In the last two years, interest in blockchain use cases such as cryptocurrency, Decentralised Finance (DeFi), and non-fungible tokens (NFTs) has risen significantly.
Bitcoin and Ethereum recording all-time highs, rising market caps for the crypto market, and NFTs selling for thousands of dollars have made blockchain and distributed ledger technology (DLT) disruptors of traditional systems of transfer of value.
However, this has also rekindled the debate around security, governance, and compliance in the crypto and blockchain space. As crypto is decentralised and largely unregulated, it poses a challenge for incumbent governments and enterprises to protect users.
Pranav Sharma, Founding Partner, Woodstock Fund — a fund that invests in early stage blockchain startups — came onboard at YourStory’s TechSparks 2021 to explain how security and governance is shaping up in the crypto space.
“I see three upcoming trends: the convergence of traditional and emerging tech to create new apps, financialisation and blurring of boundaries across asset classes, and virtualisation and tokenisation. These trends pose a nightmare for entities like governments to regulate effectively and ensure all stakeholders can coexist,” he said.
In fact, Woodstock has been investing actively in blockchain startups that are part of these trends through their products across blockchain settlement layers, service and infra, privacy and apps. Pranav’s fund has invested in blockchain startups such as Elrond, Covalent, Biconomy, and others.
Pranav Sharma, Founding Partner, Woodstock Fund
Safety, governance and compliance
Speaking about safety in the crypto space, Pranav said:
“First, assets such as crypto need to be safe and secure, and holding them in hot and cold wallets is more advisable than holding them on an exchange. Next, safety of protocols comes in, where startups need to seek audit reports and ensure partners’ protocols are not vulnerable to leaks or hacks. The expertise of the tech talent building the product is also relevant.”
Pranav also recommended founders focus on having all relevant licenses in place, and always stay on the right side of the law and be compliant.
“You have to always respect territorial boundaries. Regulations are drafted with a certain intent, but they can be interpreted in many ways. You need to ensure you’re interpreting it the right way,” he explained.
Pranav also spoke about governance in the blockchain space, which has largely seen self-regulation from startups in the segment. He explained several challenges arise from a lack of self-governance, and that discipline, integrity and keeping several backups, as well as cross-checking transactions, are essential to avoid any issues.
“Compliance is not a staller, it is an enabler. It helps everyone find safe ground and founders need to go for active compliance and stay on top of regulations, rather than a passive approach. This will help them build products that stand the test of time,” he added.
Pranav also recommended users, developers, and founders assign due importance to taxation on crypto, anti-money laundering practices, and consumer protection.
At the moment, India awaits regulatory clarity on the classification and treatment of crypto. But investor confidence and inflow of foreign investment in Indian firms like CoinDCX and CoinSwitch Kuber from the likes of B Capital Group, a16z and Coinbase Ventures could be an indicator of a bullish outlook towards the future of India’s crypto market.
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