Tumkur (Karnataka)-based Sathvik V runs his own software company. About six months ago, one of his foreign business partners introduced him to bitcoin, a virtual currency that has been around since 2008. After investing in a couple of bitcoins, Sathvik is now part of a group trying to popularise the currency in India.
Bitcoins were launched by a group called Satoshi Nakamoto. Payments through bitcoins are irreversible, unlike debit or credit card payments. A credit card payment, for instance, can be denied to a seller in case of a fraud.
Vikram Nikam is another bitcoin enthusiast. Having worked in the hospitality industry, Nikam has travelled around the world. In 2011, he bought some bitcoins from abroad. Six months ago, Bangalore-based Nikam set up a website that offered products and services catering primarily to non-resident Indians (NRIs). The website offers a lot of food items and services such as donations to charities that are attractive to Indians based abroad. The website accepts payments only in bitcoins. Nikam converts these into rupees or sells to those seeking bitcoins.
Bitcoin is a virtual currency, or crypto-currency, used only for online transactions. Though not backed by any central bank, it is traded on a number of exchanges or swapped privately. It is generated by a process called 'mining', for which one requires particular software. Theoretically, it is possible for all computers across the world to run the software and locate bitcoins by solving an algorithm. But it is akin to winning a lottery by solving a puzzle; only some computers can do this because one needs high-end ones with fast processors and uninterrupted power supply, difficult in India. This is what makes bitcoins so valuable, not just in India but worldwide.
Sathvik and Nikam are members of CoinMonk, an organisation aiming to create general awareness about bitcoin. On December 14-15, CoinMonk will organise a bitcoin conference in Bangalore, the first on the issue in India.
Sathvik and Nikam say bitcoin is a safer alternative to online payments through credit or debit cards. When you make an online transaction using a credit or debit card, you are exposing your card to frauds such as phishing. A transaction using bitcoins is more secure, as it involves a private key; bitcoin transactions are untraceable. Also, bitcoins are encrypted for security reasons and cannot be easily counterfeited.
HOW TO BUY BITCOINS
*The address on your wallet where you want to receive bitcoins |
HOW TO SELL BITCOINS
- Enter the verified e-mail address, mobile number
- Enter your bank a/c details like name, IFSC code
- Check box on the ‘terms and conditions’ box
- Enter the number of bitcoins you would like to sell
- Hit the ‘Go’ button and ‘Book Order’
- The system will give you a deposit instruction with an order ID
- It would also give you a bitcoin address where you need to mail the bitcoins in 15 minutes
- Once bitcoins are received, you will get your money
One merely has to provide his/her bitcoin address to the person who needs to pay him/her in bitcoins. No one else will know the receiver's bitcoin address, unless the sender or the receiver inform others.
Bitcoins allow anyone with an internet connection, through a computer or smartphone, to send and receive payments from anywhere in the world, at negligible cost. The value of this currency is determined by supply and demand, similar to equities and gold. "When consumers use credit cards for an online transaction, the merchant has to pay transaction fees. This eats into their margins. But in case of payments using bitcoins, this problem does not exist," Sathvik says.
But if you can't mine bitcoins, where do you buy these from? In India, you can buy and sell this currency on buysellbitco.in, owned and operated by Gandhinagar-based Seven Digital Cash LLP. As of December 4, the 'buy' price of one bitcoin was Rs 75,314, against Rs 74,449 on December 3. As of December 4, the 'sell' price was Rs 72,357.
To buy bitcoins, you have to pay through the National Electronic Funds Transfer system and provide a copy of your Permanent Account Number card. The website will then send the bitcoins to your online address. This could be your computer, your smartphone or even stored in the cloud.
Bitcoins can be stored on your computer, phone wallet or an online wallet. To have a wallet on your system, all you need is some disk space. Online wallets take care of disk space and keep your bitcoins secure. You may be charged a small fee for an online wallet. An important point to remember is where and how you store your bitcoins. If there is a technical glitch with your hardware, you could end up losing your bitcoins.
According to data on buysellbitco.in, the 'buy' price of one bitcoin was Rs 75,553.80 as of November 30. It fell to Rs 59,794.60 on December 1, before rising to Rs 75,314 on December 4. Similarly, the 'sell' price was Rs 74.306.4 on November 30, before falling to Rs 54,401.4 on December 1. On December 4, it stood at Rs 72,357.
Certified financial planner Anil Rego, whose clients have been seeking advice on using bitcoins as an investment option, says, "Keeping one's investments in the form of bitcoins is not recommended, at least at this point. Bitcoins should be considered a high-risk asset class and you should never store money you cannot afford to lose in this form."
While the price of a bitcoin could increase or decrease unpredictably through a short period due to its novel nature and relatively illiquid markets, the currency is still in infancy; it remains to be seen how widespread its acceptance will be and the fluctuations it will face. "It is advisable to avoid this as an investment route till these questions are answered in time," says Rego.
Sathvik estimates of the 12 million bitcoins available worldwide, eight-10 per cent are in India. On his plans of using bitcoins, he says he might accept payments for his company's software services in the virtual currency, albeit to a limited extent. "It is possible if I can declare the rupee value of bitcoins I receive in my taxes. I wish there is some regulation in India. Then, more people would accept bitcoins," he says. No e-commerce website in India accepts bitcoins. But many Indian enthusiasts use the payment system for trading goods and services from foreign websites. To increase their coin holding for future gains, many online stores offer discounts for bitcoin payments. The huge demand for bitcoins in India has largely been from speculators, who hope to gain from the rising value of the currency.
If you're a user of WordPress or sites such as Amazon, Reddit, EZTV and The Internet Archive, you can use bitcoins. And, if you store these online, you can upgrade the free storage with bitcoins. You can also view physical stores that accept bitcoins across the world on coinmap.org.
Bitcoins are highly portable and divisible, says Nikam. A bitcoin might be divided into 100 million pieces; each piece is called Satoshi, after Satoshi Nakamoto.
To buy bitcoins internationally, you may create an account with one of the bitcoin exchanges such as Tokyo-based Mt Gox (www.mtgox.com), the largest one, and start buying the currency. The website always displays an exchange rate; it can also show a chart with historical exchange rates. One can also get bitcoins for free from websites such as bitcoins4.me and thefreebitcoins.com. These websites earn money from advertisers and share a small portion of that with visitors.
Some say you can earn bitcoins by renting out a portion of your computer's CPU power, too. In this case, a powerful computer may help you earn more. There are hundreds of websites where one may watch videos to earn bitcoins - search for 'bitcoin mining'. As always, you start by signing up and entering a previously generated bitcoin address.
In India, mining, buying and selling bitcoins are neither illegal nor are recognised by law. And, bitcoins' taxability is a big question. Some experts say the amount of bitcoins held will not be added to your income for tax purpose, if you retain bitcoins in that form, that is, not convert these into rupees. Also, bitcoins do not attract value-added tax or service tax, they add. A bitcoin holder will only have to pay corporate tax in case the bitcoins are held by a company, or income tax.
That is why technology start-ups are excited about the potential of this currency. While setting up a business, many start-ups prefer transacting in bitcoins, instead of cash, as there is no tax liability as of now and crypto-currency can be integrated into any software.
The government is keeping a watch on this parallel currency, possibly because many regions such as China and Europe are also on a wait-and-watch mode on bitcoins. Currently, the Reserve Bank of India isn't regulating bitcoins, though it is closely watching the developments in this regard, said a central bank spokesperson. Recently, when the bitcoin hit an all-time high, a tweet said, "To all bitcoin non-believers, most drugs and weapons in the world are purchased not in bitcoins, but in dollars."
Last week, China banned its banks from doing business in bitcoins. The Chinese regulators said bitcoins were an unsafe investment that can be controlled by speculators, making it highly volatile. Beijing added that bitcoins make money laundering easy. Also, they said bitcoins could be used by criminal organisations for the purchase of drugs and weapons. However, China said individuals were free to buy and sell bitcoins at their own risk. Thailand was the first country to ban bitcoins in July.
