Banning crypto will be a trillion-dollar mistake: Balaji Srinivasan
15th Feb, 2021
Balaji Srinivasan, a former CTO of the American crypto exchange platform Coinbase, insists the world is moving towards decentralized systems and cryptocurrency is an integral part of that future. If India bans digital currencies, it would not only lose out on a significant financial opportunity but also see a flight of people to geographies that allow cryptocurrency, he said over a video call from Singapore.
The entrepreneur and investor is optimistic about India, though, and recently relocated from Austin to be based in Singapore and India. In an interview with The CapTable, the former General Partner at venture fund Andreessen Horowitz spoke on his investment plans for India, why he is bullish about IndiaStack, and why he thinks the country can become a tech and media superpower.
The interview has been edited for clarity.
You recently moved from Austin to Singapore/India. What got you to move to this part of the world?
There are a number of reasons for why I accelerated things and got out to Asia. One of the things that certainly was a factor was seeing the growth of Reliance Jio, seeing what India has done in terms of execution over the last 5-10 years, especially with Aadhaar and UPI. And Aarogya Setu, which has also been punching above its weight on Covid. (India’s) now number three in tech unicorns. Naval Ravikant (co-founder of AngelList) and I have been talking about India for quite some time, and I’m pretty excited about the country.
Are you looking at making investments in India? What spaces are you interested in beyond crypto?
I am an angel and seed-focused for lots of reasons. Mainly because I’m in it to help the next generation of entrepreneurs. That’s what I care about. Once in a while, I’ll do a growth investment but 95% are seed investments. The reason for that is you’re evaluating the person, which is more fun and easier to do in some ways than digging through a mountain of series D financials.
I’m interested in the real future. So crypto, certainly, but transhumanism, space, brain-machine interface, robotics, certainly machine learning.
Technology is going to get much more ambitious this decade because we have our winnings from everything that we did over the last 10 or 20 years. We have a bunch of super-empowered individuals, we have the knowledge of how to start web services. Now we can get more ambitious.
Do you see a lot of core technology companies coming out of India?
There’s absolutely nothing wrong with India cloning, copying, building Indian variants for things, that’s fine. Especially early in a startup ecosystem, and it’s still relatively early in India. China did this for a long time. For a long time, the knock on China was they were just making plastic stuff. And then they were just cloning things: the Chinese Google, the Chinese Amazon. Now, if you follow the Chinese tech ecosystem or their manufacturing business, they really are world leaders.
You don’t have to start out with your first thing being getting to Mars, right? Even Elon Musk started with Zip2 and then did PayPal before he did Tesla and SpaceX. So it’s totally reasonable for India to be in a Zip2 or PayPal phase. That’s totally legit.
That said, I think the path India takes can be different. If China became a tech and manufacturing superpower, I think India can and should become a tech and media superpower.
Why tech and media?
India’s okay at manufacturing. It has its own vaccines, it does generic drugs, it’s managed to ship something very physical with Reliance Jio. There are pockets of excellence. But India is very undervalued in terms of its ability to build an international media enterprise. Obviously, India has Bollywood, it does a lot of backend animation for Hollywood, it has exported a lot of journalists and writers, and, historically, it’s been a culture exporter.
India speaks English and has a lot of computer scientists and software engineers and different kinds of media. I think all of those come together because the next generation of Hollywood, for example, is decentralized Hollywood in computer graphics. So not just influencers but virtual influencers generated on a computer. The decline of US media leaves a huge opening for India to do a more tech-positive global media.
For example, the movie Super 30 (on Indian mathematician Anand Kumar). That has a spirit to it that is so different from the US, which basically makes movies that are always like—for example, Black Mirror—technology is bad, it’s dystopian.
By contrast, in India or China, or much of the rest of the world that has seen its living standards rise over the last 10, 20, 30 years, the introduction is good. Technology is good. The introduction of the smartphone and so on are aligned with material improvement in living conditions for many people in India. That’s a skyhook that’s pulling people up. That culture can produce a totally different kind of movie, a totally different kind of book, a totally different kind of thing for the world.
An important thing about this is there’s a huge distinction between local India and global India. When I say India can become a media superpower, the analogy is that Bollywood is recognizably India, but a bar of steel from ArcelorMittal is not, it is a globally competitive product.
The next step for India is to think what international India looks like, to be globally competitive. For example, animation can be done in such a way that it feels globally relevant.
You have said India is underpriced as a market. What did you mean by that, since the general perception is Indian startups are overvalued?
When I say underpriced, I’m using a colloquial sense. I think India’s impact on the world is underpriced. That people don’t understand how big a deal it is going to be as opposed to any individual deal.
I’m actually excited about India, not as a market but as a labor market. I think there’s a tonne that we can do in terms of tasks and outsourcing 2.0. You have 500 million Indians who can be producers with their Android phones, and we can pay them over the internet to do that. That’s totally novel. Totally very powerful and interesting. (And) I’d like to pay them in crypto.
Hopefully, we can get to that. It’s really important that the ban (India’s plan to ban owning, trading, mining or investing in cryptocurrency) should not go through. It would be a trillion-dollar mistake for India, without exaggeration.
It would be a reversal of economic liberalization in many ways. It would basically be banning the financial internet from entering the country. And it wouldn’t even achieve the desired objective. All it would do is ensure that Indian founders and the capital that would have come into India just pass to do it outside against their will. It would just spur another wave of immigration and have the compounding of this trillion-dollar industry occurring outside of India. And (India) would have to then un-ban it in 2025 or 2030.
I’m not saying that they couldn’t turn it around eventually, maybe they could. But you’d lose a tonne of ground to those countries in those places that did it right.
India is growing, but it’s not such a wealthy country that it can afford to leave a trillion dollars on the ground.
I don’t think that people really understand that that’s the scale of this decision. They don’t understand how big a deal it is. They think we’ll just stop some bad people from sending money into the country. But banning crypto to ban crypto criminals is like banning driving to stop drunk driving. It’s just too much of a sledgehammer approach.
The Indian government seems to be pro blockchain and against private cryptocurrency.
I am sure the government means well. They have a few of the smartest people in their team, which has helped them achieve a lot on the technology front. But maybe they are thinking of crypto differently. They are thinking they can create this national digital rupee with all the features of crypto. They can let citizens pay revenue, fees in it and make it interoperable with all other services. This is awesome. It is almost like having a UPI for a digital rupee.
Now the problem here is a few-fold. The digital rupee will not be adopted the world over. International trade will still require to be settled laterally. I believe the US dollar will lose its position as the default international currency for trade. It will eventually end its reign as the reserve currency may be in 10 to 20 years. In India, a lot of the discussions are happening for domestic conversations and not for international levels. Also, globally different countries will adopt their national digital currencies and that could become the center of the internet. So like it or not, India will be part of the global currency competition with every other currency.
Crypto has the potential to truly disrupt the global currency flow. There has always been foreign exchange and relatively few people who were doing it. Now, with a government-backed digital currency, we are not sure how the government will operate but it could be something similar to how USDC (US Dollar Coin, a cryptocurrency backed by the US dollar) operates.
A government-backed digital currency would be somewhere between a private API key that one can own on one extreme and a banking license, which is so difficult to get, on the other end of the spectrum. The API key will let you undertake fund transfers digitally most of the time, but in case of any sudden eventuality, there will be a kill switch with someone.
The world has lost confidence in American tech companies and India could be a champion of decentralized alternatives, which is good for India and also great for the rest of the world since they can audit them.
This is possible only when we start thinking about crypto and not simply blockchain. It is this international component that is not being contemplated when people say blockchain, not crypto.
If you stop Indians from associating with something this big then you might end up losing talent. Maybe they will emigrate or continue doing (trading in bitcoins) with disrespect for the law.
Banning bitcoins would not mean going after a few corporations. It would mean going after otherwise law-abiding citizens who are some of the smartest in the country.
Also, you cannot keep a global tech movement outside your country indefinitely. Eventually, they will get back and they will come back then on their own terms.
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India has built a central architecture, IndiaStack, on top of which multiple services such as UPI and Aadhaar have been developed. How do you see this structure shaping up in a world where crypto becomes the norm?
Decentralization does not mean there will be no leaders. It rather means an abundance of them. I predict that sometime in the 2020s we will see nation-states trying to partner with the crypto networks. The reason is that it is always easier to buy a platform than build it from scratch.
Also, you would need your national digital currency to be technologically at par with private cryptocurrencies. Like in Venezuela, a lot of people hold dollars because the local currency there is not that useful. You could see something similar playing out in the crypto world, too, if the local digital currency is not as feature-rich as private cryptos.
IndiaStack is a great place to inject crypto functionality. First, you can deploy your digital rupee there. It can be similar to the USDC stablecoin. Similarly, the country can develop an Indian stablecoin. Then maybe there can be a case for a crypto UPI. Then you could have hooks for an exchange such that Bitcoin, Etherium, etc. are supported by IndiaStack. Then if you did a transaction that shifted BTC into digital rupee that gets recorded, and then we can pay whatever tax we have to pay on that and the government can track it.
This can follow the same route as the liberalization of foreign exchange, which happened in India in the 90s. You can make IndiaStack crypto compatible. Then you turn this into a major export for India. Just like countries exchange one thing for oil, for India, software could be our national export. Having built something for a billion people, it will not be that much of a thing to scale it up to seven billion people.
There are two ways of getting it done. One is by getting people in other countries to use the digital rupee. Or two, let those countries take this stack and use it to build their own. It is a great way for India to export soft power across the world.
What is your outlook for Indian crypto startups considering the proposed ban?
The crypto market in India is relatively small. India lost a bit of compounding growth opportunities because of RBI’s ban on banks dealing with crypto exchanges. Now that means a few years of growth opportunities have been lost. Hence the crypto industry is not that big here.
Platforms in India should make the case, write more to expand awareness, and tell how the country is going to miss out on this trillion-dollar opportunity. The back-up plan for these platforms is to look for chances in Singapore, Dubai or Estonia, or any other country that will support these platforms. If all the volume was in India and all the traders were from here then maybe nothing can be done. But keep raising your voices so that everyone hears you and then we will see what happens. These people are some of the smartest early adopters in India.
What’s your view on India establishing its own digital platforms, be it a digital rupee or its own social media platforms?
It goes against the core proposition from my side on international India. (If we see tech companies in) the US and China abusing their centralized access, folks will not want another player coming in. They’re going to want a decentralized one.
It’s quite possible that India bans Twitter. India did ban TikTok. Let’s say all these countries ban Twitter and build their own national Twitters, then what’s the next step? The Japanese people are not going to be on Indian Twitter, and neither will the Hungarians or the Americans. So in order to get a message out to the world, you’re still going to need international platforms for communication and transaction. That’s where cryptocurrencies come in. That’s the international bit (about cryptocurrencies) that is not being thought of because it’s being thought of as a purely domestic issue.
If India starts building platforms only for itself then how will it continue to exchange messages with the rest of the world? I am not saying it will hamper investments. There are a lot of other things that are also happening in this country. But yes, it will affect to a certain extent.
It will cause a hit of double-digit percentages compounded over the next decade. India could get 20% poorer from what it could have achieved over the five-year term. It is almost like banning the internet for 5 years. The losses add up a lot.
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