BITCOIN :Transformed currency..They say ,its gold for nerds :)

Dear friends,

The BREXIT incident has given a jolt to the World economy. While the demand for US treasuries and gold went up, stocks and bonds fell amid concern that the BREXIT could hurt the World’s economy. While Euro and other currencies felt upheaval, Pound fell to its lowest level in more than 30 years. The customers have suffered huge losses due to the currency fluctuations.

This has once again triggered the discussions on utility of digital currencies as a viable option of transaction and investment. The most popular digital currency is Bit coin and lot of  people are buying Bit coins for pounds and Euros for safe keeping of their money. Bit Coin can be used to buy goods , services & currencies like Dollars,  Euros, Yen or Rupees, which are also traded digitally.

The Bit coin is said to be created by a software engineer Mr. Satoshi Nakamoto as a digital currency for transaction & storage which is universal in nature and beyond the purview of any regulator of any country. This is an electronic payment system based on mathematical proof. Bit coins are electronically transferable, almost instantly with nominal fee. Its nature provide people ease of keeping their money without any control of any bank, regulator or central authority. As a cryptic code is used for its creation it is called crypto currency also. Recently a controversy about its creater also arose when an Australian Entrepreneur Craig Steven Wright has claimed that original Bitcoin software was created by him under the pseudo name of Satoshi Nakamoto.

Conventional currencies are created on the basis of gold or silver. Theoretically if one hands over Rs.100/- to the bank, he could get some gold back in lieu of it (not actually done in practice). Countries print their currencies equivalent to the value of gold & silver. Bit coins are not printed physically like currencies but are produced electronically through computers by using a software which generates mathematical problems for solving. Solving one problem generates 50 Bitcoins. So, Bitcoins can be ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency effectively making bit coin its own payment network. Every machine that mines bit coin and processes transactions makes up a part of the network and the machines work together. If same point of network goes off line for some reasons, the money keeps on flowing.

The rules that make bit coin work  say  that only 21 million bit coins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a Bit coin and is called a “Satoshi” after the founder of Bit coin). The value of one bit coin which rallied up to 696.5 USD on 13^th June 2016 fluctuates depending on demand in market.

Around the world, people are using software programmes that follow a mathematical formula to produce Bit coins. The mathematical formula is freely available, so that anyone can check it. The software is also open source meaning that anyone can look at it to make sure that it does what it is supposed to do.

One can set up a bit coin address in few seconds, no questions are asked, and with no fees payable, one can mine or transact Bit coins. The cumbersome process of account opening at conventional Banks can be avoided if one deals in Bitcoin. Users can hold multiple bit coin addresses, and they are not linked to names, addresses, or other personally identifying information.

Bit coin stores details of every single transaction that ever happened in the network in huge version of a general ledger, called the block chain. The block chain tells all. If you have a publicly used bit coin address, anyone can tell how many bit coins are stored at that address. They just don’t know that it’s yours. There are measures that people can take to make their activities more opaque on the bit coin network such as not using the same bit coin addresses consistently, and not transferring lots of bit coin to single address.

Bitcoins can be stored in Bitcoin wallets. Transfer of Bit coin does not require any fee. One can send money anywhere and it will arrive minutes later, as soon as the bit coin network processes the payment. Any Central authority can not tinker with monetary policy and cause a meltdown. People’s Bitcoins can not be taken away from them by any Central bank as has been done by the European Bank  in early 2013. When your bit coins are sent, there is no option for getting them back, unless the recipient returns them to you. They are gone forever. To facilitate the Bitcoin trading the biggest exchange is Kraken at Sanfrancisco. Other exchanges are at Tokyo and Frankfurt etc.

As Bitcoin are totally unregulated they are prone to misuse for illegal purposes also e.g.  Money  laundering.  Persons can  exchange  their money in cash in return of Bitcoins. These can also be used for purchase of illegal things like drugs, arms ammunition etc., without being traced early. Online BITCOIN Casinos are big source of gambling. Clarity in AML/CFT compliance, supervision and monitoring of Bitcoin transactions is a grey area. Circumvention of the identification of beneficial owners ,which is important from AML/CFT angle, is also a cause of worry.

Sneh Deep Agnihotri