Can Bitcoins still be ignored?
“A pessimist sees difficulty in every opportunity and an optimist sees opportunity in every difficulty”
|Asset Class||CAGR* from Jan 2009 to Aug 2017|
*CAGR – Compounded Annual Growth Rate
On August 31, 2016, Nifty was at 8800. Currently, it is 9900, riding on bullish sentiments and a strong reform- oriented BJP government, giving a return of 12.5% p.a. Impressive!!
Bitcoin has risen from 575$ to 4600$ in the same time frame, posting a staggering return of 700%. That’s 55 times the return on the stock market! Do you still think the bitcoin can be ignored?
When bitcoin was found in 2009, Nandan Nilekani was still serving his first stint as Chairman of the IT giant Infosys, Virat Kohli was yet to make his test debut and Rahul Gandhi was the blue-eyed boy of Congress and future superstar of Indian politics! It has been almost a decade since inception, yet the #4 most searched query on Google(2014) “What is Bitcoin?” still puzzles most!
Bitcoin is a decentralized, paperless crypto-currency invented by an anonymous programmer in 2009.
Bitcoins are pieces of computer code — mathematical algorithms, actually — that represent monetary units. They need no middle man to transfer the funds. Unlike modern fiat money, Bitcoins not controlled or backed by any bank or central government authority, like the RBI. You don‘t have to ask anybody to use bitcoin. There is no gatekeeper.
Transaction are propagated nearly instantly in the network and are confirmed in a couple of minutes. It doesn’t matter if I send Bitcoins to my neighbor or to someone on the other side of the world, it will take the same time!
One of the limitations of bitcoin is that once a transactions verified by network nodes and recorded in a public distributed ledger (block chain), nobody can reverse it. There is no safety net. However, cryptography and the magic of big numbers makes it almost impossible to break this scheme. A Bitcoin address is more secure than Tihar Jail.
The biggest concern of regulatory authorities is that neither transactions nor accounts are connected to real world identities. As stated by Former Indian Minister of State for Finance Arjun Ram Meghwal, “Usage of virtual currencies anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws.”You receive Bitcoins on addresses, which are randomly seeming chains of around 30 characters. It is almost impossible to connect the real world identity of users with those addresses. You may be dealing with terrorists or Shah Rukh Khan, you never know!
Barring these limitations, what works best for bitcoins is pure economics. The model is designed in such a way that there is a CAP of 21mn bitcoins that can be generated by year 2140 and currently approx. 16.5 mn bitcoins are in circulation. When supply is limited, and demand increases, we all know what happens to the price.
In a mere 18 days after the demonetization speech of Prime Minister Narendra Modi, the price of bitcoins on Zebpay, having 1 million users, had surged from $750 to $1,020. If adoption by few billion Indians can lead to a 33% increment, imagine the level it would reach when 1.3 billion Indians get on it!! Now imagine if the entire world gets on it.
In year 2013, no one thought Sachin Tendulkar’s records could be replicated. Four years later, with Virat Kohli in rampaging form, that possibility is not far behind. The old guard has to make way for the new generation. Bitcoin is risky but time changes everything and this change brings lot of opportunities to capitalize. Can bitcoins still be ignored?
-CA Akshay Sirsalewala & CA Amish Makwana