Beating the Rhetoric
In 2013 reports emerged of US enforcement agencies launching a crackdown on a website called the Silk Route which advertised itself as an anonymous marketplace. In plain terms it was the world’s first online black market and also a market in the deep Net which was used to buy and sell drugs and sometimes even weapons. It used a novel method of transaction. The transaction in the marketplace was conducted via a crypto currency called Bitcoin. Since the unravelling of this fact Bitcoin has begun to draw much attention around the world and India is no exception to the same.
Bitcoins are a crypto currency or an electronic form of payment system which was invented by a programmer or a group of programmers which called themselves Satoshi Nakamoto. Nakamoto introduced Bitcoin in 2008 in a mailing list and was released as open software in 2009. Bitcoins are used by end users in a peer to peer node without the use of intermediaries. Bitcoins can be considered as huge financial ledgers which are used by several users. When one pays for a product or service with a Bitcoin that transaction is entered into the ledger. Computers on both end use complex mathematical transaction to verify the transaction. The winner is awarded more bitcoins. In a way the system is biased towards those who have a deft hand with computer operations and algorithms.
The currency is completely controlled by the users and free from any governmental exchange or control. It is not covered by any central agency nor does one organisation alone mint it. Given its open source nature anyone can start minting Bitcoins. The currency is self contained with no collateral. This means the value of the currency is the inherent currency itself. Bitcoin has a number of benefits that it offers to the users. The first is the freedom of making payment from any part of the world to another part of the world. Also because the system is user dominated a transaction does not have hidden transaction costs which should be a paid to a third party vendor. Since the currency does not exist in physical form there is no risk of running counterfeit currency in bitcoins. This absolves users of hassles of using physical currency.
Users have complete control and knowledge of the transaction while there are no hidden transaction costs of the same. The fees that are charged by the merchants are very low and can be opted by the user if they want faster transactions. The high amount of premium that Bitcoins attach to transparency makes the currency viable for those users who value transparency. Bitcoins also have lesser risk for merchants. This is because there is no transaction cancellation and no onus on the merchant’s side to prevent or specify such cancellation. This in turn cuts down on potential company losses on account of the same.
Yet the system is not without faults. The first and the foremost issue is that this is still a developing technology. Hence one is really unsure where the Bitcoin juggernaut will end and what forms will it acquire in the end. Another issue with bitcoins is the risk and volatility attached to it. Bitcoins are not regulated by any central bank or agency hence it remains exposed to the volatility attached with the currency market. Since last two years the Bitcoin value has witnessed massive fluctuation between Rs. 63000 per Bitcoin to falling to a low of below Rs. 50000 in each Bitcoin. If the value of Bitcoin were to suddenly crash there would be no global body which would be able to take corrective measures. The third problem with Bitcoins is the fact that it has not assumed a popular narrative yet and awareness amongst the people with regards to its usage remains low.
However the biggest headache that Bitcoin is causing or is presumed to cause in the future is with respect to government agencies across the world. The user driven character with no central agency to monitor has made Bitcoin favourite among those who want to transact in illegal items through Bitcoins without being monitored by a Central Agency. As the Silk Route incident had shown Bitcoins can be used effectively to sell drugs and arms in the online marketplace without offering any clue to the authorities. In essence with regards to the extreme anonymous nature of Bitcoins as well as existence of a deep web marketplace for Bitcoins it is important to monitor the Bitcoin market. India is no exception to the same.
In the wake of digitalisation and the recent push towards a cashless society Bitcoin can prove to be an interesting and viable alternative currency. However given the inability of understanding Bitcoin in totality the Reserve Bank of India has from time to time cautioned users against Bitcoins. In February, 2017 the Reserve Bank of India issued a circular which clearly stated that it has not given any permission to any marketplace to trade in Bitcoin. In the same breath it had also advised users against usage of the same by citing financial and security risks amongst others.
Bitcoins also trouble the Indian agencies because it can act as a conduit for those who have hoards of black money to convert the same into virtual currencies and then trade them around the world. With this philosophy as the bedrock it came as no surprise that financial watchdog Enforcement Directorate (ED) raided premises of two Ahmedabad based firms trading in Bitcoins. At the same time Income Tax Department officials called for a meeting with Bengaluru based firms dealing in Bitcoins. While government based agencies argue that trading in Bitcoin is illegal as of today, Bitcoins users who have themselves formed an association argue against the same.
If the Silk Route experience is anything to go by then the fear of the government agencies and the caution issued by the RBI is legitimate. There is a very real danger that Bitcoins can be used by those who want to channel their black money to other funds around the world. And until the Bitcoin system is completely understood this danger and threat will continue to persist. Yet RBI also has to accept that Bitcoin is an invention that is here to stay. It must start working towards understanding and regulating the same within the national boundaries.
( Views expressed by the author are personal.)