Bitcoin – The way forward?
The advantage of Bitcoin is that it is a decentralised currency monitored by a public network. It does not have the problems of losing value like other legal tenders because the total amount of possible Bitcoins are fixed and is immune to inflation as a part of a well thought out long term strategy. The other advantages over traditional currencies are reduced transaction costs, anonymity, absence of middlemen and immune to manipulation, unlike other traditional currencies.
The disadvantage of Bitcoin springs from its most important advantage, anonymity. While the international community are plugging all the holes in the illegal international dealings, Bitcoin and other cryptocurrencies have the potential to aid and abet illegal activities like money laundering, insider trading. It is also impossible to track and hence impossible to tax. This will not only reduce public spending and infrastructure investment but also has the potential to emerge as the new ‘Swiss bank accounts’ giving a fillip to corruption, crime, drug trade, etc. Bitcoin is denounced in some quarters as a ‘designer currency’ of choice for money laundering, tax evasion and other illegal activities.
In India, actions like demonetisation, GST seek to greatly reduce the parallel economy, corruption, money laundering, etc. Bitcoin and other cryptocurrencies have the potential to seriously impede such efforts and destabilise the economy. The various high profile thefts and glitches also have cast a shadow on the use of cryptocurrencies in general and Bitcoin in particular. In 2013 Mt Gox, a Bitcoin exchange was hacked causing a loss of 8,50,000 Bitcoins. The company has since filed for bankruptcy. In 2014, Flexcoin, a Bitcoin bank was robbed of USD 600000.
So then, what is the way forward for Bitcoins and other cryptocurrencies? Many countries including Singapore and US have either restricted the use of Bitcoin or imposed regulatory oversights in their usage. Many people seem to agree that Bitcoin like cryptocurrencies with proper regulatory oversight can offer a lot of advantages but the question is how much regulatory oversight? Because too less will bring forth the negatives and too much will stifle it.
However, the important thing in their favour is that they epitomise the decentralised philosophy of our digital era. Though the future of Bitcoin like cryptocurrencies may not be set, it seems that there is no turning back on the technology behind cryptocurrencies.