about 2 years ago
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By Ruma Dubey

Last week or two, more than the equities, it was bitcoin which was hogging all the limelight, touching new highs. All those who missed the bus sat and pondered whether they had made a BIG mistake by ignoring bitcoin.

Well, not at all! Be glad that you focused on equity as the cryptocurrency dropped 5.6% since late Friday, and at one point extended its slide from last week’s record to as much as 29% on account of a cancelled software upgrade.

Dr.Roubini, the American economist who had predicted the 2008 fall, better recognized as “Dr.Doom” has labelled it as a bubble, saying, “it is a gigantic speculative bubble that will end.”

But there seems to be no stopping this bitcoin wave. In Britain, companies are raising cash without going through the formal stock exchanges by giving investors tokens or electronic coins which do not carry any equity rights but are valid on bitcoin exchanges. Some 600 such “issues” are in various stages of launch and planning. There is also news that the Chicago Merchantile Exchange will trade in bitcoins, which will be a derivatives contract based on a notional currency. 

For most of us beginners, a quick revision on what bitcoin is. Created in 2009, it is a new currency, known as cryptocurrency and is run on blockchain technology which will become the norm for banks world over. It was created by an unknown person who went by the alias of Satoshi Nakamo. Using bitcoin means there are no banks and no need to give real names – you can buy and sell, like the way we use cash with bitcoin. It is preferred mainly due to its anonymity and even internationally, it can be used to trade as it is not tied to any country’s rules or regulations. You can buy the bitcoins only from exchanges dedicated for bitcoins. It is a virtual money where the bitcoin is held in digital wallets, either on the cloud or on the user’s device; it is like a virtual bank account – it is used  to send or receive bitcoins, pay for goods or save their money.

It is the anonymity which is worrisome, especially in this age of extremism and terrorism. When you own a bitcoin, though you use a public domain, your identity is not known – only your digital wallet ID is your identity. It is almost impossible to trace the buyer or seller and the main reason why it is the gaining popularity for buying illegal drugs and fund illicit activities.

There are currently no laws governing them and it is highly unregulated. The way taxation policies work on bitcoin is also in the dark.

With many, bitcoin is popular only as an investment tool, more so now given its price run last week. Ethereum is another cryptocurrency gaining popularity.

Why has bitcoin become so popular? Not just the spike in prices but three factors – its supply is limited as new coins can be created only through complex calculations; the lure of anonymity and actual currencies in these times of QE are losing appeal. People want that “next boom” to ride and that is what bitcoin is giving them.

In India, RBI has clearly spelled it out that bitcoin will not be allowed to be used as payments or for settlements. It is legally banned in China, Bangladesh, Bolivia, UAE, Ecuador, Iceland, Russia, Sweden, Thailand, Vietnam, among many more. But in India, many bitcoin companies and exchanges exist – Unocoin, Coinsecure, Zebpay. Following this ruling by RBI a day ago, the news is that most bitcoin companies might soon move to bitcoin cash or Ethereum.

The jury is still out and some Indians are big time into this cryptocurrency. Let’s see where this new technology takes mankind.

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