Business Today

The bitcoin tussle

twitter-logo Prosenjit Datta   NA     Print Edition: April 8, 2018
The bitcoin tussle
Business Today editor Prosenjit Datta

By and large, banking regulators and countries across the globe are in a dilemma about how to deal with Bitcoins and other cryptocurrencies. A few countries have banned Bitcoins and other cryptos - but these are extreme examples. Many have explicitly stated that Bitcoins have no legal status as currency, but allow its trading and tax gains out of it. They also allow it to be converted into the country's currency through mutual consent between two parties, without giving an official standing to it. In a sense, it is treated like other precious commodities like gold, silver or diamonds.

Many countries recognise Bitcoins as a valid currency, though they have not given that status to other cryptocurrencies. Meanwhile, Venezuela has banned Bitcoins while introducing its own cryptocurrency called the Petro. In India, the Reserve Bank of India (and the government) has often talked about the dangers of trading in unregulated cryptocurrencies, while a committee is reportedly looking at introducing its own cryptocoins.

Billionaires and multimillionaires around the world are equally divided about cryptocurrencies. Some are avid fans and think it is the future of money. Others think it is a Ponzi scheme or a rerun of the Tulip mania.

The mixed reaction to cryptos are understandable. Bitcoins and its progenies are based on a peer-to-peer technology that is both decentralised and not regulated by any government or regulator. Nor is it backed by any asset. The value depends on demand and supply and gyrates wildly. In the early days, a Bitcoin investor actually used several coins to pay for a pizza. Today, a single Bitcoin, even after its recent crash, is worth $9,000 (it had crossed $19,000 at the fag-end of last year), and you can probably order a year's supply of pizzas with it. The cryptocurrencies introduced so far can be used and traded anonymously. And yet, Bitcoins and other cryptos have become so popular that it is impossible to ignore them either.

Bitcoin was the first cryptocurrency to be introduced based on a new technology called blockchain and created by an anonymous computer genius (or a group of computer nerds using a pseudonym). What started as a curiosity has since spread like wildfire and adopted by both radical investors and technology fans. There are thousands of cryptos currently in the market and more are being introduced daily. They are great for both currency gamblers as well as for people who value the privacy of their transactions (and hence loved by those in illegal businesses).

But the RBI will have to eventually figure out how to deal with cryptocurrencies because they are not going to go away in a hurry. And while the fallout of the PNB scam and the problems of non-performing assets and other issues of public sector banks aretaking all its attention currently, it will also need to figure out how to tame Bitcoins.

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