The purchase data of buyers and sellers of the virtual currency can then be traced through either the Aadhaar ID or PAN of the user.

Even as cryptocurrency Bitcoin is coming under intense scrutiny worldwide after its prices went on a roller-coaster ride, the Indian currency exchanges handling Bitcoin trade are trying to stay on the right side of the law.
​
Finance Minister had made a mention in his last Budget speech in the Parliament that the Government considers cryptocurrencies illegal tender and will not recognize any payments or transactions made with them. At the same time the Finance Ministry has set up a committee to review the functioning of the cryptocurrency exchanges and proposes to setup a regulating body on the lines of the Stock Exchanges Board of India (SEBI). Now, the Bitcoin exchanges in India plan to create a central repository of clients and will ultimately put in place a self-regulatory mechanism to appear transparent.

This move comes amidst reports of the Income Tax authorities sending out notices to 100,000 investors in cryptocurrencies asking them if the amount they have invested have been reflected in their income statements and the corresponding taxes have been paid by them or not.

By this move by the Bitcoin exchanges, the details of the buyers and sellers of the digital currency through the exchange can be traced through their Aadhaar or PAN numbers. The repository will also hold information on the details of the transactions, including the frequency of the transactions and the pattern etc.

In fact, going one step ahead, the exchanges will submit the details of their proposed repository to the committee being setup by the Indian government, which is expected to submit its recommendations to the government before March 31. In the current scenario, though the individual cryptocurrency exchanges follow the normal KYC norms of registering the identity of the dealers on their exchanges, the overall information does not get shared among the exchanges.

As mentioned, the proposed move to create a central repository of information is meant to present to the government that they are self-regulating institutions and will not permit any illegality in their transactions, including money-laundering by the customers on their platforms. They intend on creating a “code of conduct” for their members and customers.

​The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, says Goldman Sachs

The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, according to Goldman Sachs Group Inc.’s global head of investment research.

Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by future competitors, Goldman’s Steve Strongin said in a report dated 5 February. While he didn’t posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different coins to move in lockstep wasn’t rational.

“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”

Today’s digital coins lack long-term staying power because of slow transaction times, security challenges and high maintenance costs, according to Strongin. He said the introduction of regulated bitcoin futures hasn’t addressed those concerns and he dismissed the idea of a first-mover advantage—noting that few of Internet bubble’s high fliers survived after the late 1990s.

“Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors,” Strongin said. “At the same time, it probably does mean that most, if not all, will never see their recent peaks again.”

​Strongin was more upbeat about the blockchain technology that underlies digital currencies, saying it could help improve financial ledgers. But even there he sounded a note of caution, arguing that current technology doesn’t yet offer the speed required for market transactions. Bloomberg

​2018 is set to be another breakthrough year for cryptocurrencies. Here are my top 4 predictions:

1. The cryptocurrency market will continue to grow as institutional capital gets involved

Last month CBOE and CME announced that they would start offering bitcoin futures bringing cryptocurrencies closer to traditional financial markets and adding legitimacy to a previously notorious asset class. Goldman Sachs was among one of the first institutions to announce that it would clear futures for its clients on a case by case basis and is set to launch a cryptocurrency trading desk by mid 2018.  Other institutions will undoubtedly follow suit as clients demand access to cryptocurrencies and as the infrastructure required to trade them at an institutional level is built out. This includes exchanges offering much needed compliance and security tools as well as appropriate insurance products.

In 2018, we will see the launch of numerous crypto funds. To date there are over 100 (84 of which were launched in 2017) with an estimated $2bn in assets under management.  The proliferation of these funds will be coupled with the development of new cryptoasset investment vehicles (futures, ETFs and mutual funds), which will broaden exposure to even the most conservative investors. For instance, one could envisage the development of a S&P 500 bitcoin-hedged ETF or network value weighted cryptocurrency ETFs including potentially a basket of the top 5,10 or 20 cryptoassets.

2. ICOs will professionalize as experienced investors move into the market

Last year was a bull year for ICOs. Unprecedented amounts of capital were raised with some projects such as Filecoin and Tezos raising over $200m in a single round of funding.Of the 230 ICOs in 2017, many took place off the back of nothing more than an idea (usually formulated in a white paper), a team of developers, and little to no due diligence.

This year experienced investors will get involved with this new means of funding. They will demand further business validation and transparency, bringing the ICO process closer in line with traditional venture fundraising and making it increasingly difficult to raise off the back of a white paper. This trend will be supported by the development of ICO platforms such as CoinList, which carries out due diligence prior to accepting companies onto its platform, or Balanc3, which provides crypto companies with accounting and reporting tools.

​The professionalization of ICOs will be bolstered by the rise of SAFTs (Simple Agreement  for Future Token Sales), investment contracts geared towards pre-product, pre-ICO fundraises and accessible to accredited investors only. In a SAFT sale no coins are ever sold. Instead money is exchanged for a traditional paper contract that promises access to a future product.

SAFTs allow developers to build out a functioning network and tokens with real value prior to launching an ICO. Importantly, they also help token-based companies to comply with US securities regulation. As SAFTs become more commonplace we will see a decrease in the number of ICOs for pre-product, pre-network businesses and, as a result, the reduction in speculative token sales.

3. Regulators will take a firm stance on ICOs leading to a short term slowdown

Professionalization will go hand in hand with increased regulation globally. In 2017 we saw China and South Korea taking a stance and outright banning ICOs while the US ruled that certain cryptoassets should be classified as securities and ICOs should regulated accordingly.

Over the course of the next year other jurisdictions are likely to follow suit leading to a slowdown in ICOs in the short term. This in turn, will result in an increase in “jurisdiction arbitrage” as crypto companies flock to countries such Switzerland and Luxembourg where cryptocurrency and ICO regulations are less stringent.

Cryptocurrency trading will also come under further scrutiny. In 2018 the UK Treasury is set to regulate cryptocurrencies in line with anti-money laundering and counter-terrorism rules forcing traders to reveal their identities in certain cases. Online platforms where cryptocurrencies are traded will be required to carry out due diligence on their customers and to report suspicious transactions. Jurisdictions around the world will most likely follow in their footsteps.

In the short run increased regulation may lead to a fall in prices and trading volumes. In the long run it may help to legitimize the industry bringing it closer to the financial mainstream.

4. Concerns around scalability and performance will lead to the rise of new platforms and approaches

Both Ethereum and Bitcoin, today’s leading platforms, face numerous issues which have led many to question their long term potential. Worldwide bitcoin mining hardware now consumes roughly the same power as Denmark and some claim that by 2020 it will use more electricity than the entire world uses today.

Bitcoin transactions times now range from 10 minutes up to several days and transaction fees have risen to over $4.75 per transaction, this will only get worse as more people join the network. Similarly to Bitcoin, Ethereum suffers from limited scalability. The crytokitties craze showed that a spike in just one app can be enough to cause bottlenecks in the entire network and a jump in transaction fees.

As users become increasingly aware of Bitcoin and Ethereum’s shortcomings they will seek out alternatives leading to the rise of other currencies and platforms. Litecoin, Ripple, Monero and Zcash have already proven to be attractive alternatives to bitcoin. 2018 will see the launch of a host of new currencies such as Chia, a “better Bitcoin”. Founded by the inventor of Bittorent, Chia is set to offer more reliable, eco-friendly mining and security measures. Likewise, Ethereum’s position as the leading smart contract platform will start to be challenged by newer platforms such as NEO and Cardano.

​In 2018 several solutions and upgrades to the problems above will be put forward. For instance, off-chain solutions such as the Lightning Network (Bitcoin) and Raiden (Ethereum) will allow users to circumvent some of the high transaction costs and slow speeds of transaction. An upgrade in Ethereum’s core protocol will also take place which will change the method for verifying transactions from proof-of-work to the faster and more cost-effective proof-of-stake.

2017 brought cryptocurrencies into the limelight. As prices rose to eye-watering heights, speculators flocked to the market in droves, driving prices even higher. In 2018 new currencies and platforms will emerge, experienced investors and financial institutions will move into the market and regulators will take a stance. 2018 will be the year that cryptocurrencies become embedded in the traditional financial system.