Kuwait: Kuwait Financial Centre (Markaz) in its report on Bitcoins examined and analyzed the current status of Bitcoins.
The report highlights the growth, advantages, disadvantages, benefits and the pitfalls associated with it. The report also presents the global regulatory perspectives and its presence in the GCC region.
Bitcoins, an open source virtual crypto currency has been making long strides in the global economy over the past 15 months. Its rise has been nothing short of spectacular and as a result has attracted the attention of the mainstream media, both global and regional.
Bitcoin has its origins in the financial crisis of 2008, in a paper published under a pseudonym Satashi Nakamoto. The technical design outlined in the paper was then incorporated into open source software in 2009.
Bitcoins over the years have gained popularity among the online community as an accepted form of payment. Businesses ranging from online games to brick and mortar cafes have started accepting bitcoins. According to data from Coinmap.org, the number of physical establishments that accepted bitcoins were 552 at the start of November 2013; however at the end of the month that number was almost doubled to over 1000.
Current figures stand at 3, 3431, and the site updates the locations on an hourly basis making the number fairly dynamic.
Bitcoin does not have a central regulating authority or a central bank that issues and regulates the issuance of bitcoins; instead it is self-regulated through a distributed system of trust. Bitcoin miners jointly maintain a public ledger that records and verifies each transaction cryptographically. Transactions that take place through the bitcoin payment system are completely irreversible. Another unique aspect of bitcoin is that with the right kind of precautions the bitcoin can be completely anonymous.
Anonymity provided by the system has attracted the likes of anarchists, geeks, venture capitalists, speculators and even drug dealers.
Online services that accept bitcoin payment include – Reddit, a social news and entertainment website; Zynga, a developer of online games like Farmville, Fishville etc.; OkCupid, a dating network; Virgin Galactic, a company that provides suborbital space flights for space tourists and a Cypriot university. More recently overstock.com, an online retailer started accepting payments in the form of bitcoins, 840 orders were booked on the 1st day of its introduction amounting to USD 130,000.
Bitcoin are susceptible to online hacks and thefts if not properly safeguarded against. Mt.Gox, a bitcoin exchange lost close to 744,000 BTC leading to its bankruptcy. The estimated loss is expected to be around USD 400 million at the then prevailing exchange rate of USD 570. Bitcoins as with any other software are open to bugs and errors, one such bug is the transaction malleability bug which plays havoc with the balances and transactions. Bitcoin has become infamous owing to its connection with websites which sell illegal substances like drugs and narcotics. There were also reports of websites that sold arms to customers without background check. Bitcoin prices have also witnessed wild swings; it started off at USD 14 during 2013 reached a high of USD 1,237. As of 03rd March it was trading at USD 577.
USA has been one of the pro-bitcoin nations, with Canada also toeing similar lines. Bitcoins however has not received such welcome elsewhere in the world. Chinese government came down hard on bitcoins twice in the month of December 2013. Russia has termed Bitcoins as illegal and has expressed concerns about bitcoins helping money laundering and terrorism financing activities. Reserve Bank of India issued a notice to the public about the legal and financial risks of users who have been using bitcoins.
Venture Capitalists in Silicon Valley are backing companies in the bitcoin business. Bitcoin startups have successfully raised nearly US $ 12 million from venture capital investors in seven deals as of June 2013. Korbit, South Korea’s biggest exchange, received a startup funding of USD 400,000 on January 19th 2014.
Bitcoins has caught the interest of speculators and investors worldwide. Over the past year, some brokerage houses cited this as a reason for decline in prices of precious metals like Gold and Silver. Some experts have even likened it to the gold standards of the bygone era owing to Absence of a centralized regulatory authority, limited availability and acceptability.
GCC region is yet to come to terms with the phenomenon of bitcoins. Bitcoin being a radical new concept, no country or regulatory bodies have a clear view on how to deal with it. It is entirely possible for bitcoins to lose its value if people started refusing to accept bitcoins; the probability of the event however small still is a very real risk that an investor in bitcoin should look out for.