Looking back, it does seem that "bitcoin" should be announced as "Word of the Year" for 2017. I mean, the craze of cryptocurrency reached such a level that even people who had a hard time formatting their laptop were discussing about it. Even now, after all the hype and craze, most people are unaware of what bitcoin actually is. So, let's try to shed some light on it.
Blockchain: The technology of the future
The story of bitcoin starts with blockchain. Described by many to be THE disruptive technology of this century, blockchain is easy to understand. In simple terms, blockchain is a digital ledger that can store every important detail of a digital transaction. Developed by the anonymous entity Satoshi Nakamoto, blockchain was initially used with bitcoin, though it has now expanded to other cryptocurrencies and aspects of life.
The working of bitcoin
Bitcoin, as tempting as it might sound, is one mystery to the uninitiated. Technically bitcoin is a cryptocurrency, or a decentralized digital currency. It is obtained by a process called "mining". Anyone with considerable computing power can become a bitcoin miner. Essentially, bitcoin is like a nugget of gold in your pocket. However, unlike gold, its value is not decided by the quantity in the market. The self-contained cryptocurrency derives its value from the computing power used to generate bitcoin.
The appeal of bitcoin
So we know what bitcoin is and what it does. But what makes it such an appealing form of currency? Well, for those who its worth, bitcoin is a decentralized currency. You see, your regular currency is controlled by your banks and the government. They decide the liquidity and they decide the exchange rate. However, in case of bitcoin, there is no governing authority. It is an independent entity that is not administered by any one person, thus making it impossible to control the value of bitcoin at will.
But, that is not all. Bitcoin is also so popular because it has the potential to become a truly global currency. US Dollars are the international common standard as of now, but it might soon change as bitcoin finds users all over the globe. If bitcoin becomes mainstream, doing cross-border transactions would become a child's play.
The unprecedented growth
The true reason why everyone is talking about bitcoin is the money. Ever since its inception in 2009, bitcoin has seen a monetary growth like nothing else in the world. In 2010, bitcoin was worth less than a cent. Today, it almost touched the value of $18,000. This exponential growth was seen in 2017 only, where bitcoin increased its value 18times over. With such a rapid growth, people are naturally tempted towards investing in this digital currency.
Bitcoin and India
Here is the catch: India is not too enthusiastic about bitcoin. While Indians are jumping the cryptocurrency bandwagon happily, economic regulators are wary of this. Ever since 2013, Reserve Bank of India has issued multiple warning about investment in bitcoin and similar currencies. In short, here are the concerns RBI had expressed:
Being a purely digital currency, bitcoin are liable to be stolen via hacking, or lost in case of misplaced credentials.
There is no governing authority of bitcoin. So, investors will have nowhere to go in case of grievances or scams.
The digital currency is backed by no physical asset, thus its value is purely out of "speculation".
Since the coin exchanges are situated all over the world, it is hard to enforce national laws over them.
The anonymity behind bitcoin may leave investors vulnerable to frauds and other illicit activities.
At first glance, all of them appear to be valid concerns. However, people who are aware of how bitcoin works, propose these counters:
Indian government themselves have been promoting digital transactions and wallets since last year. Thus, their opposition to a digital currency on grounds of "safety" seems hypocritical.
The entire reason why bitcoin exists is because it has no central governing authority, which makes it impossible to regulate its value.
A lot of currencies, including US Dollars and INR, are not backed by any physical asset either. Again, opposing another currency while Indian rupee itself is used solely on the basis of word of the government, is hypocritical.
The risks posed by bitcoin are the same as risks posed by any other investment. There are always people who would try to dupe you out of your money, but that is no valid excuse for rejecting bitcoin.
However, RBI seems to pay no heed to these arguments. After bitcoin hit a record value in December this year, RBI again reiterated these warnings.
Amidst all of this, the Income Tax department is discussing about making the gains made from investment in bitcoin as taxable. Essentially, it means that while the government will not recognize bitcoin as a legal currency, it is more than happy to tax the profits made from bitcoin investment.
So, to sum up, it seems far-fetched that the government would legalize bitcoin (and other cryptocurrencies) in India. However, as more and more countries are recognizing bitcoin as a legal tender, the attitude of government might change one day. But, if the current winds are any indication, that day is far enough.
