BackStart-ups give bitcoins a leg up in India
Although concerns remain over the cryptocurrency's security, legality and volatility, bitcoins are once again finding favour with Indians
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Harin Pandya, a special projects manager with an event management company in Ahmedabad, owns the equivalent of two bitcoins at today’s prices. He had been toying with the idea of buying bitcoins for about a year, but delayed his decision because he wasn’t sure if it was legal to buy the digital currency on a foreign website.
“I did a lot of online research, consulted some friends, and finally decided to buy bitcoins after I discovered that some companies in India too have begun selling this virtual currency," Pandya said.
He started the exercise of buying bitcoins in smaller denominations in October 2014 and by December, he had spent around ₹ 29,000 to buy “these bits of bitcoins" from Bengaluru-based igot India.
In early April, Pandya spent another ₹ 500 to “buy another piece of a bitcoin" with the Zebpay bitcoin app, developed by Singapore-registered Zeb Ventures Pte Ltd that also has an office in Ahmedabad.
Pandya also got a couple of Flipkart vouchers with the bitcoins he purchased on Zebpay, which will allow him to buy “something and also get 10% off on the product".
The Zebpay app, launched in March, helps people buy, store, spend and sell bitcoins, according to Saurabh Agrawal, co-founder of Zeb Ventures. “If you give me your mobile number, I can sell you a bitcoin. You need not understand complex bitcoin addresses or have wallet backups or be apprehensive about losing bitcoins," Agrawal said.
Although concerns remain over the cryptocurrency’s security, legality and volatility, bitcoins are once again finding favour with Indians, thanks to start-ups such as Zeb Ventures that are providing them in denominations as small as ₹ 100.
Bitcoin is an open source digital currency developed by Satoshi Nakamoto, the pseudonym for an unknown person who released the first version of the bitcoin software in 2009.
Bitcoin users can buy and sell the currency among themselves without any kind of intermediation, making it a decentralized system.
A public ledger called the “block chain" contains every transaction ever processed (there is nothing like a physical bitcoin), allowing a user’s computer to verify the validity of each transaction, according to Bitcoin.com, a website promoted by the Bitcoin Foundation.
The authenticity of each transaction is protected by a digital signature corresponding to the sender’s address, allowing users to have full control over sending bitcoins from their own bitcoin addresses. So the digital money is also known as a “cryptocurrency".
Anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service—a process known as mining.
Many Indians such as Pandya have begun using Indian rupees to buy bitcoins through local start-ups in smaller denominations since bitcoin amounts are highly divisible.
While there are no official names for these smaller units, the most common ones are satoshi, one hundred-millionth (0.00000001) of a bitcoin and the bit, which is one millionth (0.000001) of a bitcoin (also known as a microbitcoin or μBTC).
While a single bitcoin currently costs about $227 or ₹ 14,700 at today’s rates, “people can keep on investing as low as ₹ 1,000," according to Sathvik Vishwanathan, managing director of unocoin.com, a website owned by Bengaluru-based CoinMonk Ventures Pvt. Ltd. He added that users on the site invest “ ₹ 25,000 on average".
Unocoin, founded in December 2013, offers trading, merchant processing and storage of the digital currency. It also has a merchant gateway service for businesses, traders and e-commerce shops to accept bitcoin payments.
Figures are hard to come by, but there have been about 52,700 downloads of all versions of bitcoin software in India since the time the currency was introduced six years ago, according to SourceForge, an online platform that connects consumers to open-source projects.
Local start-ups estimate that about 80,000 bitcoin wallets would have been downloaded in India till date.
According to coindesk.com, a publication from Coindesk Ltd that tracks bitcoins and other currencies, there are about 14 million bitcoins in circulation globally and their market capitalization is about $3.3 billion with each bitcoin trading at about $230 as on 29 April.
Benson Samuel, co-founder and chief technology officer of exchange rate setter Coinsecure, says he has about 3,000 registered bitcoin users, “and that number grows daily".
“We are seeing two broad types of users. One is the speculator and the other is the one who buys and spends bitcoins," said Samuel.
And there are start-ups like Searchcoin Network Pte. Ltd that has developed a patented search engine for bitcoin users. “At Searchcoin, we aim to disrupt the present search industry paradigm and replace it with a more collaborative system that propagates wealth redistribution on the Internet," said Vishal Gupta, founder and chief executive of Searchcoin.
Users can purchase a keyword, and every time another user searches for that specific keyword within the Searchcoin network, “the owner of the keyword will earn more bitcoins, without doing a thing", said Gupta, who believes the bitcoin is a “natural fit, since it is the only currency and payment network that allows us to conduct micro transactions as low as ₹ 1 with thousands of users around the world".
However, the value of a bitcoin can fluctuate highly. For instance, in 2013, it touched about $1,200, which has fallen to around $230. Moreover, Mt. Gox—a Tokyo-based Bitcoin exchange that handled about 70% of all bitcoin transactions by 2013—began liquidation proceedings in April 2014.
And given that bitcoins are not regulated by any central bank the world over, it could be a matter of concern for users.
Countries such as China and Brazil have made efforts to warn people of the risks associated with trading in Bitcoin.
In December 2013, the European Banking Authority, the regulatory and advisory agency of the European Union on matters concerning banking institutions, issued a warning on the dangers of using the virtual currency.
On 24 December, 2013, the Reserve Bank of India (RBI) issued a statement cautioning users, holders and traders of virtual currencies, including bitcoins, about the “potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to".
That stance remains unchanged, an RBI spokesperson said in an email response. “We are self-regulated. A user who registers on our site has to provide PAN card details, email ID, address proof and a phone number," countered Vishwanathan. His words were corroborated by all the bitcoin start-ups that Mint spoke to.
According to a 15 March white paper titled Bitcoins-A Global Perspective by law firm Nishith Desai Associates, bitcoins “per se are not illegal in India and this is in consonance with an international approach. Bitcoin creation and transfer are based on open source cryptographic protocol managed in a decentralized manner, and, if harnessed properly, Bitcoin could deliver many benefits to the Indian economy".
The firm points out that a growing number of businesses and individuals are using cryptocurrencies such as bitcoin, including “...restaurants, apartments, law firms, and popular online services such as Namecheap, WordPress, Reddit and Flattr... This trend holds particularly true for vendors who accept micropayments, such as payments for digital music downloads". Such vendors, the firm reasons, value the use of bitcoin to avoid the transaction costs associated with traditional electronic payment methods.
The white paper, though, also acknowledges that bitcoins have “been used for nefarious activities as well. This includes donations to illegitimate organizations...(and) online gambling".
Also, according to Nishith Desai Associates, the sale of bitcoins to a non-resident Indian by a resident Indian will be in violation of the provisions of the Foreign Exchange Management Act, 1999, and “can also be regulated by RBI in this condition".
Agrawal of Zebpay; who has also formed India’s first bitcoin alliance with other companies that offer sale, purchase and trading in bitcoins; believes that “awareness is the key to the growing acceptance of bitcoins in the country".
In fact, on 22 January, information technology training company Koenig Solutions announced the launch of a course to teach students the “fundamentals" of bitcoins.
Rohit Aggarwal, founder and chief executive of the company, then said his company aims at teaching participants “...the complete process of Bitcoin mining, how to generate Bitcoins, and how they are changing the face of current online payment systems...(and) use Bitcoins for transactions in an easy, hassle-free manner".
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