The launch of an India-focused digital currency, Laxmicoin, has been suspended by its co-founders, following the Reserve Bank of India's (RBI) raids on bitcoin exchanges in December last year.
While some bitcoin exchanges are once again operating and digital currencies are gaining traction in major Indian cities, Laxmicoin founders Mitts Daki and Raj Dangi say they are adamant about not moving forward with the launch of their new currency until the RBI gives them the green light.
Daki, who is based in Silicon Valley, revealed that one of the reasons for the suspension is that some of the venture capitalists who had expressed an interest in funding Laxmicoin are now reluctant to do so.
While Daki did not disclose the names of the venture capitalists, he said:
"We were about to get almost $2m in funding from a couple of US-based venture capitalists with a presence in India. Before the raid, we were almost finalizing numbers with one of them and about to sign a contract. After the bitcoin raid, they wanted to delay this. We talked to them and they said that we needed RBI clearance before further discussions."
Daki has been chasing after clarification from India's regulatory body since he registered the company in April last year. As soon as he announced Laxmicoin, he logged an inquiry on the RBI website. He also sent two other formal letters in 2013, but did not hear anything back. Two weeks ago, he and Dangi sent a further letter.
The RBI is likely to take its time in making the situation black and white. In a statement to CoinDesk, an RBI spokesperson gave no indication of when the bank will announce a decision regarding digital currencies in India:
"The RBI is currently internally examining the issues relating to virtual currencies including bitcoins," the spokesperson said. "A final stand or update on RBI's stand will be decided thereafter. Meanwhile you can refer to the press release available on our website."
From goddess to currency
Laxmicoin is named after Laxmi, the Hindu goddess of wealth. It was poised to be an India-focused digital currency, easily accessible for less-technically savvy people within the developing country, and even to be donated to worthy causes.
The founders had planned to mine half of Laxmicoins before the launch, out of which they would hold on to 20% of the coins and give out the remaining 30% to people in different walks of life, who do not have the means to mine themselves.
"We wanted to distribute to colleges, to NGOs, and other social causes. Basically, to those walks of life where people work hard and government pays them minimum wages," says Daki.
Deepak Mantwal, a senior founding member of the Laxmicoin team, explains the reason for pre-mining some of the coins:
"India is a developing country. If you will leave all the mining for the people, it won't be practically possible. You need special machines for that, you need good power, and you need good Internet connections to mine them. That's why we have decided some percentage will be pre-mined and some will be mined after a certain period of time."
However, the founders did not explain a concrete procedure for fair distribution of the pre-mined coins.
They also did not have a plan in place for open accountability of the 20% of Laxmicoin that was intended to remain with the founders. They stressed that all further developments had been suspended until the RBI clearance.
More trouble ahead
While the Laxmicoin founders are waiting to hear from the RBI, many people in the Indian digital currency ecosystem do not believe that they will get a positive response in the near future.
Venture capitalist Maninder Gulati is an active member of the Indian bitcoin community. He is also currently looking to invest in cryptocurrency projects. He says that the regulators in India will not warm up to the idea of digital currencies anytime soon.
Moreover, he says it is problematic that Laxmicoin is targeting to becoming the country's representative digital currency:
"You cannot go to a government and say, 'here's my digital currency; please accept it'. That cannot happen."
"In the future," he says, "the government may create a digital currency version of the fiat. But, it's very difficult for an outside party to do so; because then the amount of that digital coin - whether that's Laxmi or anybody else - is actually controlled by that body."
"If you own it, you cannot say to the regulators, 'you be the central bank of the fiat and I'll be the central bank of digital currency'. That cannot happen."
Laxmicoin has more than just the RBI to convince. Cryptocurrency enthusiasts are also not on board with the technical side of Laxmicoin.
Organiser of the Delhi bitcoin meetup, Sylvester Liang says, "I feel that because they are a closed sourced, centralised system, I don't think they come under a cryptocurrency umbrella. They may come under the virtual currency umbrella, but not within the ecosystem of cryptocurrency."
Indian goddess Laxmi image via Shutterstock