15 Feb 2018 18:08 IST

Who’s afraid of the bitcoin?

Bitcoin fans say the Government reacted without clearly looking into the potential of digital currencies

Not me. But I’m suitably jealous of those who have bitcoins now.

Well, the Government of India doesn’t share your envy, if the latest Union Budget is anything to go by. Instead, it thinks cryptocurrencies are a mess. Finance Minister Arun Jaitley disappointed cryptocurrency fans, especially those who mine, trade and spend in bitcoins, by saying the Government thinks cryptocurrencies, be they bitcoins or any similar entity, are not legal tender in India. This means a virtual ban on the use of the digital currency in this geography.

So Digital India doesn’t apply here, I see.

Looks like it. But to be fair, the Government says it will explore blockchain, the technology that has made cryptocurrencies, including bitcoin, possible, and use it to bolster the digital economy. But we are yet to see the fine print.

But cryptocurrencies don’t have a big presence here, right?

Indeed. That’s why bitcoin fans say the Government’s was more of a knee-jerk reaction, without clearly looking into the potential of digital currencies and the benefits it can bring.

Such as?

The decentralised nature of cryptocurrencies, to start with. Take bitcoin. It is not controlled by any overarching central authority which can manipulate its value (remember reports on how China has been playing with the value of its renminbi?) and it cannot be forged thanks to the blockchain-powered digital architecture it functions on. There are no third parties involved, and there is easiness in transaction and in trade. And, technically, it can’t be stolen. Above all, the bitcoin respects the privacy of the users, according to bitcoin apostles.

Then why this paranoia?

That’s because of reports that bitcoin and peers have been used in money-laundering and drug-trafficking. Ironically, there are no official estimates available on this and fiat money (including the rupee and dollar) forms a major chunk of such illegal operations. But there is hardly any talk about controlling their trade or spread.

Agreed, but fiat currencies are legal and ‘accountable’ to governments and central banks.

Point taken. But there is a mindset issue with virtual currencies. They have been around since the early 2000s in virtual world websites such as Second Life and online role-playing game sites like World of Warcraft, where virtual currency is “earned” by completing virtual quests, according to a 2013 paper ‘The Past and Future of Bitcoins in Worldwide Commerce’ by Denis T Rice in Business Law Today. But it was the arrival of Satoshi Nakamoto, the mysterious founder of bitcoins, that changed the game forever. As you know, bitcoin was created in response to the global financial crisis, to the embarrassment of fiat currencies and their regulators. This is one of the reasons for the popularity and trust bitcoin enjoys today.

Again, the recent boom in bitcoin value isn’t convincing.

Well, you’re not alone. Just last week investment bank Goldman Sachs said today’s cryptocurrencies will go to zero in value very soon. But even the bank, which compared the rise of the likes of bitcoin to the internet bubble of the late 1990s, says stronger digital currencies will emerge out of this and they may stay put. But another investment banker, JP Morgan Chase, says bitcoin-based exchange traded fund can have great potential. The bank calls it the “holy grail for owners and investors”. Now, in the US, Arizona’s senate on February 8 passed a bill that would allow people to pay their taxes in cryptocurrency, mainly bitocoin.

Interesting!

Indeed. That’s why the bitcoin community feels India should have given it more thought instead of falling prey to the global fear psychosis around cryptocurrencies. They are, arguably, the most important technological innovation of this century.

(The article first appeared in The Hindu BusinessLine.)