Explained | India's Covid-19 crypto relief fund: What is it and how does it work?

India’s Crypto Covid Relief fund has more than $1 billion in foreign donations
Last Updated 15 May 2021, 07:18 IST

India’s cryptocurrency brigade has taken on the complicated task of funneling foreign aid coming in through digital coins to support Covid-19 relief, while the country battles a crippling second wave — and all this, while the blockchain-based assets face an imminent ban by the government.

A number of crypto traders and entrepreneurs have announced donations to support India’s fight against coronavirus. Ethereum co-founder Vitalik Buterin added $1 billion to India’s fight against Covid in Shibu Inu coin — a so-called joke coin — and another $2 million in Ether coins. Australian cricketer Brett Lee also donated one Bitcoin to the cause last month.

What are the hurdles?

While the outpouring of international support could help supplement medical efforts at a time when India is dealing with massive shortage of medical supplies and vaccines, there are a number of regulatory hurdles in channeling the funds through to on-ground relief workers and organisations.

Given Indian regulators’ fears over money-laundering and undisclosed income related to crypto payments, actually accessing the growing corpus of funds donated is not as easy as simply converting it into local currency, given issues of legality. This effectively means the donated money would be sitting on off-shore exchanges with NGOs having no means of converting the money into rupees within the country.

India Crypto Covid Relief Fund

Sandeep Nailwal, co-founder of Ethereum-linked Polygon and a well-respected name in the crypto world, has voluntarily shouldered the responsibility of managing the crypto aid pouring in. On April 24, Sandeep put up a tweet, saying he was willing to take full responsibility of “transparency, funds usage and regulatory compliance” with regard to the crypto donations.

Sandeep set up the India Crypto Covid Relief Fund with the help of other volunteers and figured out a way to bypass regulatory concerns in repatriating foreign donations. The fund has so far amassed over $1.03 billion in donations, as per its site.

How does it work?

The fund maintains an Ethereum address that accepts donations from crypto-investors around the world and then liquidates the crypto-currencies through international crypto-exchanges. The crypto-exchange turns the money into fiat currency and hands it back to the fund, which transfers it from a bank account linked to the exchange to a Dubai-based bank.

Finally, the Dubai bank wires the money to only FCRA-compliant NGOs, in adherence with the government’s new guidelines on foreign funding to NGOs.

Through this entire process, Sandeep maintains transparency by listing all donations publicly in spreadsheets on the fund’s website.

Suspicion over digital currencies

Getting foreign aid through cryptocurrencies requires jumping through hoops because digital currencies have been viewed with suspicion by regulatory bodies in India. The Reserve Bank of India (RBI) had issued a circular in April 2018 that directed the institutions it regulates not to trade, deal in or provide services virtual currencies.

The Supreme Court scrapped the ban in March 2020, but the RBI has not issued a circular revoking its ban and domestic banks remain wary of dealing in the currency until the central bank gives them the go ahead.

The RBI has informally urged banks to sever ties with cryptocurrency exchanges and traders, Reuters reported, citing sources.

The government is also working out the details of a cryptocurrency regulation bill to reportedly bar all private digital currencies and launch its own official Central Bank Digital Currency (CBDC) backed by the RBI. The bill has provoked strong opposition from crypto investors in the country.

(Published 15 May 2021, 07:13 IST)

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