Bitcoin is a peer-to-peer payment system introduced as open source software in 2009 by developer Satoshi Nakamoto. The digital currency so created and used is called bitcoin or virtual currency, electronic money or crypto-currency. The bitcoin system is not regulated by a single entity, like a central bank, giving its name --- decentralized currency.
Bitcoins are used as a reward for payment processing work in which the users, who offer their computing power, verify and record payments in a public ledger. Called mining, this activity is done by individuals for transaction fees and newly minted bitcoins. Bitcoins can be exchanged for other currencies, products and services, apart from by way of such mining. Users can buy, send, and receive bitcoins electronically for a nominal fee using wallet software on a personal computer, mobile device or a web application.
Bitcoin usage has grown as merchants have an incentive to accept it as the transaction fees are lower than the 2–3% usually imposed by credit card processors. Bitcoin has been a subject of much scrutiny over concerns about illegal activities. Despite better regulation, the number of bitcoins and other virtual currencies is going to touch 100, with a total valuation of $13 billion (Re. 78000 Crore). Many new entrants like Bitgem, Catcoin, Unobtanium and Sexcoin have arrived even as regulators grapple with such currencies.
At least 93 virtual currencies are currently used by people globally on the internet and otherwise. Out of these, bitcoin alone accounts for over $ 9 billion (Re. 54000 Crore), as per estimates. The total value of bitcoin and other virtual currencies in India is worth only a few crores of rupees, but their usage is growing and the NRIs are expected to be dealing with virtual currencies in a big way. Within four years, bitcoin has become the world’s most expensive currency and its per unit value has crossed $1,200 (Rs. 63,000), although the prices have now slipped to $ 750 per piece (Rs. 45,000).
After RBI and other central banks have warned financial intermediaries about dealing with virtual currencies through traditional channels, the buzz around such currencies, not backed by assets, died down for some time. These virtual currencies are increasingly being used to pay for goods and services with retailers, restaurants and entertainment venues. Even some universities, cafes and bars accept bitcoins and bikes and furniture are being sold online for these currencies.
However, experts feel that different virtual currencies expose the users to risks and losses from cyber scams. Illegal drug cartels and money launderers are increasingly opting for virtual currencies due to anonymous, low cost transactions.
While most platforms ask the users to upload images of photo IDs (passport, driver’s licence etc), address proof (utility bill, vehicle registration etc) and online banking account details, the under-ground market is full of unscrupulous operators.
After suspending their operations temporarily, many bitcoin operators have resumed business and some new players have also come to the fore in India. Simultaneously, many bitcoin operators and some corporate houses have started lobbying for a clear regulation on digital currencies in India.