Blockchain

Blockchain is an incorruptible data ledger for recording economic transactions. The records it keeps are fully public and easily verifiable. It constantly keeps on growing as blocks are added to it in a linear and chronological order.

• A blockchain’s integrity hinges on strong cryptography that validates and chains together blocks of transactions, making it nearly impossible to tamper with any individual transaction record without being detected.
• The Blockchain is stored on a network of participants (often referred to as nodes in network terminology). The participants adhere to certain rules, and share data with each other. The rules which are applied to sharing and submitting data are referred to as the bitcoin protocol. As all these nodes have equal power in the network and abide by the same rules, it is called a peer-to-peer network. There is no central or leader node in this network.

Blockchain Use in Banking

• The most significant benefit of the blockchain is that it can eliminate inefficiencies in existing financial markets and drive faster, lower-cost transactions that are more efficient and provide increased liquidity, transparency and security. The blockchain offers trust for the user, eliminating the need for the intermediary and mitigating the risk of human error with complete automation.
• In stock trading it can reduce the costs and time of stock purchases as right now when a stock is traded, it has to pass through brokers, exchanges, and needs to be “settled”. Also, everyone receives the cut from the operation and the processing time may take days. Blockchain could eliminate a lot of friction and stock tampering also.
• In the banking sector alone Blockchain technology could cut bank’s infrastruture costs for cross-border payments, securities trading and regulatory compliance by $ 15- $20 bn a year from 2022, according to a recent report by Spanish bank Santander, management consultancy Oliver Wyman and venture capital investor Anthemis.
• A slew of banks including  Citi, Credit Suisse, JP Morgan, Royal Bank of Scotland and UBS have joined a coalition, led by a firm called R3, to implement blockchain technology in banking.
• One of the largest US online retailers, Overstock focused on building the crypto-capitalism future. In 2016 the company unveiled their new blockchain-based private and public equities trading platform, which allows instant and secure share trading online.

Advantages of Bitcoin

• It is truly international: It is possible to receive and send money instantly anywhere in the world.
• Very low fees: Bitcoins are processed with either no fee or small fees unlike cards where fees are applicable for merchant/customer. Small fees is applied in cases of priority where faster processing of transactions is needed.
• Secure Method of Payment: The payments can be made without revealing the personal information for the transaction. This rules out the possibility of identity theft.
• Transparent: As information of all Bitcoin money supply is available on blockchain, manipulation is not feasible as anybody can review it anytime.

Disadvantages of Bitcoin

• Security Issue – The problem is, as in most bitcoin scenarios, wallets are unregulated and prone to attacks. Late last year, hackers staged a bitcoin heist in which they stole some $1.2 million worth of the currency from the site Inputs.io. When bitcoins are lost or stolen they are completely gone, just like cash. With no central bank backing your bitcoins, there is no possible way to recoup your loses.
• Hardware Resources – When mining began, regular off-the-shelf PCs were fast enough to generate bitcoins. That’s the way the system was set up, easier to mine in the beginning, harder to mine as more bitcoins are generated. Over the last few years, miners have had to move on to faster hardware in order to keep generating new bitcoins.
• Can be used for unlawful activities: The main concern for this method lies in the private transaction it allows without any platform for overseeing such transactions, opens it be used for unlawful money exchange for terrorism.
• Bitcoin valuation fluctuates: The bitcoin value keeps on changing. No government authority is involved to provide minimum valuation guarantee.
• No buyer protection: If transaction has taken place but seller doesn’t provide the goods/service promised nothing can be done due to irreversible nature of the transaction.

Steps to overcome the disadvantages

• Companies have come up that offer AML program with a fully integrated suite combining professional services and technology to help prevent the use of Bitcoin for money laundering.
• There is a way around to avoid hefty investment in hardware: joining mining pools. Pools are a collective group of bitcoin miners from around the globe who literally pool their computer power together to mine. Popular sites such as Slush’s Pool allow small-time miners to receive percentages of bitcoins when they add their computer power to the group.

OVERVIEW OF BITCOIN IN INDIA

Bitcoins are making inroads in India as a mode of payment. Exchanges and bitcoin wallet providers are getting established in India that provide a platform for sellers to accept bitcoins. Travel portals, fashion portals, book stores and internet platform service providers have started accepting bitcoin from their customers.

• As of an August 2016 (pre-demonetisation) estimate, the number of Bitcoin users in India stood at 50,000 and growing. India now also has a large number of prominent Bitcoin exchanges. But the central bank seems to be insulating itself from the repercussions of these currencies.
• On February 1, the RBI issued a cautionary press release, on the back of an earlier one issued in December 2013, warning users of a risk they are likely to already be aware of that RBI does not regulate and has not licensed any virtual currencies in India, and anyone using them does so at their own risk.

BITCOIN USAGE IN OTHER COUNTRIES

CHINA
In China, financial firms are forbidden from transacting in bitcoins while private firms are allowed to operate in it. China has taken a central role in the bitcoin market in recent years as its citizens became leading traders and miners. In a recent development, in the wake of Bitcoin being used to move money out of China, The People’s Bank of China has told nine bitcoin exchanges at a meeting in Beijing in Feb 2017 that it will close exchanges that violate rules on foreign exchange management, money laundering, and payment and settlement. As a result the exchanges are now upgrading their systems in line with new PBOC guidelines.

JAPAN
Bitcoin will soon be legally recognized as a method of payment in Japan. The bill with provisions for cryptocurrencies has recently passed through the period of public consultation and will enter into force in April.
This bill defines virtual currencies including bitcoin and imposes certain regulations on virtual currency exchange services with the aim to prevent money laundering and terrorist financing as well as to protect users. Japan now has the second-largest bitcoin trading volume globally.

UNITED STATES
US hosts the highest number of cryptocurrency users and Bitcoin trading volumes in the world. Silicon Valley is home to numerous cryptocurrency, blockchain related startups. United States classifies it as convertible decentralized virtual currency. United Status has positive outlook towards bitcoin and at the same time is involved in preventing its use for illegal activities. Therefore, bitcoin comes under Bank Secrecy Act, where it requires exchanges and payment processors to report, maintain a cyber security program and verify customer details. Bank Secrecy Act is a legislation that collaborates US financial institutions and government in cases of suspected money laundering and fraud. For taxation purpose, it is categorized as property by the Internal Revenue Service (IRS) which is the US government agency responsible for tax collection.
UNITED KINGDOM
United Kingdom’s FCA, the regulator for financial markets doesn’t regulate digital currencies. The lack of regulation is causing more problems as businesses are unsure of horizons of limit in which they should operate to prevent themselves from future liabilities. The situation is peculiar as the government says the country is open to bitcoin but the banking sector standing in the way.

ECUADOR
In 2014, Ecuador had banned bitcoin and other digital currencies.

BANGLADESH
Bangladesh is the only nation that has banned bitcoin due to lack of central payment system which could lead to people being financially harmed. It also puts a punishment of up to 12 years in prison for those involving in trading of bitcoin and other digital currencies.

ISRAEL
Israel’s government is set to apply capital gains tax to bitcoin sales, categorizing digital currencies as a type of property in 2017. Israel Tax Authority (ITA) says it would consider bitcoin and other digital currencies as a kind of intangible asset rather than a foreign currency. Profits would then be taxed at the capital gains rate, which in Israel begins at 25%.

For more about Bitcoin

• http://money.cnn.com/infographic/technology/what-is-bitcoin/
• http://venturebeat.com/2014/02/17/bitcoin-for-idiots-an-introductory-guide/
• http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/
  http://venturebeat.com/2014/02/17/bitcoin-for-idiots-an-introductory-guide/2/
• https://www.bitcoinmining.com/