Internet trade has become almost exclusively dependent on financial institutions acting as trusted third-party agents to process electronic payments. While the system works very well for most financial transactions, it still suffers from the trust-based model’s inbuilt weaknesses. It is impossible to make completely non-reversible transactions, as financial institutions cannot avoid mediating disputes. Mediation costs increase transaction costs, limit the minimum practical size of the transaction and cut off the possibility of small casual transactions, and the loss of the ability to make non-reversible payments for non-reversible services is more expensive. The need for confidence spreads with the chance of reversal. Merchants need to be wary of their customers, troubling them with more data than they would otherwise need. A certain proportion of fraud is recognized as unavoidable. Using physical currency, these costs and payment uncertainties can be avoided in person, but there is no mechanism to make payments without a trusted party over a communications channel.
Didn’t quite catch up with that, did you? Well, don’t worry, this was how bitcoin implementation was explained during its initial years. The term cryptocurrency has quickly gained awareness in the public spotlight throughout the last couple of years. A cryptocurrency (1) is rapidly becoming important for individuals who care about privacy in today’s day and age, for whom the concept of using the cryptosystem to control the creation and distribution of wealth does not sound too far-fetched. As more people invest in and buy these currencies, cryptocurrencies, led by Bitcoin, Litcoin, Ether, etc., are now rapidly taking over the financial world. Simultaneously, confusion and bias continue to be widespread, retracting Cryptocurrency’s overall effectiveness (2).
Bitcoin is a type of Cryptocurrency created by an unknown individual or group of individuals using Satoshi Nakamoto as a pseudonym in 2008 and started as open-source software in 2009. Its implementation was released. Without a central regulator or single administrator (3), it is a decentralized digital currency that can be sent between users on the bitcoin peer-to-peer network without intermediaries’ need. Transactions are verified through cryptography by network nodes and recorded in a blockchain-called public distributed ledger. As a reward for the process known as mining, Bitcoins are created. It is possible to exchange them for other currencies, goods, and services (4).
Bitcoin has been a massive success as the most popular Cryptocurrency. Other cryptocurrencies are available for individuals to trade in, such as Ripple, Litecoin, Peercoin, etc. But others have died a slow death for every successful Crypto-currency because no one ever thought to use it, and a cryptocurrency is only as beneficial to those who use it. 2016 was the year of Bitcoin, and compared to Russia’s ruble and Brazil’s Real, the world’s most hard currencies, this digital currency grew by almost 79 percent. As a result, while beating foreign exchange trade, stock exchange trade, and commodity contracts, it has emerged as a better bet for investors (5).
Growth of the currency
The market for bitcoin technology was valued at 293 million dollars in 2019 and is expected to reach 477 million dollars by 2025, with a CAGR of 8.3 percent over the 2020-2025 forecast period. The transaction volume data determine the true size and nature of the Bitcoin market. In 2018, bitcoin technology’s global market was valued at 273 million dollars (6). Because of the zero risks of inflation, bitcoin has become a trend over the years. With the sole purpose of being finite, the bitcoin system was created. Therefore, the threat of inflation comes down to almost zero without the possibility of issuing excess currency. Both the seller and the buyer benefit from this point.
Compared to the ones made for credit and debit card purchases, transaction fees for bitcoin payments are significantly lower. As they have a limited budget, this feature is an advantage for small-medium enterprises. There isn’t a separate fee to engage in receiving bitcoins, and many wallets allow the user to control how large the fee has to be when spending. Higher fees can encourage a transaction to be confirmed quicker (7). Commercial payments are slowly warming up to Bitcoin’s expectations. Most recently, in October 2019, Ico data revealed that as of 2019, about 15,558 companies worldwide accepted Bitcoins, with Slovenia having the largest company, which accepts Bitcoins at 314 business outlets.
Starbucks announced in 2019 that the upcoming Bakkt cryptocurrency payment service would be integrated. Similarly, in 2019, US-based Quinn Emanuel began accepting Bitcoin. Moreover, strict rules and regulations have played a vital role in adopting Bitcoins around the globe. In 2017, the Japan Financial Services Agency (8) created a new regulation on 1 April 2017, authorizing digital currency as a payment method; the Japanese Financial Services Agency essentially granted it the same legal status as any other currency. As a prepaid payment instrument, Bitcoin has been classified. Similarly, Uber released documents in November 2019 mentioning that the company had to pay hackers USD 100 million in Bitcoins.
When it was first created in 2009, Bitcoin has had a very turbulent trading history. In its fairly brief tenure, the digital crypto-currency has seen much change. Bitcoins were initially traded for almost nothing at all. In July 2010, the first real price increase occurred when a bitcoin’s valuation went from around 0.0008 dollars for a single coin to 0.08 dollars. Bitcoin has now crossed its last all-time high of twenty thousand dollars and, as of 17 December 2020, has pushed to over $23,000. Ever since then, the currency has seen some major rallies and crashes. More than 18.5 million Bitcoins are currently in circulation, and it has a market capitalization of over 428 billion dollars now (9).
In 2013, Bitcoin truly began to take off. The digital currency started trading at about 13.50 dollars per bitcoin for the year. In early April 2013, the price rallied, briefly reaching over 220 dollars before falling back to around 70 dollars by mid-April. This was the first true rally for the currency and its associated crash. During the summer of 2015, the price stabilized to some degree. Early November, however, saw another massive spike. The currency went on certain exchanges from around 275 dollars on 23 October to a quick close of about 460 dollars on 4 November. At the end of November 2015, the currency sold off somewhat and traded around 360 dollars (10).
Benefits of Bitcoins
In many nations, a bitcoin payment is faster, cheaper, safer, and less volatile than the local currencies. Therefore, it can be used for storing values in these countries and is used to pay for several products and services around the world and the web. Bitcoin’s utility is that financial transactions no longer require any central authority and are validated, cleared, and settled immediately. Bitcoin technology appears to be an innovation for capital markets and other financial services that promises a major change. Banks are interested in taking the opportunity to reduce the cost of transactions and the amount of paper they process (11).
Bitcoin’s booming valuation
After doubling its value in less than a month, Bitcoin has surged above the 40,000 dollar mark for the first time. The record comes just days after Sunday’s Cryptocurrency hit an all-time high of more than 34,800 dollars, which was also the 12th anniversary of creating the bitcoin network. In mid-December, Bitcoin first breached the 20,000 dollars mark. For mainstream institutional investors, the asset has become increasingly popular, and supporters argue that it is beginning to replace gold as a store of value. This week, JP Morgan said that bitcoin could eventually hit 146,000 dollars if it bolsters its reputation as an alternative to the precious metal (12).
Over 18 million bitcoins exist in existence, produced by the “miners” who provide the blockchain’s computational power. The blockchain is a decentralized record that thousands of computers worldwide maintain all transactions made using bitcoin. The system also has a total of 21 million coins in hard-wired form. Some skeptics have warned that the crypto boom might be headed for trouble and that there is no intrinsic value for the coin itself, but there is a different theory in the current records.
The Indian reception
Bitcoin has still not been approved or regulated by any central authority in India as payment. Besides, no defined rules, regulations, or guidelines have been established to resolve disputes that might arise when dealing with bitcoin. Therefore, transactions with bitcoin come with their own set of risks. Given this background, however, it is impossible to conclude that bitcoins are illegal because there’s been no restriction on bitcoins in India so far. In its ruling issued on 25 February 2019, the Supreme Court of India required the government to develop cryptocurrency regulation policies.
Bitcoin was trading as high as 23 Lakh as of 1 January 2021. According to YCharts, Cryptocurrency grew 317.2 percent in the period from January 2020 to December 2020. Bitcoin has proven to be globally safe, trustworthy, and a viable transaction mode. While cryptocurrency mining is a separate company entirely on a large technical scale, cryptocurrency trading is important to the masses. It has contributed to the rise of several crypto exchanges across the world and in India. In India’s exchanges, some of the top crypto companies in the Bay area have also invested (13).