Bitcoin, Cryptocurrencies, Blockchain, Government

What you need to know about the journey so far

  1. In 2008, when the world met eyes with reality, as the global financial crisis emerged, an anonymous person ‘Satoshi Nakamoto’ was developing a new ‘peer to peer network’ to create a system for electronic transactions without any third party involved – a system like nature, where trust is no longer required, as the network is capable of taking care of itself based on cryptography. The result of the same was the first cryptocurrency ‘Bitcoin’.
  2. Before development, Satoshi Nakamoto had registered the domain ‘Bitcoin.org’ and also uploaded a white paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ to let people know about his views and research. The link to that paper is https://bitcoin.org/bitcoin.pdf. To date, we do not have any whereabouts of the person who developed bitcoin, and the name ‘Satoshi Nakamoto’ has only emerged from this paper, probably a pseudonym.
  3. In 2009, the source code of bitcoin was found hosted on Sourceforge. This meant the Bitcoin protocol and software were published openly and any developer around the world could review and make a modified version of the Bitcoin software. Based on the same, various developers started developing other cryptocurrencies, today referred to as ‘Altcoins’ (meaning, alternatives to bitcoins). There are more than 9,000 altcoins in the crypto market with variations of bitcoin technology, different features and alternate purposes.
  4. After mining bitcoin for the first time, a few early takers started sharing bitcoins amongst themselves, as a gesture. However, the first known real-world bitcoin transaction was an indirect payment for the purchase of Papa John’s Pizzas. Laszlo Hanyecz, a Florida Programmer, offered 10,000 bitcoins to any volunteer who would pay for two large Papa John’s pizzas worth USD 25. On May 22, 2010, the offer was accepted by a volunteer in England who paid to Papa John’s and collected 10,000 bitcoins which were worth USD 0.0041 per bitcoin, at that time and made a profit of 16 dollars. The value of those 10,000 bitcoins was already equal to USD 10,000 when the bitcoin price equated to a dollar, nine months later. 11 years later, those two pizzas are worth USD 637,295,000 (approximately INR 4,780 crores) as of April 13, 2021, when bitcoin hit its highest ever price in history.
  5. In 2013, high demand in China increased the value of Bitcoin to more than USD 1,000 (from USD 13 at the beginning of that year), highlighting its high-risk volatility. Bitcoin was more prevalent in the Black Markets. In October 2013, the Federal Bureau of Investigation (FBI) shut down Silk Road, an online black marketing and darknet website for illegal drugs, guns and pornography, and seized 144,000 Bitcoins, the largest cryptocurrency seizure to date. These bitcoins were sold in a blind auction – an auction where bidders provide sealed bids and the asset is sold to the highest bidder.
  6. Also in 2013, the US Financial Crimes Enforcement Network (FinCEN) issued guidelines for ‘Decentralized Virtual Currencies’ classifying bitcoin miners as Money Service Businesses (MSBs), disregarding bitcoin as a currency, but allowing it to continue under the watch of Anti-money Laundering laws. Later that year, US authorities seized the accounts of Mt. Gox, the largest online Bitcoin exchange, for not registering under the new regulations. Later, in February 2014, Mt. Gox declared bankruptcy after 650,000 Bitcoins went missing, presumed to be stolen by hackers. Meanwhile, the People’s Bank of China, on May 15, 2013, announced a prohibition for Chinese financial institutions from using bitcoins.
  7. In 2017, China banned trading in bitcoin and a complete ban on bitcoin from February 2018. In the same period, China also approved the development of its Government-backed digital currency called as Digital Yuan. In April 2020 the Digital Yuan was available in four cities for testing and in 2021, after initial success, the testing has been expanded to six regions. The digital currency follows a two-tier system whereby the central bank distributes it to banks and then the banks to the customers either through bank accounts or exchange of coins or currency notes. To promote trials, the Chinese government distributed millions of dollars worth of digital yuan to people via lottery.
  8. In 2018, the Reserve Bank of India issued a circular banning the use of cryptocurrencies in India and directed all banks to suspend bank accounts of those dealing in cryptocurrencies. Earlier, in 2017, the Indian government had constituted an Inter-Ministerial Committee (IMC) to study the virtual currencies and the group’s report flagged the positive aspects of the blockchain technologies, however, the Government didn’t accept the recommendations and proceeded with a ban. Later in 2019, another Government Committee suggested banning all private cryptocurrencies and award a jail term of up to 10 years and heavy penalties for anyone dealing in digital currencies. However, in March 2020 the Supreme Court stayed the RBI circular in its decision.
  9. In 2019, the Intercontinental Exchange who owns the New York Stock Exchange (NYSE) began trading bitcoin futures on its new exchange called Bakkt. Bakkt provides a custody service to store bitcoin securely on behalf of institutional investors and thereafter offers futures on the bitcoin to traders who could bet prices of bitcoins. Meanwhile, Facebook announced that it is working on its own digital currency ‘Libra’ but a month later declared that it won’t be launched until all regulatory approvals were received. Later in October, many associates of the Libra Association i.e. Paypal, eBay, Mastercard, Visa and others left the association. In 2020, Facebook rebranded Libra to Diem and Diem association has 27 member companies. Unlike Bitcoin, Diem is based on ‘trust’ derived from the money invested by the member companies. However, Facebook is circled by the US regulators and would find it difficult to launch its digital currency, any time soon.
  10. In January 2021, Russia allowed cryptocurrency trading, mining and investing, however, banned it from use for exchange or any goods or services. Russia had already declared any activities involving cryptocurrencies as criminal and placed them under the lens of anti-money laundering regulations. Russian banks were allowed to open up cryptocurrency exchanges under the supervision of the central bank — and issuing new digital currencies under the control of the central bank, instead of a complete ban on cryptocurrency.
  11. In February 2021 the Reserve Bank of India (RBI) Governor Shashikanta Das announced that the Indian Government is working on Central Bank Digital Currency (CBDC). CBDC is a digital currency similar to Digital Yuan and is expected to be similar to the Chinese currency. Later, Finance Minister, Nirmala Sitharaman said that the Government is not going to shut down all options for cryptocurrency and will take a ‘calibrated’ stance on the same and will allow a certain window for people to experiment on the blockchain, bitcoins or cryptocurrency.
  12. In March 2021, the Ministry of Corporate Affairs (MCA) issued a notification that the companies need to disclose the details in financial statements with effect from April 1, 2021, if a company has traded or invested in cryptocurrency or virtual currency during a financial year, and also disclose the amount of currency held as on the reporting date, and the deposits or advances from any person for trading or investing in cryptocurrency or virtual currency.
  13. Today cryptocurrencies are legal in many countries and are being accepted by many corporates across the world, however, none of the countries has given it the status of legal tender. Cryptocurrencies are legal in the United States, European Union, Japan and South Korea while illegal in China and the rest of all countries are still lagging even after 12 years. Meanwhile, Prominent companies accepting Cryptocurrencies are Microsoft, Starbucks, Tesla, BMW, Square, JPMorgan, Goldman Sachs, Expedia, BurgerKing, CocaCola, PizzaHut, Paypal, etc.

[1] Author: Saurabh Toshniwal

[1] Written on: Friday, June 4, 2021

[1] Topic: Current Affairs

[1] Keywords: Cryptocurrencies, Bitcoin, Blockchain, Government

[1] Featured image: https://www.freepik.com/vectors/travel

[1] Word count: 1293 words; of which directly quoted from source – 0 words and requoted from another article –1293 words

[1] Published by: Greenvissage Newsletter

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *