Craze for Bitcoin

Dr Ashwani Mahajan
Many virtual currencies are in circulation, which are not issued by any authority of the Government(s); however, transactions are being made using these currencies. Though, at limited places, official payments are also being made using these currencies. These currencies are created by computer systems, and are also termed as crypto currencies. Out of all crypto currencies, highest circulated currency is Bitcoin. This currency was founded by a computer programmer or a group of computer programmers, called Satoshi Nakamoto. This name itself is a fake name and all efforts to identify ‘Satoshi Nakamoto’ have been proved futile. This currency was brought in circulation in 2009, through open source software. Specialty of transactions in this currency is that, it takes place directly between two parties and there are no intermediaries between the two. These transactions are verified by the network and recorded by a public account in the name of ‘block chain’.
Boon for Criminals
Recently, due to severe cyber attacks by cyber criminals, nearly two lakh computers were affected in nearly 150 countries. Whole world was stunned, as ransom was demanded for restoring the data in ‘Bitcoins’. Generally we transact online, using debit cards, credit cards, online banking etc. All these transactions are legal and are recorded properly. Information about the parties engaged in these transactions is available or is traceable. However, distinction of Bitcoin transactions is that ‘Block Chain’ method is used and is browsed on ‘Dark Web’, which makes it impossible to trace the particulars about the transactions. Further these transactions are irreversible and cannot be undone. Due to these features of ‘Bitcoin’, it’s becoming very popular among criminals, as they would not be caught by security agencies. Increasing use of ‘Bitcoin’ in crimes is making it intricate for security agencies and financial authorities to trace the trails. Bitcoin has become safest bet for money laundering and anybody can transfer any amount to tax heavens by sending money to ‘Bitcoin wallet’. Systems all over the world are finding it impossible to catch transaction by criminals.
How is This Currency Created?
This currency is created by computer programmers and it’s impossible to copy the same like other currencies. Therefore despite being a virtual currency, it is becoming very popular. Its supply is also limited and it can grow only at a limited pace, as decided by Bitcoin system.
Increasing Craze for Bitcoin in India
Reserve Bank of India (RBI) has declared ‘Bitcoin’ to be illegal. Despite being warned by the government and RBI, number of people investing in Bitcoin is rising. Despite warning from the government that money put in ‘Bitcoin’ would be treated as ‘money laundering’, so far more than 5 lakh people have downloaded Bitcoin network in India. Bitcoin does not have approval of any central bank in the world and is not a legal tender anywhere in the world, as it is not issued by any bank/central bank. Therefore, no tax is applicable on Bitcoins. Perhaps this is the reason for its rising popularity, especially among criminals. Another reason of craze for ‘Bitcoins’ is its fast increasing value. Since value of Bitcoin is determined on the basis of its demand and supply, there are big upheavals in its market value, which makes it attractive for speculators. Most of the money invested in ‘Bitcoin’ is black money, and Bitcoin has emerged safe haven for black money hoarders. Due to rising popularity of Bitcoin, its value has also been rising in dollar terms. In 2010, 1000 Bitcoin were just equal to price of a pizza, by September 1, 2017, its value went up to 5000 US dollars per Bitcoin, that is Rs. 3,20,000 per Bitcoin. Notably its price was only 1000 US dollars in the beginning of 2017. Because of these reasons, craze for Bitcoin never ends. Switzerland became the first country where a local body announced that it could accept payment of local taxes in ‘Bitcoin’. It is well known that Switzerland has been the safe haven for black money from throughout the world.
New Method for Corporate Investment
Till now we know only about Initial Public Offer (IPO), which is made by a company to attract equity or other investments under given rules and regulations. Now a days, in some countries, companies have started raising capital through crypto currencies, and the method for the same is called Initial Currency Offer (ICO). In this method, a company making ICO would issue a limited amount of virtual currency; which investors can exchange later.
Ban on Virtual Currency Exchanges in China
Because of upheavals in virtual currency markets and rising illegal activities with the help of these currencies, Chinese government has banned crypto currency exchanges. In India and many other countries, they are already banned. It is notable that China is a big hub of Bitcoin transactions, accounting for nearly 25 percent transactions in the world. Russia has also indicated that it intends to ban Bitcoin transactions. Earlier local media in Russia had indicated that Russian government may legalise transactions in Bitcoin. But with declared intention of Russian government to ban Bitcoin and China had already banned on this currency, there is now a fear amongst the hoarders of Bitcoin; and value of Bitcoin has declined by 20 percent in the first week of September, 2017, coming down from $5000 per Bitcoin to $4000 per Bitcoin. In the last few days, it has again improved slightly, to $4300 per Bitcoin.
Lessons
Bitcoin and other crypto currencies are becoming a cause of financial indiscipline and giving encouragement to money laundering and crimes. Their increasing usage is an alarm bell for the world. Economies are not benefitted by their use; rather it spoils the legal channels. Need of the hour is that effective steps are taken to free the world from these illegitimate currencies like Bitcoin.
(The author is Associate Professor, PGDAV                     College, University of Delhi)
feedbackexcelsior@gmail.com

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