The currency ban in India was implemented not just to crack down on unaccounted wealth, but also to starve terrorists and extremists of funds. But everything comes with an alternate. Bitcoins is the new mode of payment adopted by these groups.
Since bitcoins are not recognized by Indian government as legal tender, issues pertaining to this currency are especially complicated. With no supervision over bitcoin transactions and no requirement to report trade in the currency, questions relating to their transactions and taxation are in a state of limbo.
There is lot of activity going on involving the use of this virtual currency in India as well. This includes currency exchange services that trade bitcoins, several businesses that accept bitcoins as a form of payment and an Internet community, where sites such as Wikipedia explain how the currency is used.
It is this anonymity, however, that is also the source of Bitcoin’s major disadvantages. It is also the source of the threat it poses to economies around the world. The virtual currency is used by criminals for various criminal purposes, and is exploited by terrorists and other groups as a currency with which they fund their activities in a secure, anonymous way, out of reach of the authorities. That is why countries around the world, are taking particular interest in this currency and are busy determining how to approach it. This includes issues surrounding the taxation of transactions conducted with it, but also the question of how to maintain some level of supervision over the use of bitcoins and their users.
Bitcoin is a virtual, digital currency based on open source programming and protocol, which acts as a decentralized method for two parties involved in a transaction to exchange direct payments. As a currency, it allows for the immediate transfer of funds throughout the world at zero cost or close to zero cost, anonymously and without any supervisory body overseeing the transaction or any banking authority mediating between the parties involved.
Bitcoin began when an unknown individual, who went by the name Satoshi Nakamoto released a document on Nov. 1, 2008, in which he presented the idea of a currency that differed from paper currency or electronic wallets. To this day, the author remains anonymous one theory is that he is not an individual but a group of people. It was, in effect, a crypto- currency, a concept that had already been discussed as early as 1998. What distinguished this new currency is that its creation and trade in it were the result of cryptography, rather than some centralized institution.
Apart from being anonymous and free from the control of any outside factors whatsoever, it is also claimed that this currency is not subject to inflationary stimuli because the maximum number of coins that can be “created” or “minted” is known well before in advance. Till date, some 13 million coins have been minted out of a total of 25 million possible coins. The number of new coins created decreases by 50% each year, and the process of creating new coins is slated to end in 2140. At that point, no new coins will be “minted.”
The transfer of currency is done by way of “wallets,” which are accounts that can be opened on specific websites and a best example is Google Playstore, where one can find lot of apps pertaining to usage of bitcoins.
Upon opening a wallet or buying bitcoins with real currency the user receives a string of 33 characters and a password. This string serves as the details of the user’s personal bank account, which he releases on the Internet when, for example, engaging in a transaction or requesting donations. Bitcoin sites warn users that the currency is completely virtual and has no physical manifestations. This means that if the user loses his character string and password, he/she will also lose all the money in his/her account.
Today the value of 1 Bitcoin fluctuates between 90,000 INR to 1,20,000 INR (Approx 1300 US Dollars to 2000 US Dollars).
This anonymous currency, is used to fund various activities, most of which are illegal. This happen in the open and familiar Internet, but also in the “Darknet.” Today, it is possible to find legitimate online transactions conducted with bitcoins, but these coexist alongside the open sale of cannabis on websites which mention “ordering cannabis to your home with the push of a button” and paying for it with bitcoins.
It is worth noting that the site is in Hebrew. Another website, known as Silk Road, served as the “Amazon of illegal drugs” on the Darknet, and a vast range of other illegal items can be found there as well, ranging from drugs, weapons, hacking, murdering, or be it any other crime.
The main characteristic of bitcoins is that it is an anonymous, decentralized currency, encrypted by an algorithm and free of any supervision by some centralized authority or other. Bitcoin allows the user a level of security and helps him to protect himself from identity theft or credit card fraud.
Though the problem is always the same, the attitudes adopted by countries around the world certainly are not. Some states have adopted bitcoins, others have banned its use and still others are studying it with extreme caution. As the most prominent example of a new generation of virtual currencies, bitcoins will continue to keep criminals and terrorists working smoothly.
It’s a very high time that the Government should adopt strict measures and adopt a special mechanism to curb this ongoing menace.