Commerce Made Easy : New currency is in circulation.

5-8-17

There is a new type of currency in circulation for past many years but hardly a few people knew about that. It came into knowledge of common people, when the ransom virus ‘WannaCry’ blocked the computers (especially run on older versions of Windows) and the ransom was asked in Bitcoin. Bitcoin (launched in 2009) is the most popular virtual currency (unlike traditional currency which can be felt in hands) and is kept in virtual wallet where one coin is equal to about 3000 dollars (over 2 lakh Rs) on 7-8-17 whereas it was 2,760 dollars on 4-8-17. On August 1, Bitcoin holds almost 50% of world market share in terms of value. (Other popular digital or virtual currencies are Ethereum and Ripple etc). There are more than 1,000 such currencies.

A digital or virtual currency uses cryptography (hence, also known as cryptocurrency) for safeguard, so it is difficult to counterfeit. It is not issued by a central authority like RBI and is difficult to trace hence government intervention is not possible. After Demonetization and implementation of GST in India circulation of black money has been limited. Obviously there is lookout for new ways to hide extra money to avoid taxes and the best bet goes in favor of digital currency. The other benefit of such currencies is that they provide fastest transfer of fund to any location in the world and can be utilized after 10 minutes of transfer and is less costly comparing to other mode of transfer of fund.

There is another benefit, cryptocurrency (Bitcoin etc) value fluctuates as per demand and supply of cryptocurrency (Bitcoin etc) and there are cryptocurrency (Bitcoin etc) virtual exchanges where they are exchanged at the current market price. This feature has attracted many investors towards it to make some quick money, however, it is very-very risky as it is controlled by no central authority, hence there is no place to complain. Anyone can lose his money if a computer is crashed or hacked. So far Bitcoin has seen more than 40 cases of theft. In some case the amount lost was more than 1 million dollars.

The popularity of a digital or virtual currency has forced nations around the globe to either legalize this format of currency or issue guidelines regarding sale and purchase of such currency. Even government of India is seriously thinking in this direction (because 10% of trade in cryptocurrency generated from India and is a serious threat to Indian economy. A committee including finance ministry officials, IT ministry officials, NITI Aayog and RBI officials will consider to legalize or not the virtual currencies in India. If the decision comes in favor, Securities and Exchange Board of India (SEBI) will be asked to regulate the transactions, Investor will be taxed as regular.

To make digital or virtual currency more user friendly or to attract more Investors, considering the popularity it has gained, a new trend has emerged. The new trend is called splitting the digital or virtual currency. Bitcoin has Introduced Bitcoin cash a smaller version of Bitcoin. When Bitcoin was 2,760 dollars Bitcoin cash was 370 dollars. In 2016, Ethereum was split whose current price is around ethereum (225 dollars) and ethereum classic (15 dollars).

Considering the huge amount of risk involved, the investment decision should be based on the guidance and advice of a market expert.

Q 1. Identify various functions of financial market applied above.