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Bitcoins: Sans regulations, cryptocurrency may stay cryptic

In future, money will be neither black nor white, but will be either virtual or real. Cryptocurrencies will change the future of banking forever.

Published: 01st January 2018 01:50 AM  |   Last Updated: 01st January 2018 10:02 AM   |  A+A-

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Express News Service

"In future, money will be neither black nor white, but will be either virtual or real. Cryptocurrencies will change the future of banking forever.” As the BNP Paribas senior executive aptly put it, nothing has disrupted the traditional financial systems in recent times more than cryptocurrencies. Many economists, veteran bankers and traditional financial institutions have sought to downplay the influence of virtual currencies in the overall economy, but there’s no drop in the demand for these currencies.

While traditional financial institutions globally are puzzled over how to deal with these non-physical currencies, the Indian government has chosen to issue a warning to investors to be mindful of the risks associated with these unregulated currencies. “VC (virtual currencies) are stored in digital/electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money,” said a finance ministry advisory dated December 29. The FinMin has not minced words in terming virtual currencies as “neither coin, nor currency and therefore, not a legal tender“. It went further to compare these with Ponzi schemes.

“As transactions of VCs are encrypted, they are also likely being used to carry out illegal/subversive activities such as terror funding, smuggling, drug trafficking and other money-laundering Acts,” it cautioned. However, experts like Vishal Gupta, founder and CEO of SearchTrade.com, and co-founder of Digital Assets & Blockchain Foundation of India, don’t take the government move as a policy stand against cryptocurrencies, but “just a reinforcement of the communication that has come from RBI in the past”.

Blockchain Bubble?

Bitcoins, the largest digital currency by far, are ‘mined’ by a computer code and transactions are made without middlemen so there are no transaction fees and no need to give your real name. Mining involves the computer solving a difficult mathematical problem with a 64-digit solution. For each problem solved, one block of Bitcoin is processed. To receive a Bitcoin, a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts like a virtual post box. Since there is no register of these addresses, people can use them to protect their anonymity when making a transaction.

Bitcoin has a market capitalisation of roughly $247 billion, accounting for 41 per cent of the total cryptocurrency market cap, according to CoinMarketCap. The other cryptocurrencies include Monero, Ripple, Ethereum and Dash. With the popularity and usage increase, cryptocurrency ATMs and exchanges have come up all over the globe, including India.

Despite the highly volatile nature of these cryptocurrencies, over a million high net-worth Indians are estimated to have invested in digital assets. According to experts, the demonetisation drive has also, to some extent, pushed the growth of cryptocurrencies. It is estimated that India now accounts for over 10 per cent of the global Bitcoin trade.

To quote Gaurav Dahake, co-founder of cryptocurrency exchange BitBNS: “If KYC norms are strictly followed, we do not see any challenge there. Cryptocurrencies should be treated like any other securities or stocks. People are going to earn money through this and some part of it is going to go as taxes to the government.”  

It would be interesting to see how the new year will unfold for the cryptocurrencies. However, it looks like the trend — high demand amid government monitoring — will continue in the new year.

Pros vs Cons

The value of Bitcoin, like all currencies, is determined by how much people are willing to exchange it. According to investigation agencies, the anonymous nature of digital currencies has attracted both cyber criminals and tax evaders. EtherDelta, a popular exchange for buying cryptocu-rrencies, has suspended its service after it was allegedly hacked. South Korea too has banned it. 



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