HYDERABAD: It is the talk of the world, er, town today. Everyone is showing an interest in ‘investing’ in bitcoin. Numerous exchanges have sprung up, and many more are being created in the city, country and the world over. First things first. What is bitcoin? Invented by ‘Satoshi Nakamoto’ in 2009, bitcoin is an open-source system that has no central authority. Instead, transactions are verified by users themselves, using a public ledger called blockchain. The entire system is peer-to-peer, meaning users can transact with each other directly without an intermediary such as bank, credit card company, etc.
Virtual currencies can be obtained in three ways – ‘mining’ new ones, buying on an exchange and accepting them for goods and services. Coinbase is one of the ‘reputed’ platforms to buy and sell cryptocurrencies. In India, we have platforms such as Zebpay, coinsecure, Unocoin, etc. The rise of bitcoin in such a dramatic fashion can be attributed to the demand seen across the world. As more and more buyers get involved, the price sees a rise.
But are there any legal ramifications of buying and selling virtual currencies in India? As of now, buying and selling cryptocurrencies is not illegal in India. However, there has been a string of cautionary guidelines being put by RBI and Finance Ministry, which has recently noted, “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes.” And virtual currencies are not legal tender, in that they cannot be offered for payment of debt.
And a few weeks ago, the Income Tax department has conducted surveys at major bitcoin exchanges across India on suspicion of alleged tax evasion. Moreover, virtual currencies can be used for anti-social activities such as money laundering, drug trafficking, etc. More recently, bitcoin has fallen sharply over the crackdown by South Korean government, with a proposed legislation to prohibit companies from providing settlement services for cryptocurrency transactions.
Which way will the cryptocurrency juggernaut go? Only time will tell.
Introduced in 2013 by cryptocurrency researcher Vitalik Buterin, Ethereum is a platform that runs ‘smart contracts’, which are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.
Of late, this has been creating ripples, literally. Released in 2012 in San Francisco, Ripple is a real-time gross settlement (RTGS) system. It allows users and businesses to conduct cross-currency transactions.
Introduced by Russian farming network LavkaLavka, biocoin is reportedly backed by real farm products and can be used as a means of payment and exchanged for farm products or food in many restaurants around the world. It has the distinction of being the first legal Initial Coin Offering (ICO) held in compliance with Russian laws. The token sale is on till February 18, after which it would be listed on the exchanges for trading.
Conceived in 2015 and positioned as a cryptocurrency ‘of the people, by the people and for the people’, Sibcoin allows to send and receive money worldwide, with enhanced privacy and low commission rates. It also has a partnership with Biocoin.
Things to note
If you lose access to the device which has the wallet installed, your tokens are lost forever
If you forget the wallet password, it is difficult to access your tokens
Irreversible transactions – if you send a token to someone, it is gone for good!
Hackers might target your system; it’s best to keep an up-to-date anti-virus and not click on suspicious links
Scamsters might contact you asking for transferring money to their bank account so they can invest in cryptocurrencies on your behalf. Beware!
If something sounds too good to be true, it usually is!
Cyber thieves might attack large currency exchanges, which may result in the price crashing
Groups of investors holding large numbers of virtual currencies might sell at the same time, which can wipe out the holdings of retail investors
Government policies can affect the token rates
If supply is greater than demand, the value might collapse
Cryptocurrency: Cryptocurrency is digital currency that can be used electronically. It is decentralised, in that no one person or entity controls the network. Cryptocurrencies can be ‘mined’ using open-source software.
Blockchain: Blockchain is a shared database existing in a network of computers that lets any user on the network make and verify a transaction, which is then permanently recorded.
Mining: The process of verifying and recording payments in the blockchain is called mining. Miners are rewarded with coins. However, mining requires a tremendous amount of CPU power and electricity.