The Indian economy is experiencing severe economic slowdown

not seen in many years, and cryptocurrency can potentially help.

However, the government is considering a draft bill to ban
cryptocurrencies, which could have undesirable consequences
on the economy. Meanwhile, the Indian crypto community has
already been enduring a banking ban by the central bank.

Job Growth Amid ‘Unprecedented’ Economic Slowdown

Rajiv Kumar, the vice-chairman of Indian policy think tank Niti

Aayog, said last week that the Indian government is facing “an
unprecedented situation.” He explained that “In the last 70 years,
nobody had faced this sort of situation where the entire financial
system is under threat.” According to Reuters, economists predicted
earlier this week that, in the second quarter of this year, the Indian
economy likely expanded at its slowest pace in more than five years.

The slowdown has led to many job losses in a number of sectors,

particularly the auto industry. Chief Minister of the Indian state of
Rajasthan, Ashok Gehlot, informed the press last week that almost all
sectors in the country are struggling, with lakhs (100,000s) of people
losing their jobs. Parliament Member Manish Tewari, a spokesperson
for India’s Congress political party, estimated that over three crore (30
million) people are facing the threat of becoming unemployed.

Nischal Shetty, CEO of crypto exchange Wazirx, believes that job

growth is among the major benefits crypto can help his country’s
economic situation. Kunal Barchha, cofounder of the crypto exchange
Coinrecoil, shares the sentiment. He told news.Bitcoin.com:
“Indirectly, crypto can help create awesome
applications that can contribute to good
business and that can boost the overall IT
industry of India and add new jobs for the young
generation.”

Wealth Creation and Helping the Unbanked

Besides job creation, there are other benefits crypto can offer the
Indian economy. Among them is attracting “new foreign venture
capital investments into Indian startups,” Shetty detailed, telling
news.Bitcoin.com that “ICOs can be a new global fundraising
mechanism for early-stage Indian startup.” According to ICOdata, the
total amount of funds raised globally in ICOs so far this year is over
$346 million.

The Waxirx CEO added that cryptocurrency can help make

remittances in India “cheaper and faster.” Data from Trading
Economics shows that remittances in India stood at $12.6 billion in the
first quarter. He also believes that cryptocurrency can offer the
“Opportunity to bank the massive 300M+ unbanked people in India.”
The Indian government’s own data shows that, as of Feb. 13, the
number of accounts opened under the PMJDY, the government-run
financial inclusion program, was 34.43 crores.

Barchha, however, has doubts about how much cryptocurrency can

help the Indian economy. He argued that “most of the people around
the world still understand crypto as money for illegal activities,” so “It is
a distant dream to see crypto helping [the] vast size of Indian
economy.” He opined, “I personally don’t see crypto playing any
leadership role in the Indian economy, not in coming 5 years at least.”
 Negative Effects of Banning Crypto

Currently, the Indian government is deliberating on a draft bill to ban

cryptocurrencies. It was drafted by an interministerial committee (IMC)
headed by former Secretary of the Department of Economic Affairs
Subhash Chandra Garg, who was recently reassigned to the Power
Ministry. The committee was constituted on Nov. 2, 2017, and only
met three times before finalizing this bill. However, the community is
confident that the bill is flawed and has been tirelessly campaigning to
convince lawmakers to reexamine the IMC recommendations.

Shetty shared with news.Bitcoin.com the short term and long term
effects of banning cryptocurrencies in India. In the long run, he
explained that “India will see a massive brain drain,” as skilled citizens
move out of the country to seek opportunities elsewhere. Bahrain, for
example, has already been courting Indian startups to set up shop
there, marketing itself as a crypto-friendly country.

If the government decides to ban cryptocurrency, “India will not have

blockchain and crypto expertise leading to no crypto-related work
reaching India,” the Wazirx executive pointed out, emphasizing that
the country stands to “lose billions of dollars worth of investment that
the crypto sector can potentially attract.” Consequently, “Hundreds of
jobs will be lost,” he indicated, elaborating:

Indian citizens will lose hundreds and thousands

of crores of their hard earned money … India will
lose out on thousands of jobs that would otherwise
be generated if the crypto sector was to be
positively regulated.
Hurting Legitimate Players
Whether done in fiat currency or cryptocurrency, “Illegal activities,
money laundering, and terrorist financing are the top concerns for the
government of India,” Barchha asserted. “As of now, every exchange
allows trading after verifying documents rigorously,” he described,
affirming that “A ban will result in [the] closure of all exchanges and
that will result in no accountability of transactions.” He further
conveyed that “People with illicit intentions are … going to deal in
crypto using their own network,” elaborating:

Indirectly, the government of India will increase

their headache of tracing illegal transactions,
which would have been easier if strict KYC based
exchanges are regulated.
On the other hand, he opined: “honest traders or investors won’t give
up their faith on the technology and they will trade in cash through
peer-to-peer portals. They won’t be paying any taxes for these
transactions, which is an additional loss for the government.”

Recently, The Indian National Association of Software and Services

Companies (Nasscom) voiced its concerns regarding the proposed
banning of crypto assets in India. The association describes itself as
“the apex body for the 154 billion dollar IT BPM industry in India,”
which “Liaisons with government and industry to influence a
favourable policy framework.” Nasscom stated that “A ban would
inhibit new applications and solutions from being deployed and would
discourage tech startups” and would also “handicap India from
participating in new use cases that cryptocurrencies nad tokens offer,”
emphasizing:

A ban is more likely to deter only the legitimate

operators as they have no intent to be non-
compliant.
In his open letter to the Indian finance minister, Sohail Merchant, CEO
of local crypto exchange Pocketbits, wrote: “If the ban comes into
effect, the black market will continue to thrive. It will be the common
man, compliant businesses, and innovators building upon these
protocols that will be affected.”

Supreme Court Hearing, One Petition Withdrawn

There is already a banking ban in place in India, imposed by the

Reserve Bank of India (RBI) in its circular issued in April last year. The
ban went into effect 90 days later. A number of industry participants
filed writ petitions challenging the ban, which the Indian supreme court
was originally set to hear in September last year but was continually
delayed. The wait has caused a few operators to shut down their local
exchange operations, including Zebpay, formerly one of the largest
crypto exchanges in India, Coindelta, Coinome, Koinex, and
Cryptokart.

During the Aug. 21 hearing, the supreme court instructed the central
bank to answer the representation by crypto exchanges. Shetty told
news.Bitcoin.com that the document was submitted by the Internet
and Mobile Association of India (IAMAI) sometime last year. “It’s
basically a set of suggestions that IAMAI had sent to the RBI. Stuff like
exchanges following KYC and AML policies etc,” he clarified. “The
objective was to put across the fact that there are better ways to
ensure investor protection and prevent malicious activities in crypto.”

Coinrecoil, the first company to challenge the RBI ban in court, has
recently withdrawn its writ petition. “Yes, we did withdraw our petition
last week,” Barchha confirmed. “Even though being a startup, we
decided to take the risk and became the first exchange in the country
to file the petition. We tried our best to stay till the end of the fight. But
regardless of our passion or confidence, at some point, money
matters.”
According to Barchha, the financial burden was the only reason for his
startup with limited funds to withdraw its petition. “Most of the
investment was done by three directors, friends, and family. That was
enough to build the exchange from scratch, and make it operational
for 4 months. The banking ban was a blow to our financial planning,”
he detailed.

Over the last few years, the term cryptocurrency has rapidly gained visibility in the public eye. In
today's day and age, cryptocurrency is fast becoming essential to people who value privacy, and for
whom the idea of using cryptography to control the creation and distribution of money does not
sound too far-fetched.

Today, cryptocurrency, led by Bitcoin, Litcoin, Ether, etc. are taking the financial world by storm as
more people invest and buy these currencies. At the same time, there is still widespread confusion
and bias which retracts for the overall effectiveness of Cryptocurrency. Educating users about such
alternative forms of currency is extremely important given its volatile nature. In this article, we will try
to provide a holistic outlook towards Cryptocurrency and how it's affecting the world we know today.

What Is a Cryptocurrency?
Cryptocurrency is designed from the ground up to take advantage of the internet and how it works.
Instead of relying on traditional financial institutions who verify and guarantee your transactions,
cryptocurrency transactions are verified by the user's computers logged into the currency's network.
Since the currency is protected and encrypted, it becomes impossible to increase the money supply
over a predefined algorithmic rate. All users are aware of the algorithmic rate. Therefore, since each
algorithm has a roof limit, no cryptocurrency can be produced or "mined" beyond that.

Since Cryptocurrency is completely in the cloud, it does not attain a physical form but have a digital
value, and can be used for digital equivalent of cash in a steadily increasing number of retailers and
other businesses. Bitcoin was the first cryptocurrency that was ever created, and while there is a
small fee for every cryptocurrency transaction, it is still considerably lesser than the usual credit card
processing fees.
Why Use Cryptocurrency?
Bitcoin is the most popular cryptocurrency which has seen a massive success. There are other
cryptocurrencies such as Ripple, Litecoin, Peercoin, etc. for people to transact in. But for every
successful cryptocurrency, there are others which have died a slow death because no one bothered
to use them, and a cryptocurrency is only as strong as its users. Some of the salient features of
Cryptocurrency include -

 Cryptocurrency can be converted into other forms of currency and deposited into user's
accounts at a lightning speed

 Most Cryptocurrency can be transacted anonymously, and can be used as discreet online cash
anywhere in the world. Users therefore do not have to pay for any currency conversion fees

 While not 100% immune from theft, Cryptocurrency is generally safe to use and difficult for
malicious hackers to break

 Bitcoin and other Cryptocurrency can be saved offline either in a "paper" wallet or on a
removable storage hard drive which can be disconnected from the internet when not in use

Bitcoin - A Glimpse into the Future

2016 was the year of Bitcoin, and saw this digital currency grow almost 79% as compared to
Russia's Ruble and Brazil's Real, the world's foremost hard currencies. As a result, it emerged as a
better bet for investors while beating foreign exchange trade, stock exchange trade, and commodity
contracts. There are many reasons why the impact of Bitcoin is exceptionally relevant today, and
why the Cryptocurrency of 2018 is now here to stay. These include -
1. Reduced Remittance

Many governments around the world are implementing isolationist policies which
restrict remittances made from other countries or vice versa either by making the
charges too high or by writing new regulations. This fear of not being able to send
money to family members and others is driving more people towards digital
Cryptocurrency, chief amongst them being Bitcoin.
2. Control Over Capital
 Many sovereign currencies and their usage outside of their home country are being
regulated and restricted to an extent, thereby driving the demand for Bitcoin. For
example, the Chinese government recently made it tougher for people as well as
businesses to spend the nation's currency overseas, thereby trapping liquidity. As a
result, options such as Bitcoin have gained immense popularity in China.
3. Better Acceptance

Today, more consumers are using Bitcoins than ever before, and that is because more
legitimate businesses and companies have started accepting them as a form of
payment. Today, online shoppers and investors are using bitcoins regularly, and 2016
saw 1.1 million bitcoin wallets being added and used.
4. Corruption Crackdown

Although unfortunate, digital Cryptocurrency such as Bitcoin are now also seeing
more usage because of the crackdown on corruption in many countries. Both India
and Venezuela banned their highest denomination and still-circulating bank notes in
order to make it tougher to pay bribes and make accumulated black money useless.
But that also boosted the demand for Bitcoins in such countries, enabling them to
send and receive cash without having to answer to the authorities.

The Real-world Impact of Virtual Money

While Cryptocurrency and its usage is at an all-time high, so are the misconceptions about it. Most
people still seem to ask - Why use Bitcoin? Since such currencies use different algorithms and are
traded in unconventional ways, it is important to lookout for some important characteristics before
investing in Bitcoin or others of its ilk. This includes -
 Daily Trading Volume and Overall Market Capitalization
Market capitalization of a cryptocurrency is the total worth of all its forms which are currently in
circulation. New forms of Cryptocurrency might not be widely available, and therefore might not
have high market capitalization. Similar to this is the daily trading volume, and a cryptocurrency
which has higher trading volume than the others is considered more successful.
 Verification Channels
Each cryptocurrency has its own verification method. One of the most common methods for
verification is called "Proof of Work". Herein, to verify a transaction, a computer has to spend
time and computing power to solve difficult mathematical problems. On the other hand, "Proof
of Stake" method allows users with the largest share of the cryptocurrency to verify the
transactions, which requires far less computing power.
 Acceptance of Cryptocurrency
Unless a cryptocurrency is not accepted by major retailers or other businesses that you deal
with, it doesn't stand much use. That is why Bitcoin still remains the most popular form of digital
currency, since its reach is widespread and is accepted by many businesses and retailers alike.

Toning Down the Frenzy - Challenges Ahead for Bitcoin

While Bitcoin's astronomical growth cannot be understated, Cryptocurrency in general have several
challenges to meet before finding universal acceptance. These challenges include -
 Safety and Reliability
Purely based on its digital form, Bitcoin and other types of Cryptocurrencies are nowadays the
favorite mode of payment for both hackers and criminals because of the air of anonymity it
lends. This instantly makes the general populace weary of using it. In 2014, Mt. Gox, the largest
Bitcoin exchange was hacked and robbed of almost $69 million, thereby bankrupting the whole
exchange. While the people who lost money have now been paid back, it still leaves a lot of
people wary of the same thing happening again.
 The Debate on Bitcoin Scalability
The cryptocurrency community is up in arms over how the blockchain will be upgraded for
future users. As the time and fees required for verifying a transaction climbs to record highs,
more businesses are having a tough time accepting Bitcoins for payment. In early 2017, more
 than 50 companies came together to speed up transactions, but till now the results have not yet
been felt. As a result, more users might start using normal modes of currency to overcome such
blockchain hassles.
 The Rise of the Rivals
Today, Bitcoin is not the only game in town, and while its value has increased by almost 100%
since the beginning of 2016, its share of the digital currency pile is rapidly reducing owing to
almost 700 different competitors. Its market share has reduced to 50% from 85% a year before,
a sign of the times to come.
 Unrecognized by Governments
Most of the general populace doesn't understand Bitcoins, and nor does most of the world's
governments. The cost of gaining a license to set up cryptocurrency companies is sky-high, and
there are no regulations in sight which might make it easier for people looking to invest into
them. The U.S. Securities and Exchange Commission recently rejected a proposal by Bitcoin to
run a publicly traded fund based on the digital currency, which in turn led to a big plummet in
Bitcoin's shares.

Bitcoin is a unit which is further subdivided into millibitcoin (1 millibitcoin = 0.001 Bitcoin)
and Satoshi (1 Satoshi = 0.00000001 Bitcoin). Satoshi is the smallest unit in Bitcoin
parlance.
All transactions are recorded in a block which acts like the ledger. Once the block is filled, a
new block is created. All these blocks are connected to each other by hashtags. A linear
sequential record of events of these block forms a blockchain.
It should be noted that though transactions are recorded but the information of the
participants in the transaction is not revealed. Hence it becomes impossible to trace both
the parties the receiver and giver.

First Bitcoin transaction was when programmer Hal Finney received 10 Bitcoins from
Nakamoto.
India is technically advanced country. With the use of smartphones, which is spreading
rapidly along with the internet availability, information flows is at a faster rate. Most of the
technology startups are interested in Bitcoin because it can be integrated into almost any
software and can be monetized.
Bitcoin has tremendous potential and is serving the purpose it was meant to. Transferring
money from one party to another, without the worry of rules and regulation of the
government and no intermediaries (central bank) to charge commission.
For investment purpose, it is becoming an alternative to gold. Usually called Gold 2.0 It has
become an alternative asset class for investors with huge but volatile returns. For more
details you can contact stock advisory company.
It has no backing of any government and its value does not depend on the precious metal.
All the currency in the world are valued against precious metal, usually gold, and are
backed by the concerned government.

According to SourceForge, Bitcoins are fast gaining favor in India. Looking at the number of
downloads India has moved to 16th rank in the world.
As far as Bitcoin is concerned Indian government is employing wait and watch policy. How
developed countries across the globe respond to cryptocurrency. Though Reserve Bank of
India has clearly advised general public not to buy or sell virtual currency.
RBI feels Bitcoin will help to circulate black money internationally, as it is very simple to
transact without leaving any traces. It is unacceptable and unregulated in Indian financial
system.

Though Bitcoin community is small in India, it wants RBI to step in. They want RBI to create
policies to improve the safety of the consumer. The community feels strict guidelines of
know your customer (KYC) will help to curb illegal transitions of cryptocurrency.
The community has suggested to the government to set up its own exchange, just like the
stock exchange, where all Bitcoin traders can trade, as they trade with other currencies of
the world. You can trade with commodity tips.
RBI along with central banks of the world are unable to track economic activities of this
cryptocurrency. Hence they are worried about this unpredictable and uncontrolled form. It is
impacting banking, finance, and economies of the world. These are the backbone of every
country’s progress.

Abstract

Bitcoin is an innovative concept of a decentralised, peer-to-peer virtual currency. Its

functions are autonomous from any centralised influence. This paper discusses working
of bitcoin in detail along with the method of bitcoin transaction on a network and the
process of bitcoin mining. The paper also discusses the effect of bitcoin and its
advantages on developing countries, centered on its effect over Indian economy and its
future in the country and presenting the views of different groups of people over this
new currency. The paper also provides a wide view of security issues in bitcoin with a
discussion on 51% attack and presents a feasible solution to defend the attack.

Introduction

Bitcoin is a decentralized virtual cryptocurrency, launched in 2009 by an unidentified

person known as Satoshi Nakamoto. It does not rely on any central services for
managing the creation or flow of money. It relies on cryptographic algorithms in order
to prevent abuse of the system. It is abbreviated as BTC and is powered by a peer-to-
peer network in the public domain both in terms of issuing and valuation.

Until Bitcoin’s invention, online transactions always required a trusted third-party

intermediary. For example, if a person A wanted to send $10 to B over the Internet, he
would have had to depend on a third-party service like Citrus. Intermediaries like Citrus
keep a ledger of balance of account holders. When A sends $10 to B, Citrus deducts this
amount from A’s account and credits it to B’s account. The digital money could be spent
more than once without such intermediaries; this problem is known as “Double
Spending”9.

Bitcoins provide a solution to the double spending problem without involving any
trusted third-party intermediary. It does this by distributing the transaction information
among all the users on the network. Every transaction in a bitcoin economy is contained
in a block which also contains the information about the previous block, forming a block
chain. This block chain is available over the bitcoin network for users to verify that
whether the bitcoin being transacted has been previously spent or not. The thousands
of users present over the network act as the intermediary.

Terms related to Bitcoin

• Bitcoin – Bitcoin is the name of the project started by Satoshi Nakamoto to create the
world’s first decentralized crypto-currency. A Bitcoin is the name of a single unit of the
Bitcoin currency, abbreviated as BTC.

• Address – An address is a key pair, including public and private key, used by user to
access their bitcoins.

• Transaction – A Transaction is a single operation of moving Bitcoins from one set of

one or more Addresses to another set of one or more Addresses. A Transaction is similar
to a bank transfer.
• Block – A Block is a package of information containing most notably all Transactions
created since the previous Block, as well as reference to that preceding Block.

• Block Chain – A Block Chain is a collection of linked Blocks from the most current one
to the Genesis Block.

• Network – The Bitcoin Network is a collective name for all applications connected
together that exchange information about Bitcoin Blocks, Transactions and connected
Clients.

• Wallet – A Wallet is a set of Addresses created by the Client and saved locally in a file.

• Miner – A Miner is a computer machine and accompanying application dedicated to

creating new Blocks.

Transactions

Each user of Bitcoin owns a set of private and public key that are analogous to a bank
account. In order to send someone else money, the user creates a Transaction and signs
it with their private key18. Each Transaction claims a reference to a previous Transaction
that credited the user, meaning that Bitcoins can’t be created out of nothing. Moreover,
the same Coins can’t be spent twice. Each Transaction is broadcasted through the
Bitcoin Network in order to become valid and spendable.

Every 10 minutes, all Transactions are gathered together in a Bitcoin Block, which is like
a ledger. Once a Transaction is a part of a Block, it is considered safe to spent, as Blocks
are hard to forge. All the Blocks are linked together to form a Block Chain. The Block
Chain is a record of all Transactions that ever took place and is a definite authority over
how much money users have associated to their public keys. The Block Chain is secured
using cryptographic algorithms, making it impossible to alter any part of it.19
Bitcoin Mining

Bitcoin is a peer to peer network and there is no central authority like bank to control
the creation of currency units or verifying the transactions, it totally depends on users
present on the network, who provide their computation power to in order to verify the
transactions occurring over the network. These users are termed as “miners”17 because
they are rewarded for their work with newly created bitcoins. Bitcoins are “mined” or
created by solving complex math problem i.e. decoding the hash present in the block of
a block chain for new transactions. When a user successfully decodes a hash he obtains
a bounty of bitcoins and also a transaction fee if the block was used in order to certify a
transaction. As the bitcoins are mined around the world the size of the bounty reduces
and the complexity of the code increases, making it more difficult to mine. Thus
together these two effects reduce the rate of production of bitcoins just like gold, the
more it is mined more difficult it gets to mine more. The bitcoin mining design mimics
the extraction of gold or other precious metals from earth. The bitcoin mining process
will not last forever. It is projected that the miners will mine the last “satoshi”
(0.00000001 of a bitcoin) by 2140. As the complexity of the code increases with the
mining of new bitcoins, it will be quite a challenging task to mine the last satoshi. When
all the bitcoins will be mined the users will get the incentive for verifying transactions14,
which will keep the network running after the last bitcoin is mined.

Views on Bitcoin

Bitcoins are a very new concept that uses concepts familiar to some people in a new
way, thusly creating misconceptions quite easily20. Different group of people have
different views on Bitcoin, as per their area of expertise and interests.

The IT/cryptography experts

Bitcoin has generally been very well received with the programmers and cryptography
experts, the main reasons being its security, pseudonymity and innovative solution to
most problems8, but at the same time pointing out its problems that it does not provide
fully anonymous transactions and might not scale in future. By far now, bitcoins don’t
have any concerning vulnerabilities.

The legal experts

Bitcoins to this date operate in a legal grey area15 – there have been no legal actions
taken against any Bitcoin-related endeavour that reached any final conclusion, nor have
there been any legislation that addresses any Bitcoin-like currencies16.

The main problem with determining the legal status of how Bitcoins should be handled
is whether they are a currency, security12,2, commodity3, or something completely
different. While Bitcoins are commonly referred to as a “currency” as they have many
common characteristics of one, the legal definition requires a currency to be issued,
used and accepted by a country2, which is not the case with Bitcoin. Another problem
with bitcoins is that not all the countries have legalized its use. For consumers some
countries like Australia, Canada, Finland and Germany have legalized its use and have
made it clear to apply normal earned income rules on Bitcoin, while many countries
have yet not made a clear statement with the legalization and use of Bitcoin. On the
hand Thailand has made the use of Bitcoins illegal22. The non-uniformity in the
legalization of Bitcoin in different countries is a major issue.

The economics experts

There have been surprisingly few noteworthy mentions of Bitcoins in economics circles.
Professor Krugman, one of the world’s leading economists, wrote an article on Bitcoin,
generally dismissing it as being just another type electronic payment system and
resembling a gold standard – promoting money-hoarding, deflation and depression.
Other economists similarly compare Bitcoin to a gold standard, and generally point out
its flaws in comparison to traditional money – lack of a system that allows borrowing
and lending11, being hard to exchange and spend6, and its built-in deflatory mechanics6.

There are also a few economists that believe a rise of currencies that are not owned by
governments can be a good thing. Such currencies in the past have not experienced
rampart inflation.

All in all, Bitcoins don’t appear to be on the scope of too many economists as anything
more than a curiosity or a means of investment.
The common users

There have been many misconceptions among laymen about many aspects regarding
Bitcoin. Even security experts claim that “the first five times you think you understand
[Bitcoin], you don’t”8, which can only be truer for non-tech-savvy users.

Bitcoin is sometimes dismissed as bringing no new innovation to online payment

systems. They are viewed as worthless because they are not backed by anything, or even
being illegal because they are not a legal tender. Bitcoin is also compared to Liberty
Dollars (a privately minted silver coin that was issued to be used alongside US Dollar,
later ruled to be illegal) and called terrorism, as they might undermine the legal currency
of the country10. Most often, however, Bitcoin is a misunderstood concept, mistaken to
be similar to such online payment processors like PayPal.

All in all, Bitcoins aren’t popular enough to be understood by most Internet users, but
more often than not with little research their perception of the project ends up pretty
close to how it actually works.

Bitcoin in India

Bitcoin is a potential way to improve the basic financial services and the quality of life of
the people in developing nations, which is a promising antipoverty technique17. An
estimated 64% people in developing countries do not have access to these services,
maybe it is because the traditional financial institutions find it very expensive to serve
the poor people in rural areas. People living in such countries are reaching out to mobile
banking services for their financial needs. With the adoption of Bitcoin in developing
countries mobile banking services can be further supplemented. Since bitcoin is an
open-system payment facility therefore it can provide access to inexpensive financial
services on a global level to the people in developing nations. In countries with strict
capital controls, it might provide relief to people. The total amount of bitcoin that can
be mined is capped at 21 million and it cannot be manipulated. Since bitcoin is an open
network therefore there is no central authority which can repeal the exchange of
bitcoins between countries or reverse transactions. Thus, Bitcoin provides an emergency
exit for the people in countries whose currencies are devalued. For example, some
Argentines have adopted Bitcoin in response to the country’s dual burdens of strict
capital controls and a 25% inflation rate 13. Due to high demand of bitcoins in Argentina,
one popular bitcoin exchange is thinking of opening an Argentine office7.

India is a tech-savvy country and the rapid spread of smartphones and internet access
allows for information to spread faster than ever before. In addition, several techies are
investors or owners of restaurants and pubs across the country. This gives a tremendous
opportunity in the entertainment businesses. One buzzing industry in India which seems
to be super-excited about the usage and potential appreciation of Bitcoins is that of
technology startups. A number of start-ups now favour dealing in Bitcoins while setting
up a business rather cash. This is because the crypto-currency can be integrated into
almost any software build that can be monetised. It can act as an alternative to gold for
the purpose of investment. This can lessen the demand for gold, which ultimately can
bring down imports and ameliorate the balance of payments situation. Furthermore, it is
going to have a deep impact on the banking revolution.

Bitcoins are fast gaining favour in India. According to SourceForge, there have been
about 36,000 downloads in India since the launch of Bitcoins on 9 November 2008.
Experts estimate there are 2 to 3 users for every download. Of these, close to 70%, or
24,723 downloads, took place in 2013. In October, there were about 2,100 downloads of
Bitcoin and moving India’s ranking one place up to 1620.

It’s a bit strange that a currency which is slowly becoming so popular in the country and
is increasingly being used by more and more people has no standing as far as legality is
concerned. Till now, the Indian Government has only been watching and studying how
virtual currencies work. By the looks of it, probably they are going to be patient and will
wait to see how the developed economies respond to it before adopting crypto-
currency as it straddles two very radical and dynamic topics– economy and technology.
The Reserve Bank of India (RBI) issued an advisory to public not to buy and sell virtual
currency Bitcoins. The biggest fear of the RBI, and the income tax department is that
Bitcoins will help to circulate black money internationally because of the simplicity with
which the digital currency can be transacted as opposed to doing it through banks
which is unregulated and unacceptable in Indian financial system as of now.21

The Bitcoin community in India wants the RBI to step in, not just to create policies to
enhance safety of the consumer and impose a strict Know Your Customer system to
circumvent its use for black money but also to establish its own exchange and influence
all Bitcoin traders to use its own setup to make payments.

Bitcoin network security

Despite the benefits that Bitcoin presents there are concerns whether hacking could
compromise the bitcoin economy. One very large flaw in the design of Bitcoin is the
probability of occurrence of 51% attack. In the further section we describe the 51%
attack and propose a solution to defend against it.

51% Attack
The security of a block chain in bitcoin depends upon the total processing power of all
the users present on the network. The 51% attack5 assumes that at a given time if a
malicious miner contributed the majority i.e. more than 50% of the networks mining
hash rate, then he would have a full control over the network and would be able to
manipulate the block chain.

A 51% attack is theoretically possible as the network is free and open, so if someone
was to have enough computational power they can get control over the network, as
there is no bitcoin authority to stop them. But in order to get such computational power
the attacker would have to invest a huge amount of money in the hardware for
computing, which makes this attack less feasible. There are only a couple of things that
an attacker can do with 51% attack. They can prevent any transaction of their choice
from gaining any confirmation and thus making them invalid. They can reverse their
transactions during the time they are in control of the network i.e. they can double
spend bitcoins and prevent other miners from finding any block for a short period of
time while in control of the network.

The attacker though cannot double spend the coins created before, create new coins or
steal coins from other user’s wallets. They can cause some serious mayhem for a very
short period of time but cannot completely cripple the network with 51% attack.

With the rise of mining pools i.e. groups of people mining together as a single unit a
51% attack is possible, however the potential damage one can cause is very small, but
enough to create panic among the users which would put the use of bitcoin as an online
currency in jeopardy. With the current difficulty levels of block hash not even large-scale
enterprises or governments can easily create a 51% attack. Though being physically
possible a 51% attack is not feasible, as the amount of hardware required for controlling
more than half of the network’s mining hash rate can only be acquired with an
investment of a huge sum.

Defending a 51% attack

In an unlikely event of 51% attack the user can defend against it by ignoring a longer
chain (i.e. the new chain created by the malicious attacker) which does not include the
current best chain, if the sum of the priorities of all the transactions included in the new
chain is less than the sum of the priorities of all the transactions which are a part of the
current best chain and are not included in the new chain. This means that if the total
priority of all the transactions present in the current best chain which is present on the
network is greater than the total priority of all the transactions present in the new chain,
then the new chain is easily identifiable as a malicious chain.
In order to avoid this method of identification of a malicious chain, the 51% attacker
would need lots of computational power (which would require a huge amount of
money) as well as lots of old, high priority bitcoins to avoid a transaction-denial-service
attack. The high priority bitcoins are required to increase the priority of the transactions
present in the new longer chain. Since, the attacker would run out of old, high priority
bitcoins pretty quickly, thus will be forced to include the transactions of other users
present on the network or have their chain rejected.

The bitcoin code has a concept of “bitcoin priority” which prevents transaction spams i.e.
sending numerous numbers of tiny transactions to oneself, so as to keep everyone else
on the network busy with the work of verifying and storing them. Extending this concept
of “bitcoin priority” we can support this method of chain-fork-selection.

Conclusion

Every new currency has to face an uphill battle legally and technically. The value of
Bitcoins will depend upon the ever-fluctuating market value, if the system gets widely
adopted. Bitcoins need to be accepted as a placeholder by the merchants for goods and
services, just like any other currency. This has been a challenge to other digital cash
options, so it is hard to say if bitcoin will be ready to face these barriers. In views of
many, there has always been a need of a decentralized currency system and bitcoin
surely is a huge step towards censorship-resistant digital currency.

Cryptocurrencies are disruptive economic innovation that have the potential to revolutionize
the current economic structure and change how banks and financial institutions operate.
Bitcoin is the most popular form of cryptocurrency that enables digital transactions between
two parties without the need of an intermediary. Every transaction is digitally recorded in
blocks which act like ledgers and once a block is filled a new block is created. All blocks are
connected to each other using hashtags and a linear chronological sequence of these
blocks forms a blockchain. Thus, every transaction is digitally recorded to keep security at a
top notch level. Though the transactions are recorded, the information of the parties
participating in the exchange is not revealed. The money can only be tracked when it is
converted into cash. This public way of managing transactions has created the possibility of
a huge revolution in the banking sector across the world. The economic power which lies
with the governments and financial institutions is at stake which has made them
wary of cryptocurrencies.
5 Ways BitCoin is Impacting Banking, Finance
and the Economies:
1. Power to the Dark Web:

Dark web is the section of the web that is not accessible through the search engine. What
we are given access to is the surface web which is not even half of the existing internet.
Dark web is accessible only through special software like Tor Browser which enables
anonymous searching of the internet.

Dark web is the place where you can find assassins, weapons and a lot more illegal stuff.
By using crypto currencies like Bitcoins people can make illegal transactions without giving
any information about themselves. Cryptocurrencies like Bitcoins are a way to empower
such transactions across the globe which will ultimately result in increased cyber crime.

2. Speculations:

As on 14th January 2015, Bitcoin was valued at $170 and as on 24th July 2017, it values at
$2772. There have been many ups and downs in the value of Bitcoins and this scenario is
likely to continue. Due to the extreme highs and lows BitCoins present a massive possibility
for speculation. Just like trading in shares, trading in Bitcoins is massive and seeing the rise
in traction around cryptocurrencies it is likely to grow further.

Another reason accounting to this is the increasing cost of investing in the stock markets. A
share in Apple or Facebook can cost around $150 while Bitcoins can be bought in fractions
at a price as low as one-tenth of a cent. This makes it an easy target for speculative gains.

3. Politicization of Money:

Earlier all the monetary transactions were enabled through central banks (directly or
indirectly). Now, with the evolution of Bitcoins, the scenario has changed. The power that
was vested in the governments and central banks is shifting to the masses. This
revolutionary change in transaction handling has the power to change the economic
structure. To bring security and enable scrutiny, central banks and financial institutions
maintain a record of all the transactions undertaken by the people. Now with digital
currencies, this economic power can be challenged by people. This has led to the creation
of a new autonomous body which can facilitate transactions. Ultimately if adopted on a large
scale, Bitcoins can lead to the politicization of money.
4. Apprehension among the Central Banks:

There have been implications that Bitcoins can be used to secretly launder money outside
the country. Central banks across the world have been wary of Bitcoins as an uncontrollable
and unpredictable form of currency. Cryptocurrencies are leading to loopholes in the current
bank’s data about the money transactions leading to inability to track economic activities.
Crypto and Cyberspace has emerged as a power in itself thus bringing a check on the
activities of the so powerful governments.

5. The Emergence of New Markets:

Cryptocurrencies have led to the emergence of new markets. Currencies like Bitcoin
and Ethereum have opened gates for a new kind of market which unlike present money
market is controlled by no one. Cyberspace will rise up as the managing body that will
handle and maintain such disruptive markets. The near zero transaction cost (along with
other characteristics) has made these currencies even superior to the traditional money we
are accustomed to using. What can be surely stated is that it is just the beginning and the
number of possibilities is endless.