While the Government is doing its best to push Aadhar usage despite lack of proper legal backing, Bankers now seems to be unhappy with the forcing of Aadhar on their Card and ATM transactions as suggested by RBI.
Bankers have been so far been adamant even to introduce legally required procedures such as Digital Signatures. It is therefore unlikely that they will now heed to RBI advice.
Naavi
It is strange that even reputed business houses fail to learn the basics of communication when it comes to internet and emails. Well knwon advocate Mr Shanti Bhushan has complained that “Mail Today” has published an article in his name which is critical of Aam Admi Party though he has not written the same. Action may be now be taken on the publishing house for defamation and other offenses.
According to the reports the article appears to have been forwarded by email and the publication went ahead with the publication without any sort of cross verification though the article was not otherwise authenticated with a digital signature.
Refer article: http://ibnlive.in.com/news/shanti-bhushan-files-fir-against-mail-today-for-forged-article/439450-37-64.html
It is also said that the article was published in the India Today website as well.
This is not the first time that a major news paper house has published a forged article. Several years Back a reputed international magazine had published what it thought was an interview of a terrorist which was actually faked.
Will responsible journals start taking steps towards “Cyber Law Compliance” at least now? …
Naavi
With Chinese central bank making official remarks on Bitcoins advising Banks not to acquire BTC as a currency/asset, and the approaching Global Bitcoin Conference in Bangalore on December 14th and 15th, heat is now on RBI to give its own advisory.
It is expected that RBI cannot remain “Watching” the situation for long without reacting to the emerging situation. The main concern of RBI at this point of time is not how much of the Indian economy would be affected by the new phenomenon but a desire to ensure that the citizens of India donot lose money in speculation surrounding bitcoin. In the past RBI has been issuing advisories to public on any scheme where public may be cheated of their savings. This may guide RBI even now.
RBI now has two distinct choice.
1. It can provide an advisory meant to educate the public on the volatility of the exchange value of BTC and the possible losses that investors may sustain if the regulators in India or elsewhere eventually take action to ban BTC through law.
2. It can also take the tougher stand and declare that BTC is not legal in India and any body using BTC is liable for legal action from RBI.
It is more likely that RBI may take the first option and release a general advisory. In the advisory RBI may warn the public about the possibility of foreign exchange violations as well as the possibility of being part of a money laundering chain when investors buy and sell BTCs.
While we await an official guidance from RBI in this regard, The views of Naavi.org in connection with BTC may be summarised as follows.
1. BTC is in law an electronic document. It is recognized as a “Document” as per ITA 2008. It can be transferred legally as a contractual sale or purchase preferably through digitally signed electronic contracts or otherwise through a physical contract document or through an implied contract.
2. BTC however is not equivalent to “Currency” carrying a “Promise to pay” from any authority. BTC can however be accepted in exchange of goods and services subject to mutual acceptance of the parties.
3. BTC is however a “Virtual Asset” on which there may be a value perception placed by investors. It may appear placing a value on an asset which is not only intangible but also nearly illusory is strange. However just as the “Spectrum” in telecom industry has a value because “Spectrum” is in limited supply and has a use, BTC has a value since it is in limited supply and use. Investors may therefore consider it as an asset. The wild fluctuations in the asset value is however a reality since it is yet to mature as an asset. However the current price level of around $832 despite the recent negative cues from China indicates that the undercurrent is still strong.
4. BTC mining is an industrial activity and is considered legal. It is not possible for RBI to ban BTC mining even if it issues an advisory on BTC not being a recognized currency. BTC mining in international pools is like a software service and is also outside the gamut of RBI policy on currency. Individual however may recognize that BTC mining is today not economical at individual level and hence it is not an activity that an ordinary Netizen should consider.
5. Indian residents considering investing in BTC as a speculative virtual asset should steer clear of buying BTCs from exchanges outside India paying in foreign exchange . Buying BTCs in India from miners in India who have mined it themselves is acceptable if the value fluctuation risk can be absorbed by the investors. Appropriate KYC on the seller is however essential. Selling BTCs to a Non Resident if they have been mined by themselves or acquired from other local miners is acceptable. Proceeds of such sales should be realized in foreign exchange and brought to India through banking channels. Selling by Indian residents, BTCs mined by self or acquired through local purchase to other Indian residents in rupees is acceptable. Profits in such transactions are subject to appropriate taxation in India.
This advice from Naavi.org is subject to revision based on changes that may occur in the regulatory space in India. There is no regulatory support for this advisory. This is provided on good faith basis and no liability lies on Naavi.org for consequences arising out of accepting and following these advises.
Naavi
9th December 2013
While Bitcoin exchane prices plunged from the dizzy levels of $1342 to around $576 within a week (presently at $830) reacting to the decision of Baidu not to accept Bitcoins, an interesting development was the development of a derivatives market in Bitcoins. Predictious.com has now started a derivative trading platform to buy and sell futures in Bitcoins. The website is owned by a limited company by name Pixode registered in Ireland.
It is well known in the stock market circles that “Derivatives” is a high risk investment option which thrives on the expectations of investors on how the share prices move in the coming days. Now Bitcoin (BTC) itself is a virtual currency and in a way a derivative in itself. Now the predictious trading is a derivative of a derivative and obviously the risks in derivative trading of BTC is closer to gambling.
The bids can be placed in unts of i millibitcon (0.001 BTC or about Rs 50). No fees is charged on deposits. A “Miners Fees” would be charged on all withdrawals amounting to 0.0005 BTC (approximately Rs 25) per transaction. Transaction fees (brokerage) would also be charged on each transactions. (exact brokerage is not clear).
At present there is no indication about the depth of the BTC Futures market. However what this development indicates is that BTC eco system is evolving in several dimensions and this is likely to provide stronger roots for BTC to survive in the long run.
Naavi
Analysts at Bank of America’s Merrill Lynch wrote a 14 page reserach note to investment clients airing their view that “As a medium of exchange, Bitcoin has clear potential for growth”. (Refer article here) .
It is also reported that BTC s are increasingly being used in physical society transactions as well with Business Insider reporting that a Telsa car was purchased with the use of BTCs.
These are some of the developments that may have long term impact on the cryptocurrency markets and we need to take note of.
Naavi
Bitcoin Mining is an activity where the computer tries to collect reported Bitcoin transactions during a period and bundle them into an electronic document that can be added to the current data base of transactions (i.e.The Block Chain).
While adding the new transactions and creating an augmented block chain each time, there is a conditionality attached to the proposed additional block set by the Bitcoin protocol. The hashing of the block header should have a specific value such as it should be lower than a threshhold value.
For example, the latest block which is Block number 273289 created on 6th December 2013 at 01.52.05 had a hash value of :
0000000000000004bf31ed0bba68aa50b128d514df55d1540a5bba6978a05f10
This block was built on the previous block whose hash value was:
0000000000000004bb91f6bd1539e8945cc10a5dae65a2b0384332ea163fabec
This block (273289) recorded 18 transactions for a total value of 3047.95199544 BTC units. (Note that a block can have varying number of transactions. eg: block 2732725 had 1259 transactions).
All such Blocks start with the first transaction (Coin base transaction) which records the issue of 25 BTCs as a reward to the successful first creator of the previous block and then lists the other transactions during the period showing the amount of transaction as well as from and to wallet addresses. The creator of this block who is entitled to receive 25 BTCs as a reward is also identified in the block with his wallet address.
While any body can easily list the transactions during a period, the successful miner is identified as one who first creates it in such a manner that the hash value meets the difficulty criteria. The difficulty criteria itself is hardened after every 2016 blocks so that the process becomes increasingly difficult until the final block is created. (expected in 2140 with the creation of a total of 21 million bitcoins). The variable that makes the block containing the pre determined data such as the list of transactions and the creator’s identity meet the required criteria is an addition of a “Nonce Value” which is a random number added to the data before computing the hash. If the hash is not acceptable (i.e. does not meet the required criteria), the nonce value is changed and once again the new hash is calculated and so on until the right solution is found.
Thus the so called “Mining” activity of Bitcoin is nothing but processing a certain amount of data with various nonce values to arrive at a target hash value. For this activity, computer has to do a brute force processing of data. In order to arrive at the solution within a short time in competition with the thousands of miners across the world , the miners need a fast processing power in the form of processors which can process more hashes in a short time.
At present the fastest rate of processing is said to be around 600 Giga hashes per second (GH/s). These processors are special purpose cards ( Application Specific Integrated Circuits or ASIC Cards). By combining many of such processors people put together “Mining Rigs” that can process at huge rates. Normal CPUs used in computers have a hash rate of hardly around 0.5 MH/s. A windows server with 20 cores operating 2.10 Ghz AMD chip is said to reach a hashing rate of 35 MH/s and indicates that it is very uncompetitive for miners who want to use their normal computers to be successful miners. They therefore often pool their resources by creating “mining pools.” or use “Cloud Mining resources”. The future in bitcoin mining belongs to specialist miners who set up customized mining rigs which is an expensive activity.
It is interesting to observe that the total mining resources devoted to BTC mining today is estimated to be higher than the 500 super computers in the world.
Thus it is clear that BTC wealth of the world does not come cheap!
One important issue in mining is that it uses electricity and substantial energy gets converted to heat during the the processing. The economics of mining has to therefore factor in the cost of electricity and a need to keep the processors as cool as possible.
It is estimated that at present miners will not break even with CPU mining or even with GPU mining. GPU mining in pools may break even. However for making reasonable profits, mining has to be set up and run as a special facility.
It is in this context that one can observe that in Hong Kong in particular, special facilities have been built with a series of high powered ASIC chips dipped in coolant liquids to reduce the temperature and conserve power. (See this interesting article). Such facilities cannot thrive in the Chinese economy if not for the tacit support from the government and hence we can draw a conclusion that China is supportive of the BTC in spite of the Central Bank’s recent guidelines for Banks not to accept BTC as a currency.
Considering the need for enormous efforts in mining Crypto coins, regulators need to keep in mind that this is no longer a game like the Secondlife.com to produce Lindens. It is a serious data processing activity requiring setting up of energy efficient data centers. Some respect is therefore due to the “Crypto Currency Mining Activity” as an activity similar to software exports. The activity however is more a hardware investment intensive activity and not a skill based activity.
We need to recognize that Bitcoin Mining is an activity that uses IT and the output is realizable in foreign currency and hence it is similar to a software export activity. Pool mining is akin to data processing BPO activity. India does not produce computer chips but it may be possible for innovative data center operators with excess capacity to consider taking up BTC mining as a diversification.
It is however necessary for us to spare a thought if it is wise to divert scarce resources such as power and data processing powers to producing Cryptocoins rather than some thing more productive in the long run!
Naavi
