As pro­posed, bit­coin would have been ‘mod­ern-day gold’

The Hindu Business Line - - NEWS - PRIYANKA PANI

The RBI has re­peat­edly warned con­sumers against in­vest­ing in bit­coins. How­ever, the val­u­a­tion of the bit­coin is ral­ly­ing past all those warn­ings, more than dou­bling to $15,000 in just a few months.

Busi­nessLine spoke with San­jay Me­hta,

CIO of In­dia An­gel

Net­work, and a firm be­liever in the blockchain tech­nol­ogy on which bit­coin is built. Ac­cord­ing to Me­hta, bit­coins are the fu­ture but the val­u­a­tion will soon see a cor­rec­tion de­spite the cur­rent frenzy. Ex­cerpts:

How much have you in­vested in vir­tual cur­ren­cies and what kind of re­turns have you seen?

If one has in­vested ₹45 in bit­coin, to­day it would be worth ₹9 crore. Bit­coin is spe­cial. It is not a com­pany that could lose prof­itabil­ity and fail.

I have done in­vest­ments in mul­ti­ple crypto-cur­ren­cies be­sides bit­coins and have a di­ver­si­fied port­fo­lio of alt­coins [al­ter­na­tives to bit­coins]. I would say cur­rently my crypto-cur­rency port­fo­lio would be worth 72 bit­coins and that has grown to 5x in value terms.

What due dili­gence is needed be­fore in­vest­ing in cryp­tocur­ren­cies?

Be­fore in­vest­ing in any crypto-cur­rency, one needs to closely look at the mar­ket size, at prob­lems un­der­ly­ing blockchain tech­nol­ogy, and ar­rive at an an­swer to the first ques­tion: is there money to be made?

Next, is to eval­u­ate the team, their do­main ex­per­tise, their abil­ity to de­liver on their promise and ar­rive at the sec­ond ques­tion: are these peo­ple who will make money.

Lastly, check their fund raise, terms of in­vest­ments pre-ICO (ini­tial coin of­fer­ing) or dis­count on the coin, price of en­try and ar­rive at the third and last ques­tion: how much money can I make? In the alt­coin uni­verse, there is no per­for­mance his­tory to an­a­lyse.

Why the frenzy ?

Bit­coins are scarce. When things are scarce and peo­ple want those things, their value will ul­ti­mately rise. Sup­ply and de­mand are at work. Bit­coins can’t be copied, re­versed or coun­ter­feited. Trans­ac­tions are made with­out mid­dle­men hence the value is in­creas­ing. These are highly volatile and risky. So, in­vestors must have the fi­nan­cial abil­ity, ex­pe­ri­ence and will­ing­ness to bear the risks of an in­vest­ment, and a po­ten­tial to­tal loss of their in­vest­ment.

What is the po­ten­tial in this seg­ment?

Dig­i­tal cur­ren­cies have the po­ten­tial to be­come a tril­lion-dol­lar mar­ket. While bit­coins are not even the first “vir­tual cur­rency” to ex­ist, we have seen coupons, air­line fre­quent flyer miles, ho­tel loy­alty point be­ing used as vir­tual cur­ren­cies. There are tonnes of start-ups that of­fer re­demp­tion or

barter of goods in ex­change for there vir­tual cur­ren­cies. Blockchain tech­nol­ogy is ground­break­ing be­cause it al­lows trans­ac­tions to be pro­cessed with­out re­course to a cen­tral author­ity, such as a pay­ments com­pany, gov­ern­ment, or bank.

Busi­nesses and ser­vices can be de­cen­tralised, cut­ting out costly mid­dle­men and re­mov­ing sin­gle points of failure.

What are the chal­lenges ? How is the ecosys­tem ad­dress­ing these chal­lenges?

It is worth notic­ing that over the past cen­tury, money has lost a lot of its value. A dol­lar from the 1910s could buy roughly what $25 can pur­chase to­day. In one cen­tury, the dol­lar has lost 95% of its value. When cen­tral bankers cre­ate money out of noth­ing [print­ing money] and dis­trib­ute it, it re­duces the pur­chas­ing power of the money which is al­ready in cir­cu­la­tion ... That also ex­plains why prices are in­creas­ing — it is in­fla­tion. In re­al­ity, prices do not rise but the value of money is de­creas­ing.

Hence bit­coin, as it was pro­posed, is ac­tu­ally the mod­ernised ver­sion of the world’s old­est com­mod­ity, gold.

What is the fu­ture of crypto-cur­rency in In­dia ?

The le­gal sta­tus of dig­i­tal cur­ren­cies is un­de­fined in In­dia. Us­age of bit­coin or any other alt­coin is not il­le­gal or banned in In­dia. We have seen ex­changes in In­dia sell­ing gift vouch­ers to be used in the off­line world for bit­coins. The gov­ern­ment has con­sti­tuted an In­ter-Dis­ci­plinary Com­mit­tee, chaired by a Spe­cial Sec­re­tary (Eco­nomic Af­fairs), to ex­am­ine the ex­ist­ing frame­work with re­gard to Vir­tual Cur­ren­cies, and the re­port is yet to come out.

There are con­cerns that crypto-cur­ren­cies are be­ing used for il­le­gal trade, by hack­ers, and for money laun­der­ing pur­poses...

In cur­rent times, any­one with an in­ter­net con­nec­tion can cre­ate a dig­i­tal wal­let and own these dig­i­tal cur­ren­cies. While these dig­i­tal cur­ren­cies are pseudony­mous, de­cen­tralised and en­crypted, it makes it harder to track each of the trans­ac­tions made, and the in­di­vid­u­als be­hind them. But most of the ex­changes are mak­ing KYC manda­tory to trade on the ex­change. Be­cause of the anonymity that comes with dig­i­tal cur­rency, it is ap­peal­ing to use for il­le­gal ac­tiv­i­ties. But in my view, it is dan­ger­ous for money laun­der­ers as ev­ery trans­ac­tion of a blockchain­based to­ken is per­ma­nently recorded on a pub­licly view­able dig­i­tal ledger. If the ex­changes or the wal­let com­pa­nies com­ply with reg­u­la­tors it is easy to iden­tify the real own­ers of those dig­i­tal cur­ren­cies.

Have peo­ple glob­ally started to ac­cept these cur­ren­cies as an al­ter­nate as­set class ?

Burger King Rus­sia was ac­cept­ing bit­coins as pay­ment. Now, it has launched its own crypto-cur­rency in Rus­sia called Whop­perCoin. Like this I see busi­nesses com­ing out with their own cur­rency and build­ing their business moat by lock­ing in the com­plete eco-sys­tem with its use.

Lastly, it is a bub­ble ?

I feel the cur­rent val­u­a­tions are highly in­flated and that the real value should be around $1,000 per bit­coin. My guess is by the sec­ond quar­ter of 2018-19, the bit­coin’s value will cor­rect by 80 per cent.

SAN­JAY ME­HTA CIO In­dia An­gel Net­work YZ

Bit­coins are scarce. When things are scarce and peo­ple want those things, their value will rise. They can’t be coun­ter­feited. Trans­ac­tions are with­out mid­dle­men hence the value is in­creas­ing

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