All about Crypto-currencies including Bitcoin
-Dr. Lalit Kumar Setia*
Does holding Crypto-currencies or Bitcoins considered illegal?
In 2009, a virtual currency came into the market known as Bitcoin, the world’s first decentralized currency. Bitcoin isn’t controlled by any government or bank. Even the currency can be transferred without paying taxes or at the lowest cost than other means of transferring money. Another point of consideration, is its volatility, in January 2013, one Bitcoin was valued at around $14, and in November 2013, its value peaked at $1,124. It is well known that good currencies have low volatility, those who are owning unstable currency (Bitcoin) or accepting it as a form of payment are taking a huge risk. Using Bitcoins need e-wallets, exchanges, and payment processors and even these IT-based services are still in question due to increasing cybercrimes. The surge in the price of Bitcoin is due to its illegal use, particularly in the online dark-net marketplace Silk Road.
Holding of Crypto-currency in India:
In Feb 2018, then Finance Minister Sh. Arun Jaitely stated that Government will do everything to discontinue the use of Bitcoin (Crypto-currency) in India for funding criminal uses and the Reserved Bank of India (RBI) announced a ban on the sale or purchase of crypto-currency for the entities regulated by RBI. In March 2020, on the petition of the Internet and Mobile Association of India, the Supreme Court passed a verdict to revoke the RBI ban on cryptocurrency trade. Now Government of India is exploring to create and launch a digital currency, issued by RBI and banning private Crypto-currencies such as Bitcoin.
The popularity of Bitcoin and Crypto-currencies:
Bitcoin is private and totally anonymous however its popularity has opened the doors for several other cryptocurrencies like Litecoin, Dogecoin, Peercoin, and Quark coin. These crypto-currencies have no safety mechanisms and the investors or buyers get private keys or random words to protect their wallets. In case the key or random words are lost, the funds are also gone as there is no support to recover or change the password. If the Bitcoins are stolen and there is no authority to approach them. Let's recall the case of Mr. Gox when he went to bankruptcy, no one took care of thousands of people which Bitcoin was stolen (according to them). Even the Japanese government took actions against Karpeles and the company.
Even after such happenings, people increasingly prefer to be rich by making investments in Crypto-currencies due to one fact that such currencies are impossible to counterfeit and these currencies network allows money to be secured against theft and loss by using strong mechanisms of backups, encryption, and multiple signatures. As far as the use of crypto-currencies in money laundry is concerned; any currency even if it is not crypto-currency be used in money laundering, considered illegal around the world. In case, Bitcoins are banned in any country, there will be an impact upon businesses and markets of the country. Bitcoin exchanges keep records of each transaction and can be inspected by the authorities in order to check its use in money laundering or other illegal activities.
How new Bitcoins are generated and come into circulation?
The Bitcoin networks reward individuals through a competitive and decentralized process known as “mining”. Bitcoin, being a cryptocurrency is a digital unit (encrypted with technology) that has the capacity to be traded and operated independently of any bank. At the initial stage of introducing new bitcoins, it is like initial public offerings of a share in the stock market; known as initial coin offerings. The new Bitcoins are generated at a flat rate and their value is not governed through keeping physical properties like Gold or Silver rather its value is based upon properties of mathematics. Its price is determined by demand and supply. There are experts who are considering it a Ponzi scheme means a fraudulent investment operation that pays returns to investors in response to their invested money. Bitcoin is not a scheme, rather it is free software that doesn’t permit making a fraudulent investment. However, early adopters of Bitcoins have been benefited a lot due to the risks they have taken by trusting upon this cryptocurrency. The supply of Bitcoins is limited to 21 million Bitcoins but if the number of transactions is increased, making its demand more; then transactions can take place in sub-units of Bitcoins (i.e. bits, there are ten lac bits in a Bitcoin).
The volatility in the price of cryptocurrencies doesn’t affect their benefits in terms of transferring money from one point to another. In crypto-currencies, today Bitcoin is the most popular decentralized currency but it is possible that more virtual currencies took place in the future and are more dominated than Bitcoins and at that time the demand for Bitcoins can also go down, making its price a big downward trend. Even if, the governments start imposing fewer charges on the transfer of money from one point to another, then also the demand for Bitcoins or other cryptocurrencies can be affected and price can come down.
Whether Investments in Bitcoins are Secure or not?
The Bitcoins network is claimed to be the biggest distributed computing project in the world[i] based on protocol and cryptography, with a strong security track record. However, if users’ wallet files that store a private key(s) are deleted accidentally then it is not possible to recover the Bitcoins back. The Bitcoin networks are strong and updated from time to time to avoid the risk of being hacked. With multi-signatures in each transaction, the security can be said stronger than online banking. However, the systems based on cryptography are vulnerable to quantum computing, and to date, quantum computers don’t yet exist. In case quantum computing is possible in the future, the Bitcoin protocol will have to be upgraded to post-quantum algorithms.
As per the news of Times of India dated 20th March 2018; the police of Delhi received a case relating to the theft of Bitcoins worth 41 Lacs from the e-wallet of a woman. The woman claimed that her wallet account was hacked by an unidentified man. Bitcoins can be hacked only if the account details are disclosed, therefore an investor of Bitcoins should not disclose the email account, passwords associated with the Bitcoins.
In Feb 2021, Bitcoin had surged to $39000 and become the world's biggest cryptocurrency.
*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.
This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was firstly published in 2018, and last updated on 10th October 2021. The writer can be contacted on lalitkumarsetia@gmail.com
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