THE FOCUS is back on the bitcoin—a controversial digital currency system that has had its fair share of ups and downs ever since it was ‘created’ by an elusive netizen, who simply called himself ‘Satoshi Nakamoto’, in 2008. In fact, the latest twist revolves around its origin itself, with an Australian entrepreneur, Craig Wright, publicly identifying himself as Nakamoto.
His admission follows years of speculation about who came up with the original idea underlying the digital cash system. Although Wright has provided technical proof to back up his claim, with several prominent members of the bitcoin community and its core development team confirming his claim, many others are yet to buy his admission.
The latest development notwithstanding, there has been a lot of buzz around bitcoins lately, especially in the Indian context. In December last year—exactly two years after it issued a caution against the use of bitcoin—the Reserve Bank of India (RBI) came around to appreciate the strengths of bitcoin’s underlying ‘blockchain’ technology.
Blockchain is a digital platform that records all bitcoin transactions ever made in a way that can’t be altered.
Around two months before that, in October 2015, Ratan Tata, chairman emeritus of Tata Sons, joined a group of investors, including American Express, to invest in a US-based start-up, Abra. The US-based company works on bitcoin and similar technologies for interchange of currencies.
Indian bitcoin start-ups, too, are not very far behind and are seeing considerable funding activity. Ahmedabad-based Zebpay, which provides bitcoin exchange, wallet and merchant services to over 35,000 users, raised $1 million in a series A funding in January this year. The funding was led by growth equity investor Arjun Handa, CMD and VP, Claris Lifesciences, along with other investors, including Amit Jindal, MD, Jindal Worldwide.
More recently, New Delhi-based bitcoin trading platform Coinsecure raised over $1.2 million from a group of undisclosed Indian angel investors in April this year. The company said the fund raise was part of its ongoing series A round.
Nov 2008: White paper posted on Internet under name ‘Satoshi Nakamoto’; details methods of using
Jan 2009: Bitcoin network comes into existence with release of first open-source bitcoin client and issuance of first bitcoins
May 2010: First, real-world transaction using bitcoins takes place in Florida by programmer Laszlo Hanyecz
Nov 2010: Bitcoin economy surpasses $1 million
Mar 2013: Total bitcoin market cap passes $1 billion
May 2013: US authorities seize accounts associated with bitcoin exchange Mt Gox
Oct 2013: FBI seizes roughly $3.6 million worth of bitcoins from online marketplace Silk Road
Nov 2013: Bitcoin price surges to a record $1,242 after US Senate holds its first hearing on the digital currency
Dec 2013: China’s Central Bank bans bitcoin transactions; currency crashes to nearly $500
May 2016: Craig Wright identifies himself as Satoshi Nakamoto, the creator of bitcoin
Oct 2015: Bitcoin start-up Abra raises money from Ratan Tata and American Express as part of its $12-million series A funding
Dec 2014: Microsoft begins accepting bitcoin payments
Feb 2014: Mt Gox files for bankruptcy protection after losing $450 million worth of bitcoins
So are bitcoins finally coming of age? “After the 2008 financial crisis and the current global financial crisis, the world is increasingly realising the weaknesses of our current financial system. A majority of central banks in the world now have zero interest rates. Countries like Russia and those in Latin America have seen record-breaking currency devaluations. Bitcoin provides the vision of a new era in the financial world. By purchasing bitcoins, ordinary people can protect themselves from the possibility of a sudden drop in the purchasing power of their money,” says Sandeep Goenka, one of the founders of Zebpay.
Started in 2012 as BuySellBitco.in, but later rebranded to encompass its broader mission to provide bitcoin exchange, wallet and merchant services, Zebpay crossed Rs 100 crore in trade volume in April this year. Zebpay is a mobile app available on Android and iOS. Users can buy or sell bitcoins, recharge their airtime (cellphone top-ups, etc) across India and buy vouchers of e-retailers such as Amazon and Flipkart, among others. “Users have topped up airtime and purchased vouchers worth more than R1 crore using bitcoins on the app so far,” adds Goenka.
India is the world’s biggest remittance market at $70 billion, as per reports. Bitcoin proponents say it has the potential to save the country $7 billion in remittance fees charged by companies like PayPal and Western Union. “Unlike traditional systems, a bitcoin payment is almost instant and costs less than a couple of rupees. And it can be done anytime and from anywhere in the world,” explains Goenka.
Internationally, companies like Microsoft, Dell, Expedia and WordPress have already started accepting bitcoins.
There has been an increased interest in bitcoins and blockchain technology globally, says Benson Samuel, one of the co-founders of Coinsecure. “Specifically in India, the RBI recently shared that they see value in how bitcoins can be used to prevent fraud. There are no risks of fraud or chargebacks involved, as a transaction in bitcoins is direct and no middleman can stop that,” he adds.
Coinsecure is reportedly seeing a consistent average increase of 25.5% in user base on a month-on-month basis. “We have seen a 6,000% increase in bitcoin trade volumes since the time we started operations in 2014. We are also registering a 74% increase in trade volume every month,” says Samuel.
In August last year, Mumbai-based ePaisa became India’s first mobile point-of-sale provider to integrate bitcoin as a payment option. The start-up, which empowers businesses to take care of their billing, inventory management and acceptance of multiple modes of payments, started its bitcoin service with around 500 outlets in New Delhi, Mumbai, Pune, Surat and Ahmedabad.
“Given the current trend towards cashless shopping, not able to accept the customer’s choice in terms of the payment mode means a lost opportunity in sales for Indian retailers and e-commerce stores. By offering bitcoin acceptance to our merchants, we have enabled growth of local mom-and-pop stores and ensured that they never miss out on a sale,” says Siddharth Arora, co-founder of ePaisa, adding, “Over the past year, we have seen many changes in the way payments are being made and bitcoin is another one, as the benefits associated with it are many. These include very low transaction fees, no chargeback and the high-security factor.”
Allaying further fears associated with a bitcoin transaction, Arora says is it no different from any other mode of payment. “The merchants don’t have to do anything but select the option at the checkout process. It is as easy as charging a credit card,” says the University of London alumnus.
In August last year, Mark Karpeles, the CEO of the now-defunct bitcoin exchange Mt Gox, was arrested in Japan for accessing the exchange’s computer system in February 2013 and inflating his cash account by $1 million. The arrest was only the latest twist in a lengthy plot surrounding the bitcoin exchange launched in the summer of 2010 and which once handled over 80% of all bitcoin transactions during its peak, before suspending operations, closing its website and exchange service, and filing for a form of bankruptcy protection in February 2014.
Around 8.50 lakh bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time. Although two lakh bitcoins have since been ‘found’, the reasons for the disappearance—theft, fraud, mismanagement, or a combination of these—were initially unclear. New evidence concludes that “most or all of the missing bitcoins were stolen straight out of the Mt Gox hot wallet over time, beginning in late 2011”.
Closer home, in April, when an IT company in Mysuru became the target of a ‘denial-of-service’ attack, the attackers demanded bitcoins in return for sharing the key to restore the company’s computer systems. Then in January this year, hackers seized control of computers at three banks and a pharmaceutical company in Mumbai, then demanded a ransom in bitcoins for the decryption keys to unfreeze them. They reportedly accessed the system by compromising IT administrators’ computers. In all these cases, the hackers are said to have used the ‘Lechiffre’ ransomware. Having encrypted all files, they demanded one bitcoin per computer for a total running into millions of dollars.
In February, the police in the national capital busted an international syndicate of debit card cloners, who allegedly used bitcoins to avoid detection. The money siphoned from ATM machines was converted into the crypto currency and distributed among the people involved in the crime, as per the police.
As with all new phenomena, the bitcoin has also attracted its share of fraudsters trying to steal and scam others, says Kamesh Mupparaju, founder of Hyderabad-based bitcoin exchange BTCXIndia. “The intrinsic properties of how it works—for example, the fact that bitcoin transactions are almost instant and non-reversible—are great for a merchant who doesn’t have to wait or worry about chargebacks, but they also mean that if you send money for something that turns out to be a fraud, you can’t reverse that transaction,” he says.
BTCXIndia was started by Mupparaju in 2014 after he discovered the crypto currency while living in Singapore and working as a trader in the forex markets. The exchange started with funding from a UK-based angel investor. From a turnover of a few bitcoins per day initially, it has now reached over 17,000 customers and has a daily turnover of over 140 bitcoins, or R40 lakh per day.
As per Samuel of Coinsecure, the bitcoin is a form of money and all forms of money can be used for good or evil purposes. “Bitcoin is less anonymous than cash in the sense that every transaction is tracked on the open public ledger, blockchain. It is more likely that a criminal using bitcoin will be caught than a criminal using cash,” he says, adding, “India, for years, has seen the hawala network as a place for criminals to leverage cash for illegal activity, so there is evil in this world and it is not just bitcoin.”
* About 15 million bitcoins, a digital currency not tied to any bank or government, are in existence today
* Coins are created by users who ‘mine’ them by solving complex computing puzzles or by adding transactions to the blockchain
* The currency is accepted by retailers such as Amazon, Walmart and Nike
* Bitcoin is an efficient alternative to traditional currencies, as it’s not subject to the whims of a state,
* Its value, however, has fluctuated over time. In 2013, a bitcoin was valued above $1,100. At the time of going to press, it was $449
* With the legality being a bit fuzzy, it has drawn the ire of law enforcement and cybersecurity officials
* India has around 50,000 bitcoin enthusiasts, with 30,000 actually owning it
* Zebpay, Coinsecure, BTCXIndia, etc, are some prominent bitcoin trading firms in India
* New Delhi-based bitcoin trading platform Coinsecure raised over $1.2 million from a group of undisclosed Indian angel investors in April. The fund raise was part of its ongoing series A round. It is reportedly seeing a consistent average increase of 25.5% in user base on a month-on-month basis
* Ahmedabad-based Zebpay, which provides bitcoin exchange, wallet and merchant services to over 35,000 users, raised $1 million in a series A funding in January
* Mumbai-based ePaisa became India’s first mobile point-of-sale provider to integrate bitcoin as a payment option in
August last year
* From a turnover of a few bitcoins per day when it started in 2014, Hyderabad-based bitcoin exchange BTCXIndia has now reached over 17,000 customers and has a daily turnover of over 140 bitcoins, or Rs 40 lakh per day