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Bitcoins - Is it an e-Currency bubble?

Updated on April 12, 2013

Bitcoins

License creative commons
License creative commons | Source

Why BitCoin?

Imagine this, you go to your nearest ATM and try to withdraw money and it says "You are not authorized to withdraw your money". You are confused, so you visit your nearest bank branch and to your shock you are told the same thing. The reason, government has instructed banks to dis-allow any withdrawal from any of saving bank account. This would be your worst nightmare. This is exactly what happened at a very small scale in India, and happened on large scale in Cyprus, an island nation.

The original terms of the bailout, announced on March 16, included a levy on all Cypriot deposits including those of less than €100,000 insured under EU rules. That provision was thrown out by Cypriot lawmakers but not before long queues had formed at ATMs as people rushed to withdraw their savings. Limits on withdrawals were introduced and the banks remained shut all last week after the European Central Bank said it would cut off emergency funding if Cyprus was unable to agree to a bailout with the EU and International Monetary Fund. Monday was a scheduled bank holiday in Cyprus.

The fear of baking failure is wide-spread across euro-zone. There is such a strong opinion on banking systems being fragile and prone to failure, that people are looking towards a safe haven that is devoid of not criminals but regulators, law-makers and bankers. Bitcoin is being considered as that haven!!

Welcome to Bitcoin!!

Bitcoin is a type of crypto-currency that is decentralized and based on open-source peer-to-peer protocol. In simple words, it is a digital currency which can be paid for good/services and which can be earned by providing services or selling goods. It seems the value of 1 Bitcoin has risen significantly post cyprus bailout, going as high as US $200. Let's take a look at bitcoins in detail.

History

Bitcoin is an implementation of crypto-currency that is governed by cryptography algorithms rather than any central governing body. This seems to be the single most reason for demand of bitcoin rising. The trust on country's central banking body has been waning rapidly especially in euro-zone.

In 2008, Satoshi Nakamoto (a pseudo-name) published a paper on The cryptography mailing list at metzdowd.com describing the bitcoin protocol. In 2009, the first bitcoin network came into existence. The entire history of Bitcoin can be found on the wiki page. Here are some key points

  • It is a digital currency governed by cryptographic software and transferred via P2P network
  • It first appeared in 2008 and has been in circulation with its value of currency shooting up in recent times
  • It is now being accepted by many online and offline vendors
  • It has no legal acceptance in any country but is indeed a global currency

Bitcoin alternatives

Bitcoin is not the only digital currency in use, there are others as well. Check out this table from Wikipedia.

Alternate digital currencies
Alternate digital currencies | Source

BitCoin Accepting Vendors

As of now there seems to hundreds of online and offline businesses that accepts bitcoins. The latest updated list can be found at this Trade page or in the bitcoin.travel directory.

Some popular vendors that are accepting Bitcoins are :

WordPress

Accepting Bitcoins
Accepting Bitcoins | Source

BitcoinStore

Buy electronics with bitcoins
Buy electronics with bitcoins | Source

E-GOVLINK

Enables Local Government to accept Bitcoins
Enables Local Government to accept Bitcoins | Source

PizzaforCoins

Order pizza for bitcoins
Order pizza for bitcoins | Source

How to earn Bitcoins?

The first step before collecting Bitcoins is to choose your wallet. It simply means you will now have a bitcoin address, which can be used to receive or send bitcoins for any transaction.

Here are some simple ways to earn Bitcoins:

  • Free Bitcoins - There are many sites that provide free bitcoins, some are listed below:

http://dailybitcoins.org/

http://www.freedigitalmoney.com/en/Bitcoins

https://coinad.com/

https://rbitco.in/articles/free

  • Trade bitcoins with real currencies like EUR or USD or GBP on coin markets or commodities (like gold/silver) on commodity markets
  • Earn interest on your bitcoins. Real Bitcoin Pays interest on bitcoins deposited.
  • If you want some discussion with fellow folks, join this forum www.bitcointalk.org. This thread has a list of various ways of earning bitcoins.

[I did not mention bitcoin mining, since it has now become an extremely difficult task for normal users, check the video below]

Bitcoin Mining is Dead

Bitcoin Prices Vs INR

Bitcoin Vs INR (1 BT = ~10 K INR)
Bitcoin Vs INR (1 BT = ~10 K INR) | Source

Are BitCoins worth spending time?

Should you really spend time and effort to earn those bitcoins? A million BTC question!!

Bitcoins is currently one of the hottest topic of the globe. Some people are even willing to convert their entire savings in bitcoins and others are willing to sell their house for bitcoins. There have been news of setting up Bitcoin ATMs in cyprus to get people convert traditional money into bitcoins. But what you should do?

At first glance, BitCoin seems like the decentralized utopian currency for the entire globe. But from an individual perspective there are certain risks associated with such virtual currencies.

Some of the key issues/risks are:

  • The supply is limited by bitcoin algorithm to 21 millions bitcoins only. This seems like a tiny sum for entire globe and hence over a period the demand supply equation will be stretched significantly. I am not an economist, but this does not seem to make sense to me.
  • There are ofcourse legal issues while dealing in bitcoins. For example, how do you take someone to court for not paying up bitcoins for your service goods. These cases most likely will get rejected considering inadequacy in today's laws.
  • Governments across the world may start regulating the Bitcoin transactions similar to real world currencies. US has already passed some laws regarding this and as more and more vendors start accepting the bitcoins for their goods and services, governments across the world will start putting up laws around this e-currency.
  • As of today, it is difficult for individuals, businesses as well as tax authorities to handle taxation for such transactions. It is difficult to determine where the Bitcoin is local currency or foreign currency.
  • Another serious issue with bitcoin is that vast bulk of bitcoins are hoarded and not used. This is going to create an artificial increase in demand for bitcoin raising its value abnormally, which may be difficult to sustain over long periods of time. Remember any similar bubbles?
  • At some point the cryptography behind bitcoins will be broken and can cause mass stealing of bitcoins. This will lead to dumping of bitcoins faster than you can think.
  • Bitcoins will definitely be used by miscreants for illegal transactions and once it is conclusively proven, it may lead to governments coming down hard on these transactions.

What about Indian laws like FEMA or RBI regulations for bitcoins?

Bitcoin is in true sense a decentralized anonymous currency and with the flow of currency via P2P network makes it further complicated. Any P2P transaction (think of torrents) is difficult to put under legal scanner. As of today's regulations and laws, Bitcoin currency does not come under any law. It is impossible to tell whether a certain Bitcoin is mined locally or outside the country's borders making it a nightmare for lawmakers. So as long as a person is paying income tax appropriately and transactions are not illegal in nature, it is perfectly valid to use Bitcoins. But we need to wait and watch to see if in future special laws comes into force for governing such digital currencies.

BitCoin Poll

Do you trust Bitcoin Economy?

See results

Want to know more about Bitcoins?

Bitcoin: A Peer-to-Peer Electronic Cash System [Illustrated]
Bitcoin: A Peer-to-Peer Electronic Cash System [Illustrated]

A technical detail view of how Bitcoin works

 
What You Need To Know About Bitcoins
What You Need To Know About Bitcoins

A book about trading in BTC. Slightly expensive!

 

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    • electronician profile image

      Dean Walsh 3 years ago from Birmingham, England

      Great article on a very interesting and exciting subject - thumbs up!

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