Mamata L6 P1 Bitcoin

8/12/2019 Mamata L6 P1 Bitcoin

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#1: Bitcoins

How does it work? Pros Cons

Money laundering,Terror financing?

#2: Banking TranTax

Why?

Features?

Pros and Cons?

Todays topics


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1Bitcoin

1.Evolution of Money2.Functions of Money3.Bitcoin system: features

4.Pros and Cons5.Money laundering, Crime6.Mt.Gox bankruptcy?7.Laxmicoin, RBI stand

RBI Grade B

CSAT, IBPS, SB

[GS3] Mone

laundering

Inteview StMCA/EC


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Simplest

Foreign Exchange regimeXHoarding profiteering

Concentration of wealth.X

Need based production

Barter system: Benefits


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Double coincidence of wants

Division of laborX

Perishable

Savings=> Capital.X

Circular flow of incomeX

Divisibility, Fungibility.X

Barter system: Problems


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Primary

Derivative

Functions of money?


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1. Medium ofExchange

2. Measure of Value

Why?

1. Readily acceptable.

2. Durability, Portable,Recognizable

3. Divisible, Fungible

4. Hard to Counterfeit

Primary functions


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Medium ofExchange

Measure ofValue

Primary

Derivative

Functions of money?


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1. Store of Value (savings => Investme

2. Transfer of Value (Kashmir 2Kanyakumari)

3. Deferred Payment (Time value of M

Derivative Functions


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Medium ofExchange

Measure ofValue

Primary

Store of Value

Transfer of Value

DeferredPayment

Derivative

Functions of money?


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1. Distribution ofNational income

2. Tool of socialempowerment

3. NOTthe root of evil(Greed)

Factors ofProductio

nRew

Land(lease)

R

Labor W

CapitalInt

Div

Entrepren-eurshi P

Other benefits:


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So far

1.Barter system: pros cons

2.Functions of money


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Commodity Money

Metallic Money

Paper Money

Bank Money

Crypto Currency | Virtual Currency

(Bitcoin)

Evolution of Money


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Commodity to measure value

USA: tobacco, Corn, iron nails, Bear

Aztec: cocoa beans

India, Pacific: Cowries

Fiji: Whale teeth

WW2 PoW: cigarettes

Commodity Money


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Good

Intrinsic value

BadFace Value not

throughout regioFace value not for outsiders (Co

Perishable

Bulky to CarryDivision of labo

Hyper-Inflation

Commodity Money: pros & cons


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Started as commodity money

Traders & Kings: uniformity, precision

Gold: high value

Silver: moderate

Copper/ Bronze: day to day purchase

Metallic Money

M lli M G d


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1. Intrinsic value

2. Non-perishable

3. Divisible, Fungible, Melt-combine

4. Even foreign trade possible. (withouexchange rate)

5. Production low, Prices stable6. HyperinflationX

Metallic Money: Good

M t lli M B d


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Roman Assarius (Copper)

450 gms => 15 gms

Junta back2 Barter=>Revenuedown=>Rome falls.

Metallic Money: Bad

Debasement

M t lli M B d


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Bulky to carry

Ship sinks, Wealth lost

Smuggling for intrinsic value =>Debasement => barter => revenue dow

bad money drives out good. (Grisham

law)

Metallic Money: Bad

E l ti f M


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Commodity Money

Metallic Money

Paper Money (Fiat money)

Bank Money

Cryptocurrency (Bitcoin)

Evolution of Money

Wh t i Fi t M ?


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Fiat = legally binding command.

Fiat Money= by the command of thegovernment.

US dollar, Indian Rupee, Euro, Yen, Y

Legally recognized to settle all debts

payments within territorial jurisdiction.

What is Fiat Money?

Wh t i t Fi t M ?


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1. Legal backing.X

2. Kirana walla plastic coins & coupons

3. Fake currency with film star photos

4. Shares, Bonds, Debentures, G-Sec,

5. DD, Cheques, Credit Card, ATM car

6. Bitcoin & other Digital currency

What is not Fiat Money?

Fiat Money: Two types


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Gold Standard

1 US $= 22 grainspure gold

1 British Pound =113

1 Pound =113/22 =4.8

US$

Central Bank freprint currency wgold backing.

Exchange Rates1. Fixed Exch

rate2. Floating3. Managed

Paper Stand

Fiat Money: Two types

Fiat Money: Problems?


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1. Debasement: Over printing, Hyperinflation

2. Still Bulky to carry

3. Theft, fire, counterfeit

4. Change problem

5. Rounding off: (40p x 1 L=40k)

Fiat Money: Problems?

Evolution of Money


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Commodity Money

Metallic Money


Bank Money

Cryptocurrency (Bitcoin)

Evolution of Money

Bank Money?


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cheques, bank drafts, Credit card, decards, ATM card, NEFT, RTGS, Visaca

Master card.

Bank Money?

Bank Money?


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CurrentAccount

SavingsAccount

Bankaccount

Paper order Electronic

Orders

Bank Money Spot Deferre

Pa

Bank Money?

Bank Money: Benefits


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1. Easy to transfer over long distance

2. Exact amount can be transferred (nochange problem)

3. Hard to counterfeit

4. Can freeze if stolen, Traceable KYC

5. Legally recognized for high valuepayment.

Bank Money: Benefits

Evolution of Money


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Commodity Money

Metallic Money


Bank Money

Virtual Currency (Bitcoin)

Evolution of Money

Why Virtual currency?


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1. Subprime crisis=> QE => Increasedsupply

2. Dollars Purchasing power down.3. Banks charge fees on online transfe

credit card, ATM

4. Anarchist groups: Fiat currency.X

Why Virtual currency?

Bitcoin: Beginning


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2008 Paper by SatoshiNakomoto, Real

identity unknown 2009 started

Bitcoin: Beginning


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Total


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Total 21 M

2


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Reward declines over timeWith each 2.1 lakh Datablocks

50 BTC 25 BTC 12.5 6.25

Total


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Total 21 M

1BT=10(-8) S


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Mining software Solving speed HashratLaptop: 30 kh/s => .003 Bhrs.)

MINUS lightbill = 3

Reward distrib


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Mining Pool

Reward distribAs per Hash

1 BTC= 10(-8) S1 Satoshi= 0.000000


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Reward distrib


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Mining Pool

Reward distribAs per Hash

1 BTC= 10(-8) S1 Satoshi= 0.000000

Bitcoin Transfer?


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Public address (email address)Private key (password)No names, No IP, No phone numbe

Bitcoin Transfer?Digital Wallet / E-Wallet software


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Block Chain

Public ledgerValidity of Each transaction

10 minutes


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Bitcoin vs.NEFT & RTGSPositive

Negative


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Bitcoin vs Netbanking


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RTGS NEFT BitcoWeekdays: 8 AM6.30PM

Saturday: 8 to 1.30Sunday: Holiday

24/7

Central monitoring RBI None

Can recover password gone

Bitcoin vs Netbanking


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RTGS NEFT Bitco1. Bank account number

2. Branch IFSC code

Only pub

address owallet

Both need bank account, fulfill

KYC norms

even robo

can.


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Money laundering, Terroris

Gamblingillegal activities

How does it work in Bitcoin system?


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SpeculatorsOct.13: $2Dec

13: $1

Mining

Sellinggoodsservic


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Block Chain

Only Public & private keyNo names, phone numbers, addre

No Central authority to record I


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Bitcoin: Buy goods/services


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Silkroad: cocaine

2013: FBI shut down

Legit Online shoppingsites

Some Pizza parlors,fashion stores

IT professionals (notFIAT)

Why: Bitcoin exchange?


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How to getBitcoin?

Mining

Sellinggoods/services

ExchangeCurrency

Speculators:Dec.13: $1200Feb.13: $2100

Bitcoin Exchange (Mt.Gox)


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g ( )

190

1,200

580 490

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

October

4th Week

Dec 1st

Week

Dec 3rd

Week

April 3rd

week

1 BTC = $____ .

Bitcoin Exchange (Mt.Gox)


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g ( )

190

1,200

580 490

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

October

4th Week

Dec 1st

Week

Dec 3rd

Week

April 3rd

week

1 BTC = $____ .

RBIs Stand on BitCoin (Dec 2013


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1. Decentralised Digital Currency or Currency.

2. No central bank has authorized Bitco3. Not Traded through BSE, NSE,

Commodity exchange (SEBI, FMC)

4. No Forex dealers under FEMA



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1. Bitcoin Exchange website = legal staunclear

2. Danger: hacking, phishing, malwarepassword lost

3. Consumer courts cannot help


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1. Media reports on illegal drug, moneylaundering, terror-financing.

2. unintentionally breach anti-moneylaundering / Anti-terror laws

3. Same with litecoins, bbqcoins, dogeetc.

AbadRaid (December 2013)


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Buysellbit.co.in

First Bitcoin exchange in India

Mahim Gupta, Bopal,ED, FEMA (Authorized dealers)

Prevention of Money laundering Act 2

(3-7 years | 5 lakh)


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Laxmicoin.com


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Mitts Daki (US) andRaj Dangi (Banglore)

50% promoters =>30% NGO, poor

No RBI reply (since2013)

RBI stand: Examiningthe issues in Digitalcurrency


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Mt.Gox scamMt. Gox Bankruptcy?


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Bit i T bl P t / dit

IRS USA (March 2014)


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Bitcoin Taxable Property / commodity

Capital Gains tax (23%)

Withholding norms.

1 H d Bit i t k?

Interview Questions


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1. How does Bitcoin system work?

2. Benefits and limitations?

3. Should it be given legal recognition India?

4. Measures to curb money launderingterror-financing, drug rackets?

Documents

Mamata L6 P1 Bitcoin