BENGALURU — Although India has come cracking down heavily on cryptocurrencies, the same cannot be said for blockchain companies and startups working on this technology.

In fact, it is the other way around; there seems to be a promising start but some hiccups still persist for developers due to the complete ban on cryptocurrencies.

When India’s Finance Minister Arun Jaitley announced that the Indian government will not consider cryptocurrencies as legal tender or coin, he also mentioned the government will explore use of blockchain technology proactively for ushering in digital economy.

But little did he realise that this one liner on blockchain technology about five months ago would catapult companies and startups into a feverish mode and make them scramble for talent, funding and ironically, at the same time, lobby for appropriate government regulations to manage risks and attract global investment.

What this “blockchain district” is all about

Last week, the state of Telangana (formerly part of Andhra Pradesh state) announced the formation of the first blockchain district in India. This would be the first of its kind in India and the third after South Korea and China.

This announcement came during the International Blockchain Congress (IBC) which took place in Hyderabad, Telangana in the first week of August which attracted an unprecedented participation of over 3000 delegates including over 80 speakers.

During the conference, the government of Telangana signed MoUs with Tech Mahindra (earlier called Satyam Computers), Nucleus Vision and Eleven01 Foundation to launch India's first Blockchain District, which will provide a complete ecosystem for the growth of blockchain technology.

While Tech Mahindra, will provide platform and technology assistance to the incubators in the Blockchain District. It will also help accelerators to develop and solve market problems across its global customer ecosystem, the Telengana government will provide regulatory and policy support to enable and promote Blockchain growth, both in India and globally.

The Eleven01 initiative to create protocols

Eleven01, a multi-year blockchain initiative aims at creating an ecosystem for startups focused on the technology.

A joint effort of Tech Mahindra and the multi-organisation conglomerate Eleven01 Foundation, the Eleven01 protocol will power an entire ecosystem of services for Indian blockchain startups, from advisories, incubators, centres of excellence (CoEs) and venture funds.

With the protocol, Indian blockchain companies need not rely on foreign technologies to build world class decentralised applications. The protocol promises to fix several issues with existing blockchain platforms.

Eleven01 was built to provide a foundation for building decentralised applications that would scale several million users, capable of performing over 10,000 transactions a second. Several high profile blockchain companies had already committed to using the protocol as their primary technology platform. Names of these companies would be announced soon.

Besides the high performance protocol, the Foundation would have labs, incubators, accelerators as part of its focus on building the world’s largest ecosystem out of Hyderabad. Tech Mahindra has a taken a less than 10% stake in Eleven01 Foundation.

Blockchain development propelled by Indian banks

Recently, India’s information technology companies have been moving away from traditional IT services and experimenting with emerging technologies like Blockchain, deep learning, Artificial Intelligence, and more. While TCS, IBM, Tech Mahindra, and Microsoft setting up business units dedicated for blockchain technologies, the latest to enter the fray is Infosys Technologies.

The Bengaluru-headquartered firm has developed a blockchain solution for trade finance and is piloting it with seven of India’s leading private sector banks - ICICI Bank, Axis Bank, Kotak Mahindra Bank, YES Bank, IndusInd Bank, RBL Bank, and South Indian Bank.

The product known as ‘India Trade Connect’ is a document-tracking mechanism that will allow banks to manage trade documents digitally and bring down system inefficiencies, detect frauds, and so on. Two of the seven banks Infosys has tied up with are in the production-phase of the platform, while the others are still testing it, said a report in The Economic Times.

Sanat Rao, Chief Business Officer, Infosys Finacle, said, “Trade financing is document-heavy and process-heavy. The blockchain solution allows this to happen in a digitised manner. Because of the network effect, where a buyer, the buyer’s bank, the seller and the seller’s bank are all on the platform, it creates a single source of truth.”

While blockchain is gaining momentum industry-wide, experts reckon that the banking sector would be most impacted by it. “Because it is nearly real-time, it brings you a certain speed which is important in areas where historically it takes time to access information,” according to a Deloitte study.

Basudev Banerjee, Director - Industry Solutions at Microsoft India, had said in an earlier news report in YourStory.com that blockchain technologis are being used by group insurance firms. “Large banking organisations are using Blockchain for auto-claim insurance management. Some large proof-of-concepts and pilot projects are already being run,” he said.

Industry experts believe the banking sector would be the greatest beneficiary of Blockchain technology. It would aid financial inclusion and transform the way banks service people.

Interestingly, ICICI was the first Indian private bank to deploy Blockchain-based solutions for international trade transactions back in 2016. It is also a part of the SBI-led BankChain that is building a community of banks for exploring and implementing blockchain solutions. So far, BankChain has 35 partner-banks and ten live projects.

Yet all is not hunky dory for developers

Over 80% of blockchain developers in India will be forced to move abroad or work only on foreign projects if the government does not adopt a robust regulatory framework soon, according to a survey of over 100 developers, according to a news report in The Economic Times.

The research, conducted by blockchain community, Incrypt, over a period of six months focuses on how the current regulatory climate is affecting core development activity and blockchain entrepreneurship in India.

The survey has found that delay in putting together a framework for blockchain is causing India to lose out on jobs, drag in capital infusion, lack of innovation for local problems, talent flight, and setback in global positioning.

“Blockchain projects are creating new job categories, leading to hiring more fullstack, front-end and back-end engineers globally,” said Nitin Sharma, founder of Incrypt. “At a time when IT services industry is losing jobs, India needs to move fast in putting in place appropriate regulations to manage risks and attract global investment in blockchain.”

The government’s lack of initiative has already forced many blockchain developers and startups shift their domicile to nations like Singapore, Dubai, Estonia and Switzerland that offer tax incentives and e-residency for startups, the report said.

The Reserve Bank of India (RBI) on April 6 notified banks to stop offering services to exchanges and crypto-related businesses in India. This has taken a toll on blockchain entrepreneurs, developers, and exchanges in India.

According to the Incrypt report, the idea that bitcoin or any crypto asset is not necessary to derive value of blockchain technology adversely affects the innovation ecosystem.

For instance, globally, there are thousands of open source and freelance job opportunities to support large public blockchain projects like Ethereum, Stellar, Neo, EOS, etc. There are also hundreds of emerging Initial Coin Offering (ICO) projects that need technical, marketing or advisory talent.

But many of these projects come with token based incentives, meaning payments for working on these projects are often in cryptocurrencies.

“An Indian developer may be able to receive tokens but if there is no legal way to convert it into Indian rupees, a majority of prospective professionals may be deterred by the possibility that these incentives may be worthless in India or whether the government will consider their work noncompliant in any way,” the report said.

These tokens often come with a vesting schedule for employees. The government’s ‘Blockchain, not Bitcoin’ approach is costing the Indian developer who is forced to go underground and deal in cash or other channels that may essentially be illegal activities.

In addition, tokens are also required in the testing and user validation phase of product development.

“The absence of users with such access or capabilities in India is already severely hurting the viability and ease of dozens of such projects in India,” Sharma said. “Existing regulators must realise that this will set India back by several years as far as core protocol or distributed app development is concerned.”

This has also caused a setback on the skilling front, as highlighted by hiring-solutions provider Belong Technologies. Only 5,000 (0.25%) of the 2 million software developers in India currently have the right blockchain skills.

On the capital front, the report stated that India is trailing behind in terms of VC funding for blockchain startups, with a minuscule $5.3 million raised in the last two years, as opposed to over $2 billion invested in blockchain equity deals.