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To get around payment channel restrictions, Indian crypto exchanges are becoming P2P

As part of an ongoing effort to circumvent bank and payment company limitations, a number of Indian bitcoin exchanges are supporting peer-to-peer transfers.

When the exchange gets a buy order, it immediately connects the buyer with the seller. The buyer can then send money to the seller through a bank or a payment mechanism, and the seller will transfer the cryptocurrency from their exchange wallet to the buyer’s wallet.

There are no transfers from payment systems or banks to the exchange this manner.

Blockade of cryptocurrency payments in India

According to local media sources on April 18, the move is in response to recent restrictions imposed on payment networks in India. According to an unidentified executive at one of the exchanges,

“This is not how an exchange should be functioning. It’s certainly less efficient.”
“But apparently there is no violation of any regulation or law.”
“It’s a simple money transfer from A to B,”

Fiat on-ramps and off-ramps between the client and the exchange are normally handled by third-party payment processors. The Reserve Bank of India, on the other hand, has issued several warnings to them regarding payments to crypto exchanges.

Coinbase was forced to suspend its payments partner just days after launching in India owing to pressure from the government bank. The exchange had planned to launch with the widely used Unified Payments Interface (UPI) service, but state financial officials put a stop to it, citing that they were unaware of any exchanges that used UPI.

CoinSwitch Kuber, an Indian exchange, likewise banned crypto deposits and withdrawals using its payments network last week.

As banks tighten their grip on digital assets, this has left Indians with a diminishing number of options for fiat to exchange payments.

Getting around the bankers

Some exchanges have turned to alternative payment methods, such as receiving monies directly from customers in their bank accounts. The exchange credits the user’s crypto wallet after the deposit is through, allowing them to purchase digital assets.

This strategy, according to a lawyer, could potentially be problematic for exchanges:

“If it’s perceived that by directly accepting funds from buyers,”
“an exchange is offering some kind of a wallet facility to the trader, there would be regulatory issues,”

Investors and merchants are already moving funds outside to trade on international exchanges; however, India’s overreaching banking industry places limits on this, necessitating greater circumvention.

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