The Bitcoin ecosystem is thriving well and also emerging as a means of moving money around the world, write VINAY DUTTA AND SHIlIP JAIN
The acceptance of Bitcoin as a currency is gaining momentum and its market value in the financial year 2016-17 is estimated to surpass $45 billion. As per John McAfee, founder of McAfee, “You can't stop things like Bitcoin. It will be everywhere and the world will have to readjust. World Governments will have to readjust.”
Bitcoin, as a currency, knows no boundaries; any user without a bank account, credit/debit card or digital wallet can make easy transactions using Bitcoin. Bitcoin or cryptocurrency is a math-based digital currency which is independent of any bank or regulator. The Bitcoin system is decentralised as the validation is performed by random owners within the network.
More and more people want to know, who invented the BitcoinIJ For what purposes people use itIJ Who regulates Bitcoin as a currencyIJ How does Bitcoin workIJ In what ways people can access Bitcoin and what are the pricing dynamics of the platformIJ Bitcoin was said to be invented by Japanese enthusiast, Satoshi Nakamoto in 2009.
People use Bitcoin for various reasons. While some use it as a means of payment for goods and services, others use it to stash money, yet another set of people decide to use Bitcoin for wealth preservation. They believe that including Bitcoin into a diversified portfolio may significantly increase the risk-adjusted return.
Regulation of Bitcoin is a globally debated topic due to the conflicting perspectives on its regulation. In India, the Reserve Bank of India (RBI) has periodically cautioned and warned its citizens to desist from dealing in virtual currencies because of their speculative nature. However, many legal experts in India advocate legalisation of Bitcoin. They argue that transforming Bitcoin into a legal tender, can generate revenue from the Bitcoin eco-system. The burning question is — can the RBI afford to adopt a hands-off approach to virtual currencies, when regulators across the world are taking pro-active stance on BitcoinIJ Recently, Japan became the first country to notify Bitcoin as an asset and legal method of payment.
Bitcoin ecosystem ensures privacy and anonymity, stable money supplies, decentralisation, guaranteed financial access, open access to its users and transparency.
Bitcoin transactions are transparent to the owners through its network. The transaction details and its mechanics will be always known to the user. However, there are possibilities that Bitcoin is used for malicious transactions, such as money laundering, recently, the attack of Ransomware where hackers demanded ransom in the form of Bitcoin in lieu of data release. It is emerging as a currency of choice with technology enthusiasts, speculators, criminals and cyber attackers.
Bitcoin has emerged as an alternative, yet, relatively unregulated, monetary system. Unlike the central bank currencies, the amount of Bitcoin which are or will be ever created is capped. The fact that Bitcoin has gained a lot of publicity and surging in value, it raises the conclusive question as to where and how the value of Bitcoin is decided and why there is so much price volatilityIJ
How does one acquire BitcoinIJ There are four ways — receive them as payment for merchandise or services, purchase them directly from the Bitcoin exchange in exchange of local currency, purchase from local service aggregators that connect buyers and sellers, or one can earn Bitcoin through mining process.
The price of Bitcoin has swung sharply, similar to the way that stock and gold prices are determined by bidding on exchanges. It made a ground breaking record, surging above $2,400 on May 24, 2017, because of the demand for cryptoassets that soared with the creation of new tokens to raise funding for start ups using block chain technology. Another key reason for increase in the price of Bitcoin dominance in the nefarious online underworld, is its size. The total value of all Bitcoins in circulation is increasing day by day. It is speculated, that once people understand the pricing mechanism of Bitcoin, the fluctuation will stabilise. In reality, experts are busy searching for the factors that affect the pricing dynamics of Bitcoin. Until they come out with some tested model price discovery, valuation and volatility in prices of Bitcoin will remain a mystery.
In spite of various controversies surrounding the Bitcoin, the eco-system is thriving and emerging as a method of moving money around the world.
(The writers are Professors with Foundation for Organisational Research and Education School of Management, New Delhi)