The cryptocurrency Bitcoin has taken the World by storm. Everyone's talking of the Winklevoss twins. Cameron and Tyler Winklevoss, famous for suing Mark Zuckerberg the founder of Facebook in 2008, are the World's first Bitcoin Billionaires. The Winklevoss twins claim Mark Zuckerberg stole the idea of the social network from them.
Bitcoins are a digital currency or a cryptocurrency. A person or a group mines Bitcoins, using advanced mathematical calculations and record keeping, in a process called mining. Bitcoins run on Blockchain Technology which is nothing but a public ledger. (A ledger is a computer file that records financial transactions).
If you send a Bitcoin to someone, the transaction is recorded in the network. All other transactions made over a certain period of time, are recorded in the network, in a block. The blocks are collectively called a blockchain.
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Why Bitcoins Are Dangerous For You?
Let me ask you a question. How do you get to know the value of a stock? Simple...Its value comes from the current and potential earnings of the Company. So how do Bitcoins get value? Bitcoins get value based on what you and other investors are willing to pay for them. Simply speaking....Its value is totally open to interpretation.
Bitcoins encourage speculation. They are not backed by anything. There's no Government or Central bank to regulate the supply of Bitcoins. You invest on hope that prices will go up, with no firm logic as to why you are investing. This is speculation which is very dangerous. You could lose all your money in seconds.
SEE ALSO: How Bitcoins are taxed in India?
Let's go back to the year 1637. This is the time of the famous Dutch Tulip Craze. Tulip is a bulbous spring flowering plant of the Lily family. New varieties of Tulip bulbs (flowers) were introduced in Holland (Dutch). Within months, prices of these Tulip bulbs soared multiple times.
People got really greedy. They wanted to buy more and more Tulip bulbs. Many people pledged their land and houses to buy the Tulip bulbs. Do you understand. People pledged their houses to buy a flower (Tulip) which had no real value. When prices crashed, people lost their homes.
The "Tulip Craze" or "Tulip Mania" was a speculative bubble that made the Dutch economy collapse. At its peak, some of the single Tulip bulbs, sold for more than 10 times the annual income of a skilled craftsman. Prices of Tulip bulbs collapsed dramatically in February 1637. Many citizens lost all they had.
Take a look at Bitcoins. Their price has gone up 17 times this year and 64 times over the last 3 years. Bitcoins have risen much faster than the Dutch Tulip, over the same time period. When the crash comes, it could be a terrible fall.
SEE ALSO: Why Bitcoins are bad for India?
The Income Tax department is all set to issue notices to around 4-5 Lakh HNIs across India, who were trading in Bitcoins through Bitcoin exchanges. The income tax department suspects that black money was converted to white after demonetization, through the use of Bitcoins.
The Income Tax Department has conducted raids at nine Bitcoin exchanges across India. The Income Tax Department suspects Bitcoins were used for money laundering. Surveys were conducted under Section 133A of the Income Tax Act. The aim of these surveys was to establish the identity of investors, traders, counterparties, take a look at their transactions and bank accounts and also check for tax evasion.
RBI has not authorized the creation, trading or usage of Bitcoins. RBI has not given regulatory approval to Bitcoin Exchanges in India. No license has been given by the RBI to any exchange to deal in Bitcoins. Finance Minister Arun Jaitley has clarified that Bitcoins are not a legal currency in India. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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