Bitcoin is in news yet again — This time for touching an all-time high above $10,000 on Tuesday. The world’s largest cryptocurrency has the dubious distinction of being called as a ‘fraud’, illegal, fad, and many such names by eminent bankers, investors and regulators across the world. Even Warren Buffett called it too risky. And the worst thing is that people keep confusing it with the concept of cryptocurrency and blockchain, and all of them are not fraud; in fact, some can even be a great digital tool in future backed by central Banks — some are already on it, including India. Reserve Bank of India executive director Sudarshan Sen in September said that the central bank is considering its own cryptocurrency, even as Bitcoin has not got any legal status so far.
Why? Because not all cryptocurrencies are bubbles. We explain the difference between Bitcoin and cryptocurrency, and the technology behind it — blockchain.
Bitcoin vs Cryptocurrency
Cryptocurrency: Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds.
Bitcoin: Bitcoin is a type of cryptocurrency, which operates on the encryption technique, but does not have a legal backing from the central bank. It is an unregulated digital private currency created by Satoshi Nakamoto in 2009.
While any cryptocurrency launched as a sovereign digital alternative to currency is legal and promises to pay the value encrypted in it, Bitcoin has no such value as it is like a digital form of private currency. Bitcoin does not have any underlying asset or value-base.
From US to China to France to Japan, central banks of all these countries have expressed concern over the rising popularity of Bitcoin with it being a private currency. India’s central bank is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing. Nevertheless, the Reserve Bank of India has a group studying whether digital currencies backed by global central banks can be used as legal tender. Currently, the use of cryptocurrencies is a violation of foreign-exchange rules.
Meanwhile, China has made it clear: the central bank has full control over cryptocurrencies. With a research team set up in 2014 to develop digital fiat money, the People’s Bank of China believes “conditions are ripe” for it to embrace the technology. But it has cracked down on private digital issuers, banning exchange trading of bitcoin and others.
Bitcoin vs Blockchain
Blockchain: Blockchain a technology in which transactions made in digital currencies are recorded chronologically and publicly. Blockchain as a technology supports Bitcoin trading, but it not synonymous with Bitcoin. Blockchain can be used for a wide variety of applications, such as tracking ownership or the provenance of documents, digital assets, physical assets or even voting rights.
India’s largest lender the State Bank of India is looking to explore the blockchain technology for banking solutions by December. What makes Bitcoin a “fraud” in Jamie Dimon’s word is the fact that the organic nature of the currency and the fact that it is not issued by any central authority — some believe that it may be immune to government intervention or manipulation — makes it an alluring alternative to mainstream currency.
“Bitcoin is a fraud and will blow up,” Jamie Dimon had said at an event in New York, adding, “The currency isn’t going to work.” He pointed out to the absence of an underlying monetary base to support its value. “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart,” Jamie Dimon had said.
Huang, CEO of Nvidia Corporation, recently said that cryptocurrency and blockchain are here to stay. “Over time, it will become quite large. It is very clear that new currencies will come to market,” said the CEO of the company which makes core processor and graphics processor for gaming devices and professional market.