Blog #20 - What Is Bitcoin? - Part - II

 

Why Big Financial Institutions Are Opposing Cryptocurrencies?

 

There is a technical challenge here that makes it difficult to use Bitcoins as a medium of in daily transactions. The Bitcoin transactions on the block chain take time to get confirmed. One block process takes around 10 minutes for the computers to calculate. So, you can understand that it is not practical to wait for 10 minutes for a transaction to get completed in daily life. But at the same time, there are some present day use cases for Bitcoins where they work better than our traditional ways. The best example of this is our Foreign Funds transfer. When you have to transfer money from one country to another, the banks deduct a lump sum in the name of foreign transfer fees. They charge a lot of fees and take a lot of time to transfer money from one country to another. The Bitcoins are more economical in this case. Bitcoins do not charge any transfer fees and ten minutes is a much lesser time as compared to the 1 to 2 days that the banks take. A similar thing applies to the credit card fees. Cryptocurrency can be more economical than credit card fees. This is why banks, credit card companies and remittance companies have been against the Cryptocurrencies and is so even today because Cryptocurrency can become a rival to their business model. In the last few months, especially due to the Covid pandemic, situations have changed.

 

While several industries and mutual funds have been struggling, the value of Cryptocurrencies like Bitcoins and Ethereum has been on the rise from the 1st of March, until November 30, the value of Bitcoin has risen more than 120%, that is, it has more than doubled in value. Paypal, the world's biggest digital payments company, has introduced the feature of crypto transactions in November. J P Morgan Bank used to be the biggest foe of Bitcoins. When Bitcoin was on a bull run in 2017, that is, when its price was rising exponentially, the CEO of J P Morgan had said that it was a fraud. And now, just a few months ago, J P Morgan has opened corporate accounts for famous crypto exchanges like Coinbase and Gemini Trust. So you can see how the doors that had earlier been shut for cryptocurrency have now been opening up. An open mindedness is being observed with regard to cryptocurrency in the general public and the financial industry.

 

Crypto Minining

 

Talking about India, a change of attitude has been observed this year in India as well. In April 2018, the RBI had frozen out the crypto industry from the banking system The RBI had instructed the banks via a circular to desist from dealing in crypto related platforms or transactions The mainstream media had claimed that RBI had placed a ban on cryptocurrency but it was technically inaccurate to say, so Cryptocurrency had never been directly banned in India. RBI had merely blocked the banking access of the crypto ecosystem. The result of this was that the public could not deal in INR that is; in Indian Rupees on the crypto platforms The banks treated the crypto platforms with lot of harshness. With the platform accounts frozen, they were not able to pay their employees or pay rent to their landlords So, a question arises: Why did the RBI do this? The reality is that cryptocurrency has some negative points as well that are mainly related with money laundering and security.

 

Can be used for illegal activities

 

 

In the dark web on the internet, the people had started accepting payment in Bitcoins for buying weapons and drugs. It became very difficult for the law enforcement agencies to track transactions because they were outside the traditional financial system. Issues related to hacking also surfaced. Another reason is that anyone can come up with their own cryptocurrency. This is why, a lot of bogus and fraud companies took money from the public with a promise that once trading started in that particular currency, the value of their money would double/triple so they claimed that the money invested would double/triple. A person named Amit Bhardwaj came up with a similar fraud crypto scheme by the name of "Gain Bitcoin". There is an allegation of a fraud of 2,000 crore against Bhardwaj. Bhardwaj claimed that he had "mining farms" in China. That is, a place where several computer servers were solving equations and said that the bitcoins that were earned as a result of mining operations would be given to the investors as returns. But all his promises were hollow. He took money from a lot of people and fled India. There were such allegations on him. Finally on April 2018, he was arrested.

 

As per the latest update, he is out on bail and the case is pending in the courts. So, due to reasons like this, here was a negative bend of mind regarding cryptocurrency and bitcoins and in response, the RBI took the decision to impose a banking ban on crypto. Crypto exchanges i.e., platforms where you can invest in cryptocurrency and convert rupees into Bitcoins had been operational in India since 2013. Some exchange founders decided to challenge the banking ban in courts. It was not only a matter of their livelihood, but also a matter of principles. They got a chance to explain how the crypto technology and blockchain works to the government and the RBI. They were of the opinion that the negative points pertaining to cryptocurrency are also valid on other asset classes as well. There can be money laundering over property, fake notes can be printed, there can be money laundering there as well. There are many fraud schemes that operate in a lot of other things. The software of banks or stock exchanges can also be hacked. There are chances of that as well. So, the problems that exist with Bitcoins exist with other things as well. In response to this, the reputed Indian platforms included a lot of safeguards. For example, KYC (know your customer) process was made mandatory during sign up. The case reached the Supreme Court. Several famous senior lawyers refused to fight the case because there was a lot of negative news regarding the cryptocurrency in the media. A lot of rumors were afloat as well. There were adjournments. Some exchanges were not able to survive during this time and consequently, they had to wind up. Finally, a three bench judge heard the case in January 2020 and the court accepted the stance of the exchanges and conceded that the ban of the RBI was "disproportionate" because RBI was not able to prove in the court that the crypto investments and trading had negatively hampered the financial systems or banks. 

 

Blockchaing Technology

 

 

Legality in India

 

Under Article 19(1) (g) of the Indian Constitution, it is the Fundamental right of every citizen to indulge in any business/occupation or trade. The court said that the banking ban imposed by the RBI was interfering with this fundamental right. This is a huge thing because it is no ordinary thing to defeat the RBI in court. Therefore, it was a historic day on 4th March for the Indian crypto industry. The court clearly declared that there is no legal prohibition on cryptocurrency trading and investment. This business is legal and the RBI would have to repeal its banking ban Overall, this is good news for all of us. We can freely invest in cryptocurrencies, if we wish to. We have this opportunity to diversify our financial investment. You could invest some money in cryptocurrency as an experiment. After the decision of the Supreme Court, several exchanges have burgeoned and this process has become extremely straightforward and easy in India.

 

These days, crypto investment has become as easy and painless as online food ordering This will become evident upon seeing the clutter free user interface of exchanves. Of course, you will have to follow some rules of common sense. For example, do not trade by taking loans from Banks or others. If there is a need for you to take loans, to invest in cryptocurrencies or Bitcoins, do not do that. Then, this is not for you. Only invest that much money that you are comfortable losing because this is an extremely risky investment. The price of the cryptocurrencies fluctuates a lot and it is extremely volatile. So, it is pretty clear that it is both an opportunity as well as a risk Your risk appetite and investment goals decide whether you want to play a short term or a long term game. Overall, it can be said that cryptocurrencies and Bitcoins could play an important role in the future of finance. It remains to be seen whether cryptocurrency can become a medium of exchange that will be subject to widespread use or will it remain a store of value investment? Will you be able to buy bread and eggs from your nearby shops with Bitcoins in the future? Or will it not be possible? That day might be very far but it cannot be ruled out as impossible that easily.

 

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