Bitcoin is now at cross roads. Which direction it may take globally is not clear. Indian regulators should consider themselves fortunate that they have not yet committed themselves to issuing of their guidelines despite pressure from different directions.
Currently the Bitcoin price has fallen from around Rs 210000/- to around Rs 162000/-.
One of the respected investors Mr Howard Marks has stated
“In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it,”
Simultaneously, a Bitcon laundering ring has been busted and a Russian (Alexander Vinnick) has been arrested in Greece for being a suspected master mind behind a $4 Billion bitcoin laundering ring.
In the midst of these developments, the Bitcoin Improvement Proposal which was a proposal to make some code changes because the block chain storage capacity was getting congested. Over 93.8% of the Bitcoin nodes supported a modification of the code which will be implemented from 1st August 2017.
This will mean that a majority of the current nodes will upgrade themselves to the new protocol. However some will not. This will create two block chain forks to come into existence. The new block is referred to as “Bitcoin Cash”.
The creation of a new forked block chain which is referred to as a “Hard Fork” will mean that those who donot update to the new protocol will continue to be working on the old Blockchain fork. This could also create some transactions which may continue as a second version of the Bitcoin and there could be two market rates in the exchange. To avoid problems holders may sell out their bitcoin holdings and convert them into other AltCoins as soon as possible. However many Bitcoin holders have been defrauded recently in their transactions and hence there is lot of confusion in the holders about what action to take while the conversion of Bitcoin to Bitcoin+Bitcoin Cash may happen on August 1st. Probably they need to rely on their exchanges to give out a solution. But it is clear that many may face problems and we will have lot of complaints surfacing after August 1st from those investors who were risking their hard earned money in Bitcoin as an investment proposition.
In the meantime there is another news item today that Karnataka Government is separately considering issuing some guidelines on Crypto Currencies. (Refer report here).
It is stated that the Government will host a seminar towards the end of August to discuss the issue with stake holders.
According to the minister “”The seminar will give a perspective on whether Bitcoin should be used as a digital currency or as a securities or commodities”. He also said “We will also see whether the platform of blockchain, which boosts efficiency in government administrations, can be used. Based on the inputs we receive from the stakeholders, we may consider a policy.”
In the past there have been several instances when Karnataka Government has taken decisions on Cyber Law which are ultra vires the Information Technology Act 2000.
Legislation on Crypto Currency is not in the domain of the State laws and hence it would be better if the State Government refrains from doing anything which is ultra vires the powers of the State Government at the behest of the Bitcoin Exchanges.
I would like to caution the Government that giving any kind of acceptance space to Bitcoin is harmful to the society. I am aware that many technologists are strongly supporting Bitcoins as well as the Block Chain technology. In my opinion this is representative of their myopic view that technology and innovation are welcome unmindful of its adverse impact on the society. If the Government falls prey to the PR efforts of the Bitcoin Exchanges, they will be damaging the economic framework and destroy the society.
This tendency to adopt measures which look attractive at first glance but could lead to self destruction is what I call “Bhasmasure Syndrome” of creating a monster and later running to save our skin. People who advocate “Disruption” through “Innovation” should remember that disruption is welcome as long as there is no destruction. Otherwise it will be like the legendary story of Lord Eshwara giving a boon to Bhasmasura that if he places his hands on the head of any person, he would be burnt…. only to find that he wants to test it on Lord Eshwara himself.
I hope Karnataka Government does not invite problem by creating a Bhasmasura called Bitcoins.