Naavi.org

With the Bitcoin currency value touching US$1200  and dropping to $800 before settling at $1005 within three days, the Bitcoin has continued to capture the global attention of different kinds of people.

Regulators in particular are getting nervous about how to respond to this enigmatic beast called “Bitcoin” which appears to be devouring the Cyber World. The dilemma before the regulators is whether to allow the Bitcoin usage and/or mining and/or trading to continue within their jurisdiction and if so would it adversely affect the economy.

China appears to have embraced the Bit Coin system with both hands while Thailand became the first country to ban it. Other countries including Britain seem to be trying to find a suitable slot for the Bit coin as a currency (BTC) to work within the economy.

According to telegraph.co.uk, Thailand has become the first country to ban Bitcoins. By this decision it has become illegal in Thailand to buy or sell BTC or use it any trade or send BTC to any person outside Thailand etc.

The Thailand response is a typical response of a regulator who finds it easy to ban it rather than find a way to let it co-exist.

On the other hand, China appears to be moving towards the complete acceptance of the system and a possible attempt to achieve global leadership. Though an official decision has not yet been taken, there are indications that Bitcoins are being encouraged in China.

As this article “China rides rollercoaster love affair with Bitcoin” indicates China already has become the home to the biggest bitcoin exchange. BTCChina with about $60 million in daily transactions has over taken MtGox, Japan  the hitherto undisputed leader. BTCChina now transacts about 83000 BTCs per day, a clear 5% higher than MtGox. (Refer chart below). Recent 30 day volume at BTCChina was nearly 50% more than MtGox Japan.

The INR transactions at Rs 77206.63 amounted to about Rs 37 lakhs in 30 days as against US$1.8 million in BTCChina. (There is still no official exchange in India and discussions seem to be on in this possibility by interested persons)

The response of Britain has been different. according to reports Royal Mint may produce physical Gold Coins and offer it as BTC physical version. At present this is dubbed as a commemorative coin for collectors but it appears more a “testing of the waters” experiment to see how the idea is likely to play out.

Going forward, if one observes the download statistics from Sourceforge on Bitcoin mining software, it appears that Chinese are downloading miner software at twice the rate of US. As against 83000 downloads in the last week from China, downloads from US has been around 36000/-. India is way down the list at around 2800.

These statistics indicate that China has taken it upon itself on a war footing that in the remaining 9 million BTCs remaining to be mined, China will have the maximum share. There are also indications that sophisticated mining facilities have been set up in Hong Kong. This would not be possible except with state support and investment. 

India needs to consider that the threat of Bitcoin as a currency to the Indian economy is minimal because it is not big enough at this point of time. However the threat arising out of Chinese monopoly on the BTC as a currency of the cyber space is of greater concern. India suffered in the past during the distribution of IPV4 addresses and failed to get its share of the global asset. Now if India does not respond promptly and with aggression, we will again lose the share of the emerging Crypto currency market which includes Bitcoin as well as others.

At present only 9 million out of 21 million available BTCs are left to be mined. This is only 45% of the global share. Even if we join the race from now onwards, we will still end up at the lower end of BTC wealth. Still we need to make a run for it as an economy and also device other strategies to protect our interests in the growing crypto currency market of the world.

This requires immediate positive action from RBI with the support of the Government. I envisage that the policy on Bitcoins in particular and other cryptocoins in general could become an election issue in 2014. Will the net savvy Narendra Modi be favourable to BTC or will Mr P.Chidambaram jump in first to beat Modi to this credit, will be an interesting development to watch.

Naavi

Malwarebytes has reported that in some of the softwares identified as Potentially Unwanted Programs (PUP) they have identified the presence of a Bitcoin miner. The program was identified initially in a process identified as jh1d.exe and a variant jh1c.exe and using nearly 50% of CPU power. The program was identified as “jhProtominer”.

See the article in techienews.co.uk

What is surprising is that it is reported that the EULA of the program downloaded by the client indicates

“WBT Features on the Mutual Public Installer” : “COMPUTER CALCULATIONS, SECURITY: as part of downloading a Mutual Public, your computer may do mathematical calculations for our affiliated networks to confirm transactions and increase security. Any rewards or fees collected by WBT or our affiliates are the sole property of WBT and our affiliates.”

While the ingenuity of the developer may be appreciated, whichever advocate drafted this privacy clause was dishonest to his profession as the contract was illegal per-se and a standard form contract which has no legal validity.

Naavi

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The Indian regulator appear to be concerned with the growing attention of Bitcoin. The increase in the exchange value of the currency to around US$ 1200 appear to be creating panic amongst the regulators without considering the real impact on the economy.

It is stated that the total Indian currency in circulation is around 9.7 lakh crores worth. The global Bitcoin population is now estimated to be around 10% of this. Of this, Indian holding is negligible. Even after the hypeabout Bitcoin surfaced, during the last week of November the total downloads of Bitcoin mining software in India was about 0.8 % of the global downloads and about 2.5% of of the downloads from China. The fake currency in India itself is estiamted to be around Rs 6000 crores, several times higher than the possible Bitcoin holding. Hence the real impact is not worth fearing at this point of time.

RBI is looking at the possibility of Bitcoin being used by criminals. This is a possibility as much as the use of fake currency and the black money hoarding in Swiss Banks.

SEBI is also reported to be looking at the Business Objectives in the memorandum of association filed by companies working in this domain as perhaps exchange houses.

It would be interesting to observe how the regulators are likely to respond. Before the proposed global conference we may see a media frenzy which may further muddy the waters.

This Business Standard Article is perhaps the beginning of the media onslaught.

Naavi

In order to increase the acceptability of Bitcoin for ecommerce purchases everywhere, a service has emerged where by an intermediary takes the responsibility of converting the buyer’s bitcoin payments to the legacy currency of the ecommerce site. Bitsumo  a company in Bolivia has offered to assist bitcoin users to shop in all e commerce sites with bitcoins at a price of around $3 per transaction.

Bitsumo type of  of conversion services will become more common in days to come and certainly helps in making bitcoins more acceptable. However before rushing to use such services it is essential to establish the reliability of the intermediary.

As the popularity of Bitcoins seem to grow unabated, the voice of pessimists are also growing shriller. There are many who claim that Bitcoin is doomed to fail and Bitcoin is a Ponzi scheme.

While discussions on Bitcoins have been occupying the Indian minds as a prelude to the first global Bitcoin conference coming up in Bangalore in the second week of December, it is time to spare a thought on how to help public not losing money in pursuance of what may turn out to be a mirage.

In the opinion of Naavi.org, Bitcoin system or the crypto currency concept in general is an innovative concept which is inherently capable of providing a digital form of currency which can be functionally more efficient than the traditional fiat currencies which are more prone to inflationary pressures. However the balance of legal enforcement power is today with the physical world and if the masters of the physical world so decide, they have the ability to kill the concepts like Bitcoin by force. Will they do it? is the question and not whether they can do it.

Naavi.org had been arguing for a long time for Cyber Laws by the Netizens and for the Netizens. However what finally got adopted and thrived is “Cyber Laws for the Netizens by Non Netizens”. The laws therefore were meant more for protection of the non netizens rather than the netizens. The regulators considered the cyber space as a continuum of the physical space and created laws accordingly rather than letting both societies grow on their own and manage only the bridge between the two societies.

Bitcoins now has posed a fresh challenge to the world to resolve the conflicts between the two societies.

The first war between the digital society and the physical society was fought on copyrights. This was decisively won by the physical society with the closure of Napster.

Presently the second major inter society war is happening on the Social media in the form of “Privacy Protection” Vs “Security Requirements”. the trend is again indicating a victory for the Security Needs.

Now the war about whether Crypto currencies should survive or not appear to be the emerging as the third war between the Cyber and Meta societies.

Will it be third time lucky for the cyber society? or

Will we finally learn to live together and find a way for the two societies to strike a treaty where the crypto currencies may be allowed to survive and also benefit the meta society?

…is the problem on hand. Perhaps this is more difficult than the crypto problems which the bit coin miners have been trying to solve day in and day out.

Striking a treaty between the two societies also implies that representatives of both societies try to handle the issue diplomatically and with a spirit of give and take. While the Regulators in the Meta society has  people who have such diplomatic skills, it is not clear if the Bitcoin community dominated by young technical minds and speculative traders have the necessary maturity for a diplomatic bargain.

The attempt towards finding a mutually acceptable solution to let Bitcoin survive can start with India if RBI the regulator has an open mind and starts a dialogue with the Bitcoin community without looking at Crypto currencies as an attempt to challenge regulation and therefore intrinsically inimical to the society. The opportunity is here with the global conference in Bangalore.

It is stated that RBI is “Watching” the Bitcoin situation and it is rumoured that RBI and SBI representatives are likely to participate in the conference. At least the Indian stakeholders of the Bitcoin community would be well represented in the conference. There is therefore no better opportunity than to start a dialogue right here and now on how to make the Bitcoin system acceptable to the regulators and how to prevent the regulators from taking such restrictive actions that may make the doomsday predictions come true.

I urge the conference organizers to form a “Crypto Currency Association of India” as a legal entity in the physical world with a responsibility to negotiate with the RBI to find an amicable solution to the perceived conflict between the digital society and the physical society as a result of the emergence of Bitcoin.

Naavi

It is reported that an island called Alderney in the northern part of Channel Islands located between Northern France and UK will be minting Bitcoins in physical form. The island has a population of 1903 persons . It is likely that the coin will have a gold content of US Pounds 500/- to provide a value backing in terms of Gold. The value of this Bitcoin in terms of US $ would be around $818 as against the current value of Virtual Bitcoin around $1200.

Refer Article: 

It is an interesting development for economists to think of the consequences.

Naavi