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The bitcoin bug bites and you just cannot ignore it

LiveMint logoLiveMint 16-05-2017 Vivina Vishwanathan

Bitcoin, the cryptocurrency created by encryption techniques, is in the news again. Criminal hackers, who on 12 May launched one of the biggest cyber attacks ever and took networks hostage worldwide, demanded that their ransom be paid in bitcoins. There are other cryptocurrencies too, such as: litecoin, peercoin, namecoin, ether and primecoin. However, bitcoin has attracted the most interest globally. Lately, it has also been in the news for a sharp rise in its price and the stance that regulators of different countries have taken on it. Mint Money takes a look at the current state of bitcoins.

Last week, a computer malware attack affected digital networks across 150 countries. Governments and corporations are keeping a close watch on it, which they now know to be ransomware attack. According to Microsoft, ransomware stops you from using your computers by holding your personal computer (PC) or files for a ransom. There are different types of ransomware, but what is common among them is that all of them prevent your computer from working normally, till you pay a ransom. Ransomware can target any computer, be it a home computer, endpoints in an enterprise network, or even servers used by government agencies and healthcare providers.

Lately, cyber attackers have been asking for ransom in bitcoins. If you hold bitcoins, you may worry if this activity will impact the price of bitcoins.

“Absoluetly not. The total amount of bitcoins collected from three addresses in that virus (attack) has been 20 bitcoins. The volume right now globally per day is approximately about $1.5 billion a day. So 20 bitcoins would be around Rs20 lakh. It is not even a fraction. Hence, there is absolutely no impact on its volume or pricing. Also, since 2 days, the ransomware has been stopped from spreading as they have found a way to regain control of your network without paying a ransom,” said Saurabh Agrawal, chief executive officer, Zebpay, one of the bitcoin exchanges in India.

Why do the attackers demand bitcoins? “When the hackers take payment through bank accounts, it leaves a trail. But with bitcoins there is no trail. Hence, it has become an easy way out. Earlier, hackers used to ask for money from PayPal. But due to stringent KYC (Know Your Customer) norms in PayPal, they have shifted to bitcoins. The underlying problem is not bitcoins but the network security that gets compromised,” said Mohit Kalra, founder and chief executive officer, Coinsecure.

Even without ransomware, bitcoins have been in the news. Recently, the price of 1 bitcoin crossed Rs1 lakh in India. As on 16 May, the worth of 1 bitcoin is around Rs 1.20 lakh. In September 2016, it was around Rs40,000. Why the rally? “Especially, since April, after the Japanese government legalized bitcoins in Japan, large e-commerce companies have started accepting them. In fact, Japanese yen has now become the top currency on bitcoin exchanges worldwide, surpassing the US dollar. The price rally coincides with this decision,” said Agrawal of Zebpay. “Globally also there have been positive sentiments—the Russian government is looking at legalising bitcoins in 2018-19,” Agrawal added.

When it comes to bitcoin pricing, it is not standardized and varies from country to country. “Since about a month, Indian pricing has been slightly lower than or at par with the global prices. The premium has vanished from the Indian market. Yesterday (14 May), the price in Korea crossed $2,000 while in the US it was around $1,700. You would see differences in exchanges of each country, because there is a difference in demand and supply. There are arbitrage opportunities. However, you have to settle through your banking channel. Since the cross-border payment system is inefficient, the difference in price on exchanges takes place,” said Agarwal.

Currently, bitcoins are not regulated. However, in April the government of India did set up an inter-disciplinary committee to examine the existing frameworks with regard to virtual currencies. The committee will submit its report in 3 months.

According to a notification, the department of economic affairs, Ministry of Finance, has constituted an inter-disciplinary committee, chaired by special secretary (economic affairs), for this purpose. Representatives from departments of economic affairs, financial services, revenue; Ministry of Home Affairs, Ministry of Electronics and Information Technology, Reserve Bank of India (RBI), Niti Aayog and the State Bank of India are part of this committee.

What will the committee do? It will take stock of the status of virtual currencies in India and globally, examine the existing global regulatory and legal structures governing them, and suggest measures for dealing with virtual currencies including issues relating to consumer protection and money laundering. Hence, currently it is best to wait and watch.

But it must be remembered that prior to this, the RBI had twice cautioned users, holders and traders of virtual currencies—including bitcoins—about the potential financial, operational, legal, customer protection and security-related risks.

Mint Money doesn’t recommend buying bitcoins for investment. In the last 9 months, the prices of 1 bitcoin has soared from Rs41,000 to Rs1.20 lakh, giving a point-to-point return of over 200% . Bitcoins have been extremely volatile in the last 1 year, indicating a high-risk product. Also, currently the bitcoin exchanges are unregulated. There is no regulator to solve complaints of market manipulation, market failure or simple fraud, if they were to happen.

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