It started out as a geeky vision, an open source, peerto-peer payment network "mined" by computers solving mathematical puzzles and stored in a digital "wallet". Today, its fluctuating prices are monitored like any other currency, by investors and critics alike. While today the Indian share of the Bitcoin market is small, Na Vijayshankar, cyber law expert and former banker, tells Narayanan Krishnaswamy, that by exercising caution, potential investors can hit pay dirt.
What do you make of the Bitcoin hype?
The hype has come about because of the sudden increase in the exchange value to the unbelievable levels of $1,000 over just a couple of months. The sudden rise in price has attracted the attention of speculators around the world who see it as a good way to make easy money.
Regulators were taken aback when they heard of a so-called "coin" being used for payments on websites initially and other offline uses subsequently. Simultaneously, the emergence of Bitcoin exchanges appearing to look like stock exchanges made people wonder if a parallel economy has emerged without their knowledge.
You've said it is risky to call Bitcoin a cybercurrency. Why is it safer to call it a document?
When Bitcoin is represented as a "currency" the public may mistake it for a "legal tender" (a medium of payment recognized by a government, which in India, means notes issued by RBI). Since Bitcoin is not legal tender and does not have the backing of any authority it would be misleading to call it currency. A person selling Bitcoins under this perception may be accused of committing fraud.
There should always be a disclaimer in all communications promoting Bitcoin stating that it is a peer-to-peer settlement instrument. It is better for the Bitcoin community to settle for a term "currency-like electronic document" while promoting it.
Officials, like those in the US justice department, are cracking down on Bitcoin claiming it is being used by drug dealers and fraudsters.
The perception that it is a parallel money system coming into existence with exclusive benefits for cyber criminals just added to its hype. However, this perception may not be entirely correct. Bitcoin is just an innovative virtual payment system that can be used both for legal and illegal purposes, like cash.
With some drug-peddling websites designating payments in Bitcoins, it appeared as if it was a currency developed for the benefit of carrying on criminal activities and needed to be regulated. The fear of the currency being used for havala transactions also heightened because of the ease with which money can be moved in near anonymity.
We've seen some massive fluctuations in Bitcoin, especially as a result of Chinese and US government's response to it. Do you think that this volatility will ever go away?
Volatility will remain until the currency matures. At this point of time if more governments take a harsh view of the system (China banned new Bitcoin deposits this week), it may die and people may dismiss the phenomenon as a bubble. If it survives, then it may gradually achieve price stability , if not at $1,300, somewhere around $600. If, say, the RBI gives it a positive advisory, I won't be surprised if the value soars back to over $1,000.
In India, what are the institutions that Bitcoin would fall under the purview of?
Since Bitcoin is perceived to be a currency, RBI would want to ensure that its role as the sole issuer of notes is not challenged. RBI would also be concerned about the foreign exchange transactions involved in the buying and selling of Bitcoins in India and would like to license the traders like the authorized money exchangers or authorized dealers of foreign exchange.
SEBI would be concerned about the exchanges that operate to buy and sell Bitcoins against the rupee or other currencies since the activity is similar to stock trading and the public may lose heavily if the operators are unscrupulous. However, SEBI can only issue an advisory at present and may not be able to interfere without some change of law.
Income tax authorities may also be interested in ensuring that they get a share of the pie when investors make profits.
At present the Indian share of the Bitcoin market is too insignificant for any regulator to be alarmed.
What should Bitcoin enthusiasts in India do next?
Investing at current values is a speculation and buying Bitcoins from an unidentified source is a huge risk as holders may be dispossessed of their holdings if the Bitcoins purchased are identified as stolen or otherwise tainted. Additionally, the fluctuating value is also a concern.
Bitcoin promoters must start a dialogue with the RBI and convince authorities to clarify that they will not ban the system. My own opinion is that RBI has no legal right to ban Bitcoin per se. It can only ban the promotion of Bitcoin as a currency.
http://timesofindia.indiatimes.com/home/opinion/interviews/RBI-has-no-legal-right-to-ban-use-of-bitcoin/articleshow/27745372.cms
