In mid-December, 2017 while casually going through my mobile news app, I came across an item – Bitcoin hit record high with price $ 19,850. I immediately traced the news and started reading it. After going through the piece, I was awestruck to know that there are still some investment options in this world which can give you a return of 1120 per cent in one year. Instantly, water started running through my mouth, I decided to sell all my shares, mutual funds, closing FDs to purchase some Bitcoins. But there was a problem, my lack of knowledge about Bitcoins, its source and trading. I did some research about Bitcoin and virtual currencies. After reading several articles, I got little idea about Bitcoin which I am going to share with all of you.
What exactly is a Bitcoin?
In simple terms, Bitcoin is a digital currency, which is not regulated by any agency or central banks (like our currency Rupee is being regulated by Reserve Bank of India). It is also called as Cryptocurrency (I hope you people are aware about the term cryptography – means storing something very simple in a complex manner or format, so that others should not easily know/de-code). Since, we are calling it digital currency or cryptocurrency it takes us to the computers. In a way we can say that Bitcoins are stored as complex mathematical program, formulae or text in your mobile, laptop or PCs. It means Bitcoins can only be transferred from one system to another system. However, it also poses two important questions –
Q. How do we know that Ramesh has given one Bitcoin to Suresh?
Q. How can we stop Ramesh from giving one Bitcoin to Alex?
The answer to the questions above is “Bitcoin Mining”
What is Bitcoin Mining?
Layman’s definition of Bitcoin mining is validation of transactions. Like, when you visit any nationalized bank and try to withdraw your money using cheque, there are series of validation done by number of staffs.
Likewise, Bitcoin miners also validates, not the current transactions but the past/previous transactions. This series of transactions/validations is called as Blockchain – whosoever unearths the largest chunk of Blockchain is rewarded with 12.5 Bitcoins. However, to become a Bitcoin miner, it requires expertise of genius level in mathematical calculations and computer programming.
Now, my other conclusion;
Why Bitcoin is not a good investment option for Indian Middle Class?
There are several reasons that indicate Indian should stay away from Bitcoin investments:
1) Money: We are aware that the cost of Bitcoin (cryptocurrency) is around $19,000 that comes to around INR 12, 35, 000 per coin. Friends, large chunk of our middle class have just started SIP (systematic investment plan) in mutual funds with Rs. 500 per month (many of them already planning to redeem it). From where Rs. 12, 35, 000 will come? God only Knows.
2) Mathematical Genius: Although Aryabhatta and Ramanujam were born in our country, it is also a fact that huge chunk of our school students passed their matriculation exam with 33 per cent in mathematics. I hope you all have not forgotten how you managed to pass the math exam. KOTAIIns – Bitcoins are only for you guys.
3) Volatility: Trading of Bitcoin is so volatile that it can fall almost $2000 in one hour. It means Rs 1, 30,000 in one hour. I just had a heart attack! During Christmas of 2017 it slipped below $11,000 mark. Therefore, it is highly unpredictable and notoriously volatile.
4) No Regulation: It is not controlled or regulated by any central agency. Exchanges are located in shadows. Who is going to address your grievances? It is very difficult for law enforcement agencies to work because it involves multiple jurisdictions.
Fraud, Hacking & Dangerous: Even if you procure Bitcoin somehow, your will always be susceptible to hacking by some super-genius hacker. Bitcoins can also be used by criminals, underworld and terrorist. JP Morgan chase has already called it a “Big Fraud”.
Still Illegal in India: Reserve Bank of India (RBI) has issued several warnings stating, it has not given any license/authorization to any entity/company to operate schemes or deal with Bitcoin or any other virtual currency. So if you use chakki peesing and peesing.
However, it is always suggested by the financial planners not to keep all your eggs in a single basket. Suppose, you have Rs 10 lakh, you can very well invest 2 lakh in shares, 2 lakh in mutual funds, 2 lakh in land/property and 2 lakh in Bitcoins 😉 Hope you will not !!!!!