A new hi-tech form of hawala has appeared: the digital currency, bitcoin. As a result of Indian govt's demonetisation initiative, today, there is a flood of such digital transactions in the country.
Hawala is a system of transferring money and property in a parallel arrangement avoiding the traditional banking system. It is a simple way of money laundering and is banned in India. But a new hi-tech form of hawala has appeared: the digital currency, bitcoin. As a result of GoI’s demonetisation initiative, today, there is a flood of such digital transactions in the country.
Bitcoins are a kind of cryptocurrency, in the sense of them being conceptual. They are manufactured using software, by solving complex mathematical problems, and cryptology having market values. By solving one such problem nearly 12-and-a-half bitcoins are generated.
The idea of bitcoin emerged in October 2008 from a research paper by someone or someones by the name of Satoshi Nakamoto. The purchase process using bitcoin is so secure that it isn’t possible to hack the system. Only a money transfer can be seen, but nothing can be known about the sender and the recipient. This type of anonymity, with its strong cryptological security, is ensured by those dealing with bitcoins.
According to the US treasury, the bitcoin is a ‘decentralised virtual currency’. There are some exchanges, which may be treated as mints or a central bank, which are mainly located in China, Hong Kong and Russia. There are various companies called ‘miners’ under each exchange.
The bitcoin ecosystem uses a function called the ‘hash function’. A ‘hash’ is given for every transaction, along with a ‘public key’ and a ‘private key’. Each of these keys is inverse to each other, but it is never easy to derive one from the other. The ‘public keys’ are openly available in the public domain.
The details of each transaction report are available in a ledger called ‘blockchain’. From this open source, anybody can tell how many bitcoins are traded at some specified public key. But nobody can know the owner of those bitcoins, as the security of the ledger cannot be easily broken, making the system’s character of anonymity and privacy also its drawback.
The bitcoin’s popularity in India has grown after demonetisation. At the time of its announcement in November, the price of one bitcoin in India was $757. It was lingering between $866 and $896 during the early days of demonetisation. It reached $1,020 18 days after Prime Minister Narendra Modi announced demonetisation on November 8, 2016. The bitcoin was valued at around $770 in the US the same day.
On May 27, 2017, the market price of bitcoin in India reached $2,096.68. There has been a clear surge in bitcoin transactions after demonetisation.
So is this a purely temporary phenomenon? Should the government need to control this market? The digital economy may well be the future. Transactions through bitcoins have been legalised in the US, the EU, Japan and Singapore, but there is enough effort being made to control the bitcoin economy. In this context, there is no law yet in India.
The bitcoin’s shadow was evident in the supply of money for the 2015 Paris terrorist attacks. The EU is keen to bring the bitcoin under control. The intergovernmental Financial Action Task Force in Paris reported in 2015 that some terrorist websites encouraged sympathisers to donate in bitcoins.
US anti-terrorism officials are also reportedly anxious about the way how the Islamic State is accumulating millions of dollars through bitcoins. The New York state government has already passed a Bill prohibiting bitcoin. Countries like Canada and Australia have brought the bitcoin under the purview of anti-money laundering and antiterrorism laws.
Controlling terrorist funding was one major reason for GoI’s demonetisation initiative. If India fails to regulate bitcoin, this new hawala may ironically become the easy way of funding terrorism. The government should have proper control over bitcoin in the interest of the economy and the security of the country.