In the economic and cyber world, as perplexing as they seem, Bitcoins hold a certain amount of intrigue for people across the world. For those who don’t know, bitcoins are basically a newer version of virtual currency. They are mere computer files that are generated mathematically by executing difficult number-crunching tasks. A pseudonymous hacker calling himself Satoshi Nakamoto is said to have created Bitcoins with the idea that such a digital currency would eliminate the third party (such as a bank or financial institution), thereby reducing the costs incurred in the transaction. [1]It is said that nobody owns bitcoins except for the users themselves as they are free to choose their software and versions.
From the perspective of users, bitcoin is more like a mobile app that provides a personal “virtual wallet” from where users can spend and receive coins. Its easier to make a bitcoin transaction than a debit or credit card transaction due to absence of merchant account. Behind the scenes, the Bitcoin network is sharing a public ledger called the “block chain”. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called “mining”.[2] They can also acquire bitcoins through purchase from the exchange, by exchanging it with someone or by the usual payment method.
Users certainly find it favourable because of the freedom in payment, low cost, less risk for merchants, security, control and transparency. On the other hand, the volatility and low acceptance rate makes it difficult for bitcoins to sustain. Because it is an open source, anyone can have access to its source code at any point of time.
To talk about its legality, Bitcoin has not been made illegal by legislation in most jurisdictions. However, some jurisdictions (such as Argentina and Russia) severely restrict or ban foreign currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain entities such as Bitcoin exchanges. bitcoins are being used everyday to buy electronic goods, personal computers and to pay off the satellite TV bill. What is more is that Expedia- An American based parent company to several global online travel brands has started accepting bitcoins for hotel reservations becoming the first major travel agency to embrace the digital currency.[3]
The government of India remains apprehensive of the unprecedented growth and has chosen to keep its guard up. On 24th December 2013, The Reserve Bank of India warned the public against the use of virtual currencies such as Bitcoin, pointing out that users expose themselves to potential financial, legal and security related risks following the disaster that took place with Mt. Gox, which was once world’s biggest bitcoin exchange situated in Tokyo. This year it filed for bankruptcy saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system. Enraged investors have been seeking answers for what happened to their holdings of cash and bitcoins on the unregulated Tokyo-based exchange.[4] Since then a number of bitcoin operators in India have begun suspending their business.[5]
The very objective behind the creation of bitcoins is that no single authority would be holding the mining power which has been failing with the emergence of mining pools such as GHash- a British “mining pool”. GHash has amassed nearly half of the bitcoin computing power and has briefly gone over 50%. Miners pool their computing power to spread the financial risk of their operations.[6] If GHash amasses more than half of the computing power devoted to bitcoin, it control the flow of transactions, freeze people out of the network and keep all future bitcoins for itself.[7] Hence, bitcoins, despite its promising future is losing its credibility owing to the unclear threat it possesses. Bitcoins are an evolving concept which has its own share of loopholes and is still at a nascent stage. It is for us to wait and watch how the users perceive and make use of this revolutionary idea.
About the Author
Shweta Rath
Shweta Rath is a student of Symbiosis Law School, Pune. She enjoys reading up on various important issues and is a keen learner who wants to work on enhancing her research skills. She is a big movie buff and loves interacting with new people.
Endnotes
[1] Also available at: http://economictimes.indiatimes.com/articleshow/36729020.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
[2] Also available at: https://bitcoin.org/en/faq
[3]Also available at: http://www.pcworld.in/news/expedia-begin-accepting-bitcoin-hotel-reservations
[4]The Times of India; Reuters; June 18 014; “Bitcoin exchange Mt Gox gets US bankruptcy protection”; Also available at: http://timesofindia.indiatimes.com/tech/tech-news/Bitcoin-exchange-Mt-Gox-gets-US-bankruptcy-protection/articleshow/36767244.cms
[5]The Hindu; 24th December 2013; “Reserve Bank warns against Bitcoin use”
[6]The Times of India; June 17 2014; “GHash: Bitcoin faces new threat “Also available at: http://timesofindia.indiatimes.com/tech/tech-news/GHash-Bitcoin-faces-new-threat/articleshow/36719062.cms
[7]ibid
