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Bitcoin: Currency of the future

  • Published at 12:55 am January 9th, 2018
  • Last updated at 04:41 pm January 9th, 2018
Bitcoin: Currency of the future
Global financial markets are abuzz with news and frenzy around Bitcoins -- the most popular cryptocurrency, whose value rose more than 15 folds in the year 2017 alone. When Bitcoins started in 2010, it was worth less than 1 cent or Tk8. As of the recent week, one Bitcoin is worth $16,000 or about Tk14 lakh. In the entire history of mankind, few assets, if any, rose this high, this fast, from that low! Whether Bitcoin and myriad other cryptocurrencies are creating the biggest asset bubble in our lifetime remains a topic of debate. There is, in fact, no shortage of predictions of Bitcoins both hitting the million dollar mark and becoming worthless. However, given the almost decade-long history of Bitcoins, it is safe to assume that its eventual valuation may not turn out to be in either of these two extremes. And it can be safely argued that digital currencies have just started to go mainstream and they are here to stay.

Bitcoin around the world

The United States recognised Bitcoins as a legitimate financial asset in 2012. Russia has announced its plans for creating its own cryptocurrency. Japan has started allowing Bitcoin as a legal online payment format. Australia, which used to impose penalising taxes on Bitcoin transactions, has recently decided to withdraw such penalties. The State Bank of India (SBI), India's largest government-owned bank, has announced that it will take the lead for launching a financial blockchain consortium -- blockchain is the technology behind Bitcoin and other digital currencies -- comprising private banks and tech companies.
Given that the digital currency technology is still in its infancy, early movers will have a definitive advantage towards capturing market share, as an entire global eco-system of digital currencies is expected to materialise in the future

Bangladesh and Bitcoin 

Bangladesh's official position around cryptocurrency mining, trading, and ownership remained rather dubious until as recently as December 27, 2017, when the Bangladesh Bank issued a circular essentially banning the use of Bitcoin. But before coming to that decision, the central bank was on the fence about it for a while. In 2014, according to a news piece by AFP, the central bank had stated that "Bitcoin is not a legal tender of any country. Any transaction through Bitcoin or any other cryptocurrency is a punishable offense."  Bangladesh Bank officials also told AFP that anyone found guilty of using Bitcoin could be sentenced to up to 12 years in jail! Given the potential for such a harsh punishment, the above news by AFP made headlines in digital currency related websites at the time and on bulletin boards across the globe. More recently, a news piece from Dhaka Tribune quoting Bangladesh Bank Deputy Governor Bank SK Sur Chowdhury, suggested that Bangladesh was conducting research and reviewing the possibility of a digital currency of its own. Chowdhury was quoted in that news saying that the Bangladesh Bank "is not against the use of any technology but people’s well-being had to be ensured first...the matter of the issuance of cryptocurrency by the central bank in the country still needs lots of research as it has both good and bad sides. We are seriously thinking about it.” Then, making matters even more confusing, on December 24, 2017, the Bangladesh Bank on its official Facebook page posted a circular asking people to be cautious about transacting with digital currencies. And then finally, on December 27, the Bank declared Bitcoin transactions illegal – at least for now.

A bitcoin ATM is seen in Zurich, Switzerland December 19, 2017.      PHOTO: REUTERS

Are we missing the boat?

There is no doubt that digital currencies are causing major headaches for central banks from even the most advanced of economies. Regulators from America, China, India, and Europe have all issued repeated warnings around the possibility of a dangerous asset bubble around Bitcoins. China, for example, has banned Bitcoin exchanges, leaving the currency to be traded over-the-counter only. It has also banned Initial Coin Offerings or "ICO," which became wildly popular very recently for raising capital. Vietnam allowed its citizens to trade Bitcoins but asked its banks not to use Bitcoins for lending transactions. Iceland allowed its citizens to buy and sell Bitcoins, as long as the coins are mined in Iceland. Bolivia prohibited all of its citizens from using any digital currency that is not issued by the Bolivian government. Kyrgyzstan banned its citizens from using Bitcoins as a legal payment mechanism for the purchase of any goods, but the country didn't ban its citizens from owning or selling digital currencies. Despite the above mentioned regulatory actions taken by various governments, few, if any, went as far as to threaten digital currency users with jail sentences. While millennials from neighbouring Asian countries have made millions of dollars mining digital currencies and mastered the fast-moving blockchain technology, youth in Bangladesh have sat on their hands since 2014 when the 12 year jail threat was first issued. 2014 to 2017 was also an extremely significant period for digital currencies, one that saw its meteoric rise in valuation. This is a classic example of how misguided fear and subsequent threats from government authorities act as the ultimate deterrent towards the adoption of a superior but apparently disruptive technology, which Bitcoin definitely is. Most experts now believe that there will be a whole new world of financial technology that will revolve around digital currencies, particularly around blockchain technology. The world is basically just getting started on the digital currency frontier. If we make an exception of the temporary asset bubble around Bitcoins at the moment, it is still quite fair to assume that the blockchain technology that powers Bitcoins has the potential for transforming financial transactions of the future. Therefore, timely regulatory approval of digital currencies will bring tremendous opportunities for Bangladeshi IT firms as they will be able to start creating digital currency wallets, payment gateways, mining facilities, digital currency exchanges, and physical storage devices of digital currencies for local and international markets. Given that the digital currency technology is still in its infancy, early movers will have a definitive advantage towards capturing market share, as an entire global eco-system of digital currencies is expected to materialise in the future. Bangladesh will not be able to avail any of the above-mentioned opportunities if the country prohibits its programmers and financial enthusiasts from learning and mastering the quickly transformational landscape of digital currencies. This is not  something one learns by attending a classroom, but only by participating in the digital currency eco-system. A full-fledged embrace of Bitcoins, with clear regulatory guidance, is therefore the need of the hour in Bangladesh.   Shafquat Rabbee is a finance professional who writes on global finance and geopolitics. He spent over a decade working for some of the largest global banks, ratings agencies, and management consulting firms. He is an alumnus of Cornell University and University of Miami.
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