The introduction of bitcoin has disrupted the traditional concept and understanding of money. With Bitcoin, we today have access to money that is not minted in a traditional ways but is mined. Furthermore, as a form of currency, bitcoin facilitates an exchange of transactions and money, without requiring any assistance or sanction of a third party, including banks, credit cards and others. As disruptive that the concept sounds, over the years it has also garnered immense mainstream attention from various frontiers, including users, investors, entrepreneurs, media and the government bodies.
Getting acquainted with the Backend Bitcoin Technology
As mentioned above, bitcoin is a decentralized digital currency which enables users to anonymously spend money and is not under the stipulation of an external authority, such as the Government or the banks. Bitcoin is only mined by users digitally and can otherwise be bought at various bitcoin exchanges. The backend technology enabling all these superlative transactions is known as the Blockchain technology.
Think of blockchain as an online ledger that operates in the backend and simplifies transactions with the help of data structures. The blockchain technology is distributed and signed cryptographically. Hence, while every bitcoin transaction can be tracked or verified, it is still not restricted via a centralized authority.
This ledger is maintained by computers performing several computations that eventually also result in mining or generating more bitcoins. Furthermore, unlike banking ledgers the blockchain technology is completely anonymous, hence can be used for safeguarding the identity of the users.
Bitcoin as the Plausible Investment
With the wave of digitalization sweeping across the country, we are witnessing an upsurge in the popularity and utility of bitcoins. In fact, following the demonetization drive of last year, Bitcoin emerged as one amongst the most plausible alternatives from an investment standpoint. Compared to 2013, the Google search volume for ‘bitcoin’ has increased four times.
In addition, within a single year, the value of Bitcoin experienced an unprecedented increase of 300 per cent in its valuation. Hence, while the early adopters of bitcoins are today relishing handsome passive income and perhaps the coveted millionaire status, bitcoin has also caught the fancy of a lot of young and risk-taking users of today. However, before going ahead with the investment in bitcoin, it is advisable to be aware of the possible risks.
Risks in Bitcoin Investment & Future Perspective
It is often tempting to be driven away with the surging numbers and take an impulsive investment decision; especially when the investment opportunity sounds as cool and disruptive as bitcoin, offering a steadily growing valuation and popularity. However, the prevailing good sense would suggest against the same, especially when it comes to investing in bitcoins. Prior to taking a call, it is imperative that we are aware of the possible risks in the investment.
Like most of the rest of the world, one of the red flags in Bitcoin investment in India seems to be uncertain legal environment around the same. Users were warned against transacting in bitcoins by the Minister of State of Finance, Arjun Ram Meghwal. The minister expressed his inhibitions around the utilization of bitcoin against anti-money laundering. Bitcoin works as a decentralized cryptography in the backdrop and enables anonymous transactions, making it an option of payment for illicit activities online. RBI had also been voicing concerns against the increasing popularity of crypto-currencies, like Bitcoin.
In addition, the value of Bitcoin is rather volatile and prone to massive swings. The value of Bitcoin isn’t always going to increase. There have been reports of the plummeting value of bitcoin by 23 per cent against Dollar, consecutively in January and March. However, other alternatives of investments are also subject to such market volatilities. As a practice, investors have developed a keen eye for buying a particular stock whenever there is a dip in the value and sell the same during an upswing. Hence, in nature and practice, the bitcoin investment isn’t much different from other popular alternatives, such as mutual funds etc.
It is worth noting the security risks associated as well. As the bitcoin and bitcoin transactions exist online, security of computers or servers safe guarding the bitcoin are always prone to attacks and vulnerability exploitation. As the entire eco system of bitcoin works on the open source software, any failure in the protocol could lead to bitcoin becoming completely worthless and none have the responsibility of valuing the bitcoin or buying them back at any price.
Lastly, a word needs to go out to mention the growing ecosystem around bitcoin at a global level. For instance, several business conglomerates in Japan have started accepting payments in bitcoin. This includes Bic Camera, the biggest electronics retailers in Japan. Even in India, given the lack of regulatory framework around Bitcoin has led to the creation of DABFI — Digital Assets and Blockchain Foundation of India.
The foundation is coming up with a self-regulatory system that would be implemented across bitcoin exchanges in India and is set to bring about uniformity in the utilization of bitcoin. As the ecosystem further comes of age, several risks and challenges in Bitcoin investment would be weeded out, hence making bitcoin one of the most plausible investment options for present day users.