Bitcoins accepted by over 500 merchants in India, says GBminers co-founder Amit Bhardwaj

Demonetisation of the old Rs 500 and Rs 1000 notes has had mixed reactions from the nation. While the push towards digital transactions has increased, one still sees queues outside ATMs and banks. The reason being that a lot of services still rely on cash and India is still, for all practical purposes, a cash-first country. Wide-scale digitisation is one of the backbones on which digital economy can thrive. But thanks to our infrastructural limitations, there will be challenges in achieving that ‘less-cash’ dream that we keep hearing about.

Now while the fight between digital currency and physical currency carries on, there is another kind of currency that is slowly but surely gaining prominence in the Indian construct. Cryptocurrency. Or its more popular variant – bitcoins.

Image: Reuters

According to a report in Quartz, bitcoin trading has seen an increase over the last monthor so, to an extent that it has reached its highest value since February 2014. India’s leading bitcoin company Unocoin says that average number of visitors to its site has crossed 14,000 from its daily average of 4,000 users before demonetisation. Zebpay, a local bitcoin company, has seen trades worth 75 cr in November 2016 alone, compared to a trade of Rs 100 cr in all of 2015.

While it would be too early to say that demonetisation has been the reason for this, it has certainly played some part in these increased numbers in the crypto currency trade.

Bitcoin Mining
Bitcoin mining is a specialised field. Considering bitcoin does not have a central bank like issuing entity, it is the users also known as miners who use software to solve math problems to be rewarded with bitcoins in exchange. Now hardware requirements for bitcoin mining have undergone a sea-change because the complexity of the problem increases depending on how fast the problem is being resolved. So from using CPUs to graphics cards to special bitcoining systems to ASIC-based circuits to mine bitcoins, the stress has always been to have a fast system but one which does not heat a lot, as that increases cooling overheads.

Bitcoin mining system performance is measured in Scrypt hash calculations or SHA-256 per second. This is called a hash rate. As mentioned above, the reason to go from CPU to ASIC is due to the limitations when it came to improved hash rates.

• CPUs for mining generates 1 megahash (1 mn hash calculations per second) to 100 megahash hash rate.
• GPUs go from 100 megahash to 2000 megahash hash rate.
• Field programmable gate arrays (FPGA) go from 100 megahash to 1 gigahash hash rate
• Application Specific Integrated Circuits (ASIC) go from 1 gigahash to 1 terahash hash rate.
• If you want to go for higher hash rates – in petahash – then you will need to be part of bitcoin-mining pool.

Bitcoin mining pools are collectives of bitcoin miners who pool-in resources and share their hashing power to solve a math problem or a block, the reward for which is distributed among users based on the proportion of work done. This works better than individual mining (unless you have a farm of ASIC systems for bitcoin mining), which could take ages to generate a block.

Amit Bhardwaj, founder GBMiners

We spoke to Amit Bharadwaj, founder of GBMiners whose bitcoin mining pool has a 70 petahash of mining power, to give us a deeper understanding of how bitcoin mining works.

Bhardwaj had his start in the payments space a few years back where he was introduced to the concept of bitcoins. Delving deeper into bitcoins, Bhardwaj was fascinated with how transactions were verified and was convinced enough to buy a miner for himself and set it up at his home.

The entry point to entering GBminers mining pool is that you should have the necessary hardware that mines. Bhardwaj prefers the Antminer S9 which has a highest value hash rate of 14 terahash per second. It consumes over 1375W and can cost around $2100.

“Mining is made feasible by largely two things, the price of bitcoin and the average bitcoins rewarded per block. So as the price of bitcoin rises and as the reward rises, it is also dependent on transaction fees. The bitcoin philosophy will then also likely increase the block size. In such cases, it is likely that mining may remain profitable or rather become more profitable than today with time,” said Bhardwaj when asked how long this trend would sustain.

Bitcoins and the future of transactions
In the current atmosphere of demonetisation, cryptocurrencies are certainly in the limelight. How does bitcoin tie into the future of transactions?

“Bitcoin and few other cryptocurrencies are already the present in many countries in Europe. India is yet to reach there, demonetisation has certainly reduced the time it would have taken India to reach there otherwise,” says Bhardwaj.

Speaking about the recent peak in bitcoin trading in India, Bhradwaj said that demonetisation has demonstrated the pitfalls of a centralised money supply to the Indian investor class. He says, this is bitcoin’s biggest advantage over fiat currencies.

Giving two examples, Bhardwaj said,

a. The Indian real estate industry had been stagnant owing to over construction for the past two to three years, but the demonetisation has even worsened the conditions and this industry is unlikely to be a good haven for investment for another 2 to 3 years

b. Gold, India’s favourite investment asset has recently come under the ambit of the new stricter tax regime and has also been stagnant for the last three years.

“I believe times couldn’t have been better for the Indian investment class to fall in love with bitcoin, and this is exactly the reason behind the jump in both bitcoin price and volumes in the country,” he said.

According to Bhardwaj, the reasons stated above are fundamental in nature. The usage of bitcoins as an investment strategy will pay way for consumer adoption with time. Speculations on bitcoins becoming mainstream in India are on, but Bhardwaj gives it fives years’ time.

Having said this, bitcoin trading is happening in India. “Over 500 merchants have started accepting bitcoins in India. And trading volumes are growing rapidly on the major Indian exchanges,” said Bhardwaj.

Unlike regular currency transaction fees, the bitcoin transaction fees are as low as 1 percent. Bhardwaj says, “This happens because it is the miner’s computers that confirm transactions. The majority of the remuneration they get for this effort doesn’t arise from transaction fees but from generation of new bitcoins which are rewarded to them.”