocations in order to meet their returns expectations while attempting to diversify the risks. For a significant amount of time after the crisis, traditional investment avenues were in a low return phase, which made it necessary to include alternate investments into the portfolio.

Our research shows that cryptocurrencies exhibit very low correlation with both traditional and alternate asset classes namely stocks, bonds, real estate, gold, emerging markets. This makes them a very good diversification and risk mitigation tool. Also, various research shows that the digital assets are not driven by the price drivers of the traditional investments, which makes their inclusion in the portfolio very favorable for overall risk-reward profile of the portfolio.

Separate studies show that allocation of just 1%, 2% or 3% of the total investment into digital assets enhances the long-term excess returns of the portfolio while bringing down the Sharpe ratio significantly, enhancing the investment efficiency in terms of risk-adjusted returns on capital employed. These features make cryptocurrencies a very suitable alternate asset class.

DigiconAsia: Why was there a need for crypto regulation in India?

AM: The life-cycle of any new technology with a promising marketplace value shows one common thing. The technology becomes misused by dishonest agencies to feed on the greed of unsuspecting common people with little know-how about the technology and misleads them into a cheat trap.

Following a number of such instances, with rising complaints, the regulators have moved in and issued a blanket ban. Thereafter, with industry participation, regulations are built-in, keeping the dishonest elements under strict control and encouraging the honest players to provide profitable use of the technology for the common people, thereby enhancing social equity and efficiency.

The same is happening in India with cryptocurrencies at the moment. We are somewhere in-between realizing how the Ponzi schemes involving cryptocurrencies are at play and how to regulate the same in order to encourage honest participation.

The industry involving cryptocurrency and blockchain enthusiasts is also providing a great many insights towards that effort through industry-wide opinion building. The external regulatory environment is shaping up slowly but steadily, and cryptocurrency adoption is increasing as the regulatory framework gets more and more robust.

With the regulation in this space, the confidence of using the underlying technology in various efforts by private and public sector enterprises, local governments, public utilities etc., would proliferate and involve users of such services to participate in helping to build an efficient low-cost process benefiting society at large. thanks Ashish for his time in sharing these insights.