FDI and remittance with Bitcoins
Bitcoin is a virtual currency (VC) and a digital representation that, like conventional currency, can be transferred, stored, or traded electronically. VCs are neither issued by a central bank or public authority nor necessarily linked to a fiat currency such as taka, dollar, euro, etc.
This is a completely new currency and not backed by any government or redeemable for any commodity (like gold), which could be moved clandestinely across borders, meaning beyond the physical control of any government body.
Even then, it operates like 'real' currency, but it does not have legal tender status in most of the countries of the world. Its value is derived from the trust of its users and is protected by its limited nature and the cryptography by which the currency is secured and authenticated. As a virtual currency, Bitcoin has no physical representation - which users can "touch" or "see." Its existence is entirely comprised of digital 0's and 1's.
The structure of the network requires public disclosure of every transaction so that they may be authenticated, but the identities of the parties to each transaction are kept anonymous. This is most analogous to the way a stock market releases information about every trade that takes place, but without identifying the parties involved.
Every time a Bitcoin is transferred from one wallet to another, a complex computing process must be undertaken to verify that the transaction is legitimate. The verification involved whether the legitimate owner of the coin is sending money and has not sent it to multiple others.
On the other hand, there is no central server to undertake this operation; it is carried out in the various nodes of the distributed network making up the Bitcoin.
Users store Bitcoins in virtual "wallets." These wallets are third party "client" software of the service providers. They earn profit either by taking a small percentage of each transaction, or by exercising a flat fee per individual transaction. Wallets do not contain users' personal information such as names, social security numbers, addresses and phone numbers, and do not refer to any conventional bank account.
This creates a high level of anonymity in payments which occur as single direct transfers between wallets -- each payment consists of an individually numbered transaction, rather than the exchange of the static wallet identifying number unlike credit and debit cards.
New Bitcoins are only produced through the process known as mining. Bitcoins can be acquired in one or two ways producing and through purchase. First, users can produce the currency through a process called "mining." Second, Bitcoins may also be purchased from third-party providers through exchange of websites.
Exchanges allow users to convert other currencies into Bitcoins and vice-versa, through both peer-to-peer interactions facilitated by the exchange. The exchange may also use to pay for purchase of consumer products like any other currencies -- Taka, Dollar or Euro.
The system is used for domestic and international money transfer considering the efficiencies and does potentially reduce fees. The Bitcoin transaction can be performed directly (peer-to-peer) between two users. Such transaction can be performed without revealing the identity of the users.
VC has an equivalent value in real currency, or it acts as a substitute for real currency. This is also known as 'convertible' virtual currency. There are some more VC such as Bitcoin, Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash, Ripple (XRP) and Monero (XMR).
Bitcoin is one example of a convertible virtual currency and widely used nowadays. It is the largest convertible virtual currency by market capitalization and close to $72 billion in August 2017.
This form of currency is accepted by people as a means of payment in many countries. The transaction and transfer fee is very little or nothing. The conventional currency and the other electronic transfer by credit or debit cards are charged by card companies or banks. One study finds that credit card companies, on an average, charge US$48 billion per year from cardholders.
Bitcoin was created in 2008 by unknown person(s) "Satoshi Nakamoto," with the idea that an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
It is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Cryptography -- a unique digital signature having zero-knowledge proof or zero-knowledge protocol -- is a method by which one party (the prover) can prove to another party (the verifier) that a given statement is true.
After all, someone must verify the authenticity of payments to prevent fraud and double spending. To solve this problem, the founder Nakamoto suggested that a distributed network could take on the role of payment processing, thereby reducing transaction costs to near zero cost.
This distributed network would run on the processing power of individuals' personal computers, which they allow to be used in exchange for payment in Bitcoins.
The ranking of investment friendly countries are assessed with open policy of VCs and investors are comfortable with virtual transactions. The outflow and inflow of foreign currency is dependent upon the financial regulations and investment friendly atmosphere in a country.
The United States of America has been at the forefront of the digital currency space since the beginning. It hosts the highest number of VC users and Bitcoin trading volumes in the world. The Silicone Valley has most VC users and platforms like Blockchain and the highest number of ATMs in the world.
Japanese government has officially recognized digital currencies as means of payment. Right next to the real money, Bitcoins are now official means of payment in Japan. Korea and some other countries in Asia also allowed VC transactions.
Germany stands at the forefront of countries allowing virtual currencies within their borders. The Chinese government and Russia allowed use of Bitcoins, though in a limited scale. It is very interesting that the Chinese government encourages the country's citizens to open VC outlets in other countries than using in their own country.
In practice, the conservative and strict monetary control in many countries is also encouraging use of Bitcoins now. The governments in many countries restrict the amount of money that their residents are allowed to transfer abroad through the banking system. Bitcoins enable individuals there to bypass such restrictions.
Some of the smart countries have allowed foreign investment through Bitcoins and enjoying remarkable foreign direct investment (FDI). As of the end of 2017, the VC was listed as a way to pay for some 75 percent properties for sale in the USA, especially in South Florida and California.
Bitcoin is gradually gaining popularity across the world. As a result, central banks of many countries have taken measures to adopt separate policies for Bitcoin.
According to the information received from different news media, there are some transactions taking place in Bangladesh through VCs like Bitcoin, Ethereum, Ripple and Litecoin. The small e-commerce service providers are in trouble to get the export and proceed through banking channels.
The widely discussed PayPal transactions are also restricted to some extent. The financial sector in Bangladesh is highly regulated and overseas transactions are under very close watch of the regulators and the government.
VCs do not conform to Foreign Exchange Regulation Act, 1947, Anti-Terrorism Act, 2009 and Money Laundering Prevention Act, 2012. Interestingly, one site named 'bitcoin.com' claims that Bitcoin transaction can be performed in Bangladesh through bkash, Rocket and other general banking accounts.
Bangladesh Bank has issued notification reminding the users of VC that such transactions are illegal and have some risks. Bicoin and other VCs are future currencies for all the countries but it will take time to get formally introduced in Bangladesh.
The writer is a legal economist