Cryptocurrency exchanges were not available in India until 2013. The
first cryptocurrency exchange Unocoin began in India as a standalone bitcoin exchange and merchant processor. Since then several other cryptocurrency exchanges have
emerged in India, including Zebpay, Pocket Bits, Coinsecure, Koinex, and
others. Some of the exchanges mentioned above and others not mentioned have ceased operation since their inception, Koinex was one such exchange. Koinex was later bought over by CoinDCX.
The Indian government has been directly involved in observing cryptocurrency exchanges in India. In 2013,
the Reserve Bank of India issued a circular letting customers know about the risk associated with investing in cryptocurrencies such as Bitcoin citing high volatility and exchange exposure to defaults and cyber attacks. In 2018 the RBI banned several banks from doing business with cryptocurrency exchanges.
This ban was later overturned in 2018 by the Supreme court in an attempt to settle community backlash and criticism in 2020. This marked the beginning of the largest bull run in cryptocurrencies and a national obsession among the tech savvy youth. The Financial Intelligence Unit FIU directly monitors all the exchanges in 2024.
Cryptocurrency exchange cyberattacks and breaches in India
Recently one of the largest cryptocurrency exchange security breaches took place on July 18 2024, when WazirX admitted that it had been hacked. The events unfolded when Web3 security firm Cyvers detected multiple suspicious transactions involving WazirX’s Safe Multisig wallet on Ethereum. According to Cyvers, approximately $234.9 million of funds approx ₹2000 crore rupees worth of cryptocurrencies were moved to a new address, with transactions funded by Tornado Cash, a protocol known for private transactions. This made tracing the stolen funds challenging.
Shortly after the detection WazirX confirmed the breach on the X social media platform, stating that one of their multi-signature wallets experienced a security breach. Keeping such events in mind it is crucial for cryptocurrency investors to see these factors below as critical to their choice of a cryptocurrency exchange in India.
Six critical factors of choosing a cryptocurrency exchange in India
Security and Cold Storage is the most important factor an investor must consider when choosing a cryptocurrency exchange. Holding coins on an exchange means trusting someone else with your capital. In most cases, if the exchange gets hacked or an employee steals cryptocurrencies, the investors will be the sole victims. An exchange must have strong encryption top-notch encryption algorithms ensure that your data is secure both in transit and at rest. Robust exchange internal infrastructure controls is a must and be in place. The exchange must mention that it is involved in 24/7 monitoring against all threats by monitoring our infrastructure for anomalous activities, this involves the exchange to have a separate team to manage security of the infrastructure. Cold storage is crucial to an exchanges security, the days when cryptocurrency exchanges left their funds on hot wallets are far behind us , Hot wallets for those that do not know are wallets connected to the internet. A cryptocurrency exchange must maintain 90% of their funds in cold wallets with multi-sig wallet implementation so that a third party security firm has to also authorize large transactions before funds are moved.
Insurance against cyber threats and external events is perhaps the most important factor. The exchange must be insured by a global partner or a local body i.e bank. This is a highly important factor as in the event a cryptocurrency exchange gets hacked the brunt of the burden might be so large that an exchange might seize to function causing the end users to loose their funds with a constant battle with the exchange over withdrawal and refunds. This is evident in the case of WazirX the cryptocurrency exchange that got hacked in July of 2024. WazirX's fault was that THEY FAILED TO INSURE themselves and their customers from cyber threats.
Tech Infrastructure most cryptocurrency exchanges have their tech infrastructure built ground up unless the exchange is a flyby i.e they copy the code of an existing exchange and begin business only to shutdown later. Tech infrastructure of an exchange includes functioning APi's, hardware, software and their cloud backups along with security both online and offline. The exchange must be audited by a secondary or third party security firm to make sure they meet industry standards at every stage. This makes certain to a large degree that the exchange will be able to protect its users against cyber threats.
Transparency though not common before, has recently become a common practice with cryptocurrency exchanges. A highly transparent exchange will provide full disclosure of funds in their wallets. They also cooperate with the financial authorities providing full compliance to function in any given jurisdiction. This resolves any issues with the local governing bodies first hand and prevents closure due to regulatory concerns.
Liquidity a very important factor, the older the exchange and the larger the customer base the more liquid it usually is. Having liquidity partners also provides exchanges the offset of high investor exodus in the event of a market crash. Liquidity ensures low slippage i.e receiving or selling at a rate higher or lower than what was available on the market.
Reputation among existing customers just like buying products online, anyone must research customer reviews and feedback on online boards, forums and social media. A potential investor might come across rants and excessive distrust of the exchange but this should not fully reflect on the exchanges overall ability to provide a good service. One factor remains that should be researched which is whether an exchange delivers. For example CoinDCX a major cryptocurrency exchange in India mentions on its website that it allows cryptocurrency withdrawals in India, however to much surprise of thousands of their customers later realized this was a false promise and that this service is only available to large institutional clients and not regular retail customers. One can learn allot about the customer service an exchange provides by researching how they treat their existing customers.
Based on the factors mentioned above we have selected the top cryptocurrency exchanges in India that will be suitable to investors from all walks of life.
Zebpay is one of the most trusted names in the crypto world since their inception in 2014, They have high security infrastructure and provide collateral with 98% funds being in multi-sig cold wallets, they are insured against cyber theft by Bitgo, this along with being one of the oldest exchanges in India, without any security incident till date. ZebPay also provides crypto withdrawals to an individuals private cold wallet.
Coindcx is leading the web3 movement in India while providing world class security,
collateral and insurance backed by Bitgo. However Coindcx does not provide withdrawals
of cryptocurrencies to retail customers, despite this Coindcx has singed up millions of customers that trust the exchange.
Paxful is a p2p marketplace that operates in India, one must have a Bitcoin wallet and Paxful takes care of the rest with high end security to their escrow until a p2p transaction is confirmed. Why Paxful over centralized exchanges? This comes to the surprise of first time investors as Bitcoin can be owned and stored independently by individuals in their own private cold wallet. This comes at a risk where paxful only guarantees the transaction and transfer of the cryptocurrency through its escrow, after which the buyer is exposed to external threats that they have to protect themselves from by storing their private keys and protecting their bitcoin address from being public. Paxful is an honorary mention that deserves accolades for their safe P2P marketplace that adheres to the spirit of Defi.
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