“The four computers were switched on as usual and they were unable to open any document files as the virus displayed messages demanding a payment of $300 in virtual currency Bitcoin to unlock files and return them to the user. We have informed the district authorities about this.” – Panchayat Official, Kerala, India
Ever noticed how the headline in news item steals the thunder and the sub-header doesn’t get its due share. The “WannaCry Ransomware”, which recently took the digital world under its control and exposed the vulnerabilities in our systems, was the headline and ‘hackers demanding Bitcoins’ was the sub-header. That hackers demanded Bitcoins is a testimony to the popularity – not obviously in a boisterous way – of this cryptocurrency. But flip the coin and we find the other side; with the growing popularity of digital currency/transaction/lifestyle, one cannot ignore how economically unsafe and fragile our data has become.
How it all started…
Let’s wind the clock back to 2009. A computer programmer, under the pseudo name Satoshi Nakamoto, created Bitcoin, and since then, there has been no looking back for cryptocurrencies – what was once an academic concept, now has a “virtual” identity.
Do Ethereum or Dash or Litecoin or Ripple ring a bell? May be not. Bitcoin is to cryptocurrency like how Nike is to shoes and Apple is to cellphones. Over the past few years, cryptocurrency has outperformed many investment options such as gold, stocks, and even real estate. Bitcoin (currently trading at $1,838.05 in exchange of 1 Bitcoin) specifically has proved to be more successful than its counterparts.
The Bitcoin network is entirely managed by Bitcoin Miners and is independent of any institutional ownership. The number of payment portals and universities accepting Bitcoins has increased over the years, and companies such as eBay and PayPal have started accepting this currency as a mode of payment.
“In the financial world, companies/investors are perceiving Bitcoin as a safe-haven asset and a wealth management product (WMP) globally.”
The understanding takes one to a valid yet confusing question – can the usage of Bitcoins be tracked? The answer is “NO”. Bitcoins are hard to track or almost untraceable, as the coin owners are not identified by any identifiable ID. Users are not obliged to disclose their identity, which makes the usage of the currency in nations with totalitarian regimes more free flowing. Moreover, in terrorism-infested states, Bitcoins could prove to be, if not already, the means to launder money and fund anti-establishment activities. Due to widespread acceptance of Bitcoins, a major shift toward its use has been witnessed as a medium of exchange. To top that, most cryptocurrencies charge a lower fee, are accessible to everyone and negate threats posed by identity theft (unlike credit/debit cards).
The other side of the coin is the usage of Bitcoin; as per investors, overusage might end up creating the largest bubble in modern history for central banks and global financial systems. The popularization of Bitcoin may lead to a complete restructuring of the financial system and nations maybe susceptible to serious economic/social risks. Take the case of Silk Road, an online black market for the sale of illegal drugs founded by Ross Ulbricht. Before the Fed shut the website, Ulbricht had amassed Bitcoins worth $28 million. From a financial standpoint, let’s take the example of any agency/bank that facilitates international remittance (money sent home by workers living abroad). At present, Western Union charges ~$5 to wire up to $20 in the US. With Bitcoins, workers will be able to literally email money for a fraction of the cost (and much faster). What this indicates for financial institutions is a major shift in their current go-to-market strategies.
The legality of such currencies has been debatable from country to country. While some countries have explicitly allowed their use and trade, others have banned or restricted it.
The rate of adoption of Bitcoins is on the rise, but its future remains with those who are “technologically sound” or with a niche segment of any society. As per a 2015 PwC survey, 83% respondents were slightly/not at all familiar with cryptocurrencies. Food for thought: There are over 3 billion Internet users worldwide, and as per the Cambridge Center for Alternative Finance, there are approx. 3 million cryptocurrency users at present – talk about a staggering growth potential!
From desktop- to app-based internet banking, from standing in bank queues to withdrawing money from ATMs, from private lending to crowdfunding, people always took time to adopt financial technology. The case of cryptocurrency looks similar; it comes across as a bold concept in risky times. But what is consistent about cryptocurrency is that it is something different to everyone, and that it’s evolving with each passing day. On one hand, it has the potential to single-handedly negate the threat posed by counterfeit currency, but on the other, it is also (at least currently) the least regulated asset.
Authors: Madhavi and Naveen