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
Paper Money (Fiat 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
Paper Money (Fiat 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
RBIs Stand on BitCoin (Dec 2013
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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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RBIs Stand on BitCoin (Dec 2013
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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?