Bitcoin, one of the world’s foremost cryptocurrencies, has crossed the $2,000 mark for the first time ever.
The recent WannaCry ransomware attack that affected over 150 countries has brought Bitcoin into focus like never before, especially in India, because the hackers demanded Bitcoin as ransom in exchange for decrypting data of infected computers.
While awareness about Bitcoin in India may be on the rise, it is still a grey area since it is not officially recognised and there is no formal regulation around it. Here’s a quick guide to understanding Bitcoin itself, and its current state of use and regulation in India.
1. What is Bitcoin?
Bitcoin is a cryptocurrency and a decentralised digital currency system that was created in 2009. It works on a peer-to-peer basis and is powered by users without any central intermediary. Put simply, it lets people buy goods and services without any involvement by banks, credit card issuers or any government.
2. Are there Bitcoin currency notes and coins?
No – this is a virtual currency that is digitally created or ‘mined’ by using computing power in a distributed network. As per the Bitcoin protocol, only 21 million Bitcoins can ever be created by miners – however, these can be sub-divided into smaller denominations, up to one hundred millionth of a bitcoin. Currently, there are around 16.3 million Bitcoins in circulation
3. Why is Bitcoin used?
Bitcoin is fast, relatively less expensive (in terms of charges), and secure. There are no issues with compromised credit/debit cards or any chargebacks. It also offers a degree of anonymity – though this often links it with questionable/criminal motives.
4. Are Bitcoin details completely private?
Transactions are recorded in a ledger known as Blockchain. There is transparency as anyone can view details of a Bitcoin address – where funds came from, where they were sent, the amount, and current balance – although identity of the owner of the Bitcoin address isn’t easily known.
In the WannaCry ransomware attack, the hackers used the same three Bitcoin addresses for their demands, so the transactions and current balance in them is visible to anyone who has those Bitcoin addresses.
5. How popular is it?
Outside India, Bitcoin has been quite popular for some time now, with many businesses accepting Bitcoins as payment though there is a long way to go compared to usage of credit/debit cards and cash. There has been a decent uptick – from just over 200,000 transactions in May 2016 to over 300,000 transactions in May 2017.
The current price of 1 Bitcoin is $2,051.73 (as on 20-May-17), or just over Rs 1.3 lakh, up from $441 this time last year – the actual buying and selling price varies across countries and even trading platforms. With this kind of price appreciation, it is no wonder there has been a surge in Indians flocking to it, mostly to make a quick buck rather than investing in it.
6. Can Indian residents buy Bitcoin or other cryptocurrencies?
Yes, Bitcoins can be purchased by transferring money from the bank via NEFT/RTGS/IMPS once the standard KYC norms have been fulfilled. It is also possible to buy other cryptocurrencies like Ethereum in INR.
Currently, there are a dozen companies that offer this facility in India, though 3-4 of them are more popular than the others, and even have mobile apps. However, each of these platforms has their share of pros and cons with regard to ease of use, privacy, fees etc, so it is advisable to research them thoroughly before signing up.
7. How safe is it?
In December 2013, and even recently in February 2017, the Reserve Bank of India (RBI) had cautioned against the use of virtual/cryptocurrencies due to inherent risks as there was no underlying asset, no accountability, no legal protection or recourse in case of issues arising due to frauds or security threats.
There is also significant volatility and the price of Bitcoin has seen its fair share of ups and downs due to regulatory actions (or acceptability) by countries, hacking or DDoS attacks and so on.
8. Regulation of Bitcoin in India and around the world
In April 2017, Japan announced acceptance of Bitcoin as a legal currency due to which there has been a surge of over 70-80% in the price since then. Among other countries, Russia plans to do so as well, and Australia will accept Bitcoin as legal currency from Jul 2017, and which will be exempt from GST.
In India, there is currently no regulation on use, storage and trading of Bitcoins. RBI has said they have not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency, so any user, holder, investor, trader, etc. dealing with virtual currencies would be doing so at their own risk. There is also no clarity at the moment on how gains from sale of Bitcoins should be taxed.
However, in a recent notification on 12-Apr-17, the Finance Ministry said they had constituted an Inter-Disciplinary Committee to examine the existing framework with regard to virtual currencies.
This committee has to submit it’s report within three months, so let us wait and watch what happens in July 🙂