Naval Ravikant, the AngelList founder and an early stage investor in some of Silicon Valley’s most successful startups such as Uber and Twitter, termed India’s move to clamp down on cryptocurrencies “discouraging” and said the country will lose out on creating a next-generation financial exchange apart from triggering an exodus among the country’s talented software engineers.
“It is unfortunate because wouldn’t you love to be the home of the next Hong Kong or the next London financial district or the next Wall Street?” he asked in an interview with FactorDaily last month. “And just by opting out of that game altogether is a little tragic and then you are also just restraining all kinds of great engineers who could have built applications and built decentralization networks or built the next decentralized Uber or the next decentralized Airtel.”
As we reported in June, a dozen or so cryptocurrency exchanges in India, apart from a few million investors and crypto services companies, are staring at an uncertain future after the Reserve Bank of India issued a notification on April 6 asking all the entities it regulates – banks, credit card companies, settlement agencies etc. – not to support virtual currency activities.
An influential investor, Ravikant, 44, is an important voice in the fledgling cryptocurrency industry.
The brain drain has actually already started as we reported in this May story and countries such as Singapore and Switzerland are benefiting from “the great Indian blockchain migration”.
“They could have built these companies on top of the decentralized crypto network infrastructure but now they don’t really understand the exposure at the same level that they would in a country where it was more accepted. So, once again you are encouraging brain drain, you are encouraging intellectual capital (to) fly, you are encouraging the best engineers to leave and go elsewhere, and you know that is something India does not need,” Ravikant said.
To be sure, governments across the world are concerned about the scams surrounding bitcoins and other cryptocurrencies. But, according to Ravikant, shutting things down completely isn’t really the option.
“I was discouraged to see India banning or shutting down all kinds of cryptocurrencies because even while they are frothy or there are all kinds of scams, they are technology and they are a way of financing technology expansion and they are a kind of predictor of the future,” he said.
Here are edited excerpts from the interview with Ravikant as part of FactorDaily’s weekly Outliers Podcast that ran June 21:
On India’s crypto shutdown
So India shouldn’t be shutting itself out of these markets because of the way internet just spreads information and the internet’s native language is English also, I think India just stands to benefit a great deal from that. I would be the one to bet that the timing is now or really soon.
It could be, you know, the global financial systems start moving at least partially towards (being) cryptocurrency-based and you can see all these startups now in the Silicon Valley that are doing exchanges, derivatives, smart contracts, indexes, securitization… They are not doing a wrong crypto. So, the first time (with) your permission is programmable money and engineers are writing codes to build things up and the other engineers are taking those codes and then writing more things on top of it. It’s very exciting and you could see it in 2-3 years you run a parallel crypto Wall Street.
It is unfortunate because wouldn’t you love to be the home of the next Hong Kong or the next London financial district or the next Wall Street? Just opting out of that game altogether is a little tragic. And, then you are also just restraining all kinds of great engineers who could have built applications and built decentralisation networks or built the next decentralised Uber or the next decentralised Airtel. They could have built these companies on top of the decentralized crypto network infrastructure but now they don’t really understand the exposure at the same level that they would in a country where it was more accepted. So, once again you are encouraging brain drain, you are encouraging intellectual capital (to) fly, you are encouraging the best engineers to leave and go elsewhere and you know that is something India does not need. If like India was just on track to keep its homegrown entrepreneurs local but now the ones who are properly interested in blockchains and crypto are being pushed out.
On concerns over crypto and what the US is doing right
The concerns are valid anytime when you have a new market, especially one involving money – you get fraud and scam. It is just the nature of the VC. You have to be able to tolerate that, if you want to reap the rewards down the line, if you insulate investors from risk, you also insulate them from reward. That just goes together. There is never been a system in the history of mankind that has managed to produce reward without risk. It just doesn’t last very long. So you know, I think they just have to, kind of be dynamic and open-minded and watchful as a process statistic can have strong declarations.
The US regulators have actually done a really good job. They have shut down some of the more fraudulent projects. They have put a lot of the others on notice. I would say in the US right now, the industry is being essentially squared into compliance and some level of self-regulation. I do expect the regulators to crack down on the more fraudulent projects. You know, that is the right thing to do. But they are being methodical about it. It is not a blanket statement in one direction or another. I understand that in India’s case, resources may be limited, the understanding may be limited, but India has enough smart people that it can figure this out without having to take extreme viewpoints in one end or another.
Governance without governments
What’s interesting to me is that first of all there are a number of fundamental technologies that are going to be combined in an interesting way. Everything from peer-to-peer networks and digital signatures – the solution to the Byzantine Generals’ consensus problem. But, the long way of saying that is that we have finally created a way to have online digital markets that run themselves without having a single corporation like an Uber or an Airbnb in charge or Google or Facebook in charge, without having a country or a government in charge, without having an individual or a king or a tyrant in charge, without having an aristocracy or an elite in charge. So crypto networks, cryptocurrency-powered blockchains, public blockchains give us ways or having governance without governments. At least purely in the digital domain and that is really important for the future of building, you know, sovereigns-free money, of building contracts that don’t necessarily need lawyers and or escrow agents, of building marketplaces for energy, for power, for rights-of-way, and for bandwidth.
So, I think it is sort of creating this whole new system of networks, it is very much in the infancy. Right now, we are just in the infrastructure phase, we are trying to figure out how to make them scale, how to make them properly decentralize, how to make them properly programmable but to me, it is very exciting technologically.
Also, just if you step back for a moment, it sort of doesn’t make sense for the internet, given everything that we do for the internet to not have its own native currency. So, I just think that a programmable native currency that (has) code running on the internet, servers running on the internet, routers operating on the internet can use and be used to exchange and trade value and scarcity. It is a very powerful thing. We have finally created digital scarcity, digital value which is an important paradigm, it is not just digital abundance that we need to do. I know it is very fuzzy… that’s why it’s still a very small and frothy market. The entire cryptocurrency market today is valued about $300 billion, that’s not even half of one of the mega-giant unicorns in Silicon Valley like Facebook or Apple. So, I do believe there are still long ways to go.
(Lead photo by: Kris Krüg (Creative Commons))
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Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.