Can Bitcoin be the currency of future?

Posted in Finance Articles, Total Reads: 2671 , Published on 29 October 2013

They say that desperate times call for desperate measures. India as a nation is reeling today as the Rupee is in a freefall, the global economy is down and due to the Indian love for Gold, the Current Account Deficit has burgeoned to unsustainable levels. Quantitative Easing in the US and Abenomics in Japan are two unconventional methods which have been employed by the respective governments to revitalise the economy. Can the Indian government look towards a radical new currency i.e Bitcoins instead of the weakened Rupee to revive investor confidence and script a revival?


Bitcoin is an experimental, decentralized digital currency that enables instant payments to anyone, anywhere in the world. Interestingly, unlike fiat currency which derives value from government regulation or law, Bitcoin derives value from computer processing power. Bitcoin, the brainchild of Japanese IT whiz Satoshi Nakamoto, is generated by the following 'process': Complex cryptographic  puzzles are randomly generated by a pre-defined computer program at a fixed rate, and transmitted to a network of volunteer Bitcoin 'miners'.  Using open-source software freely available and insanely high speed processors, miners crunch data to solve these puzzles. Naturally, the first miner to solve it gets 50 Bitcoins. The program has been preset to generate puzzles till 2140, when it will stop after generating 21 million Bitcoins. Since the puzzles are insanely complex and require ultrafast processors, mining is the sole purview of IT professionals and the rich who mine Bitcoins and then trade them online. Each Bitcoin buyer gets a digital wallet to which only he retains a encrypted private key. Each user transaction can only be initiated by the user using his digital key for authentication.


1. General perception that the world economic system is inherently unstable and headed for collapse leaving all paper money, well, just that- paper!

2. Users who want to remain anonymous since the digital domain offers secrecy: Illegal arms traders, drug dealers and the likes.

3. Speculators and millennials who feel the Internet will soon take over the real world.

4. Advantages of Bitcoin since there are no financial institutions to mediate between buyers and sellers and also the absence of regulation by banks and governments, whose 'bad' financial sense is being seen as the main factor for the collapse of world markets.

5. Since the currency is electronically encrypted, they are impossible to counterfeit.

6. Bitcoins can be easily sent through the internet, without needing to trust any third party.

7. Bitcoins can be transferred extremely fast as in instantly with almost zero time lag!


Bitcoin is quickly gaining acceptance across the world as more and more online retailers start accepting digital money. Wordpress, Reddit, Baidu and other major organisations across the US and Europe have started accepting Bitcoin as payment and certain companies in the US have also started paying their employees a certain percentage of the salaries in Bitcoins. As online commerce increases exponentially and the world shifts online, Bitcoins are truly going to become the most common and preferred choice of currency.

The growing clout of Bitcoins can be seen through some of the recent developments around the world. Argentina, where inflation has been increasing at highly unsustainable levels, making life increasingly tough for the middle class Argentinian, has seen a 30-40% surge in the value of Bitcoins. The growth of Bitcoins in Argentina has zoomed with Bitcoin downloads rising exponentially. In an economy where the people are slowly but surely losing faith in government economic measures, Bitcoin is being dangled as a safe haven.

Another example is Kenya, where already mobile SIM card powered M-Pesa (digital currency) is popular. But for the huge number of Kenyans who work abroad, remitting money back home is an onerous, time-consuming and costly affair. Bitcoin, with little to no extra charge and extremely fast transfer is again the saviour here with more Kenyans looking to take advantage of it.

Icelandic currency expert Sveinn Valfells has a radical suggestion for the Icelandic government: that Iceland should adopt Bitcoins as the national currency so that people can weather the brutal economic climate destroying Europe. Iceland is facing double-digit inflation. History is proof that an alternative form of currency can help the country emerge stronger from a recession as Iceland itself has seen. In the 1970s, Valfells Senior introduced vouchers as an alternative form of currency in Iceland which eventually the Icelandic government accepted as payment for taxes and helped Iceland survive the tough economic climate then.

Bitcoin is also seen as a threat to Gold, which till now didn't have a proper competitor as an alternative to paper money! Bitcoin mimics Gold in the sense that it has limited supply but while more gold may yet be found, Bitcoins has a predefined limit, hence enhancing it's value over the long term. Also Bitcoins are hard to steal and don't require armed men or vaults to guard them, unlike Gold.


Primarily seen, four reasons are plain obvious:

1. After petroleum, Gold is India's biggest weakness which has led to India's today having an unhealthy Current Account Deficit. India imports massive amounts of Gold leading to a monstrous gap between imports and exports.

2. The Rupee which has an unhealthy dependency on global factors is on a freefall and requires intervention by the Government of India and the Reserve bank of India. The central Bank has had to raise interest rates and the government's borrowing costs have also gone up whilst defending the Rupee. The defence of the Rupee has also tied up the government's hands in implementing key economic reforms aimed at kickstarting India's growth.

3. India is home to more programmers/ IT professionals than the rest of the world.

4. A vast majority of the country has no access to Banking services.

At the moment there are around 3000 traders trading in Bitcoins in India and with average gains of around 300% , Bitcoins sure are booming. Since Bitcoins are non-taxable and do not attract VAT, it is paradise for Bitcoin investors.


  • Payment through Bitcoins:  India should start accepting payments through Bitcoins for tax payments, fees, custom duties and the like.
  • Incentivize Bitcoin-based Businesses so that all companies start accepting payments in Bitcoins and use Bitcoins to pay salaries to employees and in other transactions.
  • The Government can invest money saved in national pension schemes in the Bitcoin market, start setting up digital financial institutions which promote,scale and standardise Bitcoins and which may convert ordinary cash into Bitcoins. Also, Bitcoin-based bonds maybe issued by the government.
  • Introduce Digital Finance courses across the various educational institutions across the country so as to position India as the Digital Financial Hub of the future and offer expertise to other countries which may want to follow India into the future of finance when they realise their present economic model is unstable and unviable. India can thus accelerate it's ascension as a world superpower.


  • The smartphone market is exploding in India and Bitcoin banking may be offered to more than 40% of India's population which don't have access to the banking system.
  • India is the world's leading receiver of remittances, receiving more than 15% of the world's total remittances. Bitcoins offer an extremely quick and cheap way to send remittances back to India, enabling easy flow of money to India and increasing growth of India's GDP.
  • The internet industry, which research has found to constitute around 20% of the GDP in developed countries would enjoy unprecedented growth once Bitcoins are standardised and introduced.
  • Over the past 4 years, the value of fiat currencies around the world has fallen relative to Gold but the biggest surprise has been the fact that Bitcoins have absolutely crushed gold in terms of value!
  • Bitcoins eliminate dependency on 'too big to fail' banks and are the precursor to a new era of digital finance.
  • In this age of cost-cutting, small businesses and startups, which are the engines of growth in any developing economy, can save huge amounts of money by accepting Bitcoins since they drastically cut down transactional costs which account for nearly 10-12% of the total costs in any business.
  • Bitcoins would reduce Indian dependency on the Rupee and would free up the Reserve bank of India and the government to focus on other vital areas to speed up the growth of the indian economy.
  • Taxing the Bitcoin trade in India would open up a new revenue stream for the Indian government.

In an increasingly uncertain world, where fiat currencies are increasingly becoming volatile and the governments and premier financial institutions can no longer be trusted to do the 'right' thing, Bitcoins are becoming an increasingly attractive option.

The million Bitcoin question remains: Is India ready to say 'Goodbye gold, silver and paper money; Hello Bitcoin!

This article has been authored by S Abhishek from SCMHRD,Pune


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