NEW DELHI: When Sathvik Viswanath and Harish B V, who come from ordinary middle-class backgrounds, launched Unocoin, a cryptoassets blockchain company, in 2013, little did they know that one day their business will land them in jail. They were arrested a few days ago after their Unocoin installed a bitcoin ATM at a mall in Bengaluru in violation of RBI norms.
In July, India’s cryptocurrency market got a big jolt when banks started refusing transactions involving cryptocurrency. The RBI told all of its regulated entities, including banks, to stop dealing with individuals and businesses in virtual currencies. This meant those who wanted to participate in crypto exchanges had to use other means. Those who had foreign accounts or family and friends overseas turned to those channels. Many exchanges asked their customers to be physically present in their offices to buy bitcoins for cash.
Harish and Viswanath’s Unocoin exchange hit on the idea of using an ATM-like machine that would accept cash in exchange for bitcoins. “If banks won’t let you buy or sell bitcoins, why not an ATM to handle those purchases in cash?” Sathvik told TOI before his arrest. Bitcoin ATMs are a popular feature around the world, particularly in Japan where 14 cryptocurrency exchanges similar to Unocoin have received formal approval.
The police said the Unocoin had not taken any permission from the state government to install the ATM and was dealing in cryptocurrency outside the remit of the law. However, according to the Unocoin lawyer, permission was not needed.
“It is a kiosk that is being set inside the mall and the mall would have had already taken trade permissions,” Swaroop Anand, the lawyer representing the Unocoin duo told Quartz. “Therefore, there was no need for Unocoin to take any other permission and there had not been any violation of licence requirements.”
He said the police’s negative attitude stemmed from ignorance about digital currencies and also from certain media articles that have deemed cryptocurrencies as illegal in India.
Vishwanath believes it was a branding disaster that Unocoin admittedly did not foresee. It was possible that the word ‘ATM’ sparked the confusion, he told Quartz. “It is just a kiosk which enables our customers to transact with us and not really an ATM that requires the banking regulator’s approval,” he added.
Vishwanath told Quartz this was an inadvertent marketing error on the firm’s part. In the branding of the booth, as well as in earlier communications to the public, Unocoin had referred to the machine as an ATM. If Unocoin had called it a kiosk instead of an ATM, it may not have caught the attention of the police. The machine won’t have doled out bitcoins. It was just a cash deposit and dispensing machines for Unocoin customers.
In April, the RBI issued a circular barring banks and other financial institutions regulated by it from dealing in cryptocurrencies. It said it had decided to ring-fence the RBI-regulated entities from the risk of dealing with entities associated with virtual currencies. The RBI-regulated entities were required to cease business relations with the entities dealing with virtual currencies within three months. However, that did not make cryptocurrencies illegal.
Only the full investigation will reveal whether Unocoin broke any law or attracted attention of the law just for calling their kiosk an ATM.