Bitcoin - Facts, Mining, and Investment Safety in Turkey
Bitcoin is created by the alias Satoshi Nakamoto, which is claimed to be Mr. Craig Wright, in 2008. Its informal currency code is BTC. Although Bitcoin was originally created for experimental reasons, it became today the most popular virtual currency. But what is Bitcoin and why is it so popular?
What Bitcoin Offers
Obviously, Bitcoin is not a currency which you are familiar with. There are no payment systems that Bitcoin depends on. Unlike the other currencies, Bitcoin transfers are made between 2 parties directly and without any intermediaries. Bitcoin has no owner, no headquarters and no central bank. Therefore, there are no authorities who can regulate its value. Bitcoin’s value depends on the supply and demand to it. In simple economic terms, this means that under regular economic conditions, when the demand is high, its value will increase and when the demand is low, its value will decrease. Currently, Bitcoin’s value is breaking record after record. As of November 29, 2017, 1 Bitcoin’s value against US Dollar is USD 9.908,00 although one year ago at this time it was only USD 732,00. Experts are stating that the value of Bitcoin will continue to increase. But how can we benefit from Bitcoins, simple; just like buying speculating any other currency or stock, buy it when the value is low and sell the same when the value increases, Bitcoin investors are doing the same. The value of Bitcoin may change a lot more when compared to USD and EUR during the day and that is a point of attraction for many people who love making fast profit.
How to Use the Bitcoin?
In order to purchase or transfer Bitcoin, one needs to create virtual wallets. In Turkey for example, through BTCTurk, one can create electronic wallets with no limitations. Bitcoin transfers are being made directly to one’s wallet number. It is possible to compare such transaction to making a money swift transfer to someone’s IBAN number. You can use your Bitcoins for online purchases or you can transfer them to other electronic wallets. Each day more websites accepts Bitcoins as a currency to make online transactions. World’s most popular online gaming platform namely Steam, Microsoft, space travel company namely Virgin Galactic and electric car company namely Tesla are just some of the companies that accept payment of Bitcoin as a type of currency.
Mining: What Is It?
We can describe mining by with an example; imagine a pin hidden somewhere random in a room with full of straws and you are trying to find this pin. The reality is similar to this situation. Instead of looking for a pin, you start a search inside a room of numbers for Bitcoin and this action is called mining. Stronger your processing power and graphics card in your hardware, easier to mine a Bitcoin. Finding a pin means getting a block reward. At the time the Bitcoin became active, although one could earn 50 BTC after getting a block reward, today that number is 12,5 BTC and eventually, once reaching the 64 block halving, Bitcoin system will come to an end. Due to Bitcoin’s technical design, there can be a maximum of 21 million Bitcoins during its lifecycle. And the reason for that is a security measure created by Satoshi Nakamoto. Such security protocol exists in order to prevent everyone from mine as many as they can and manipulate Bitcoins. This is a big difference compared to other currencies, since it is counteracting the endless printing of paper currencies. One of the main reasons of inflation is the increase in the demand for the real currency in the circulation. That simple economic rule, does not apply to Bitcoins. The Bitcoin has minimum risk of inflation. The afore-mentioned technical design allows this since the total amount of Bitcoins that could be created is pre-determined.
Individual Bitcoin users who would like to mine used to obtain computers with better hardware and were successful. But nowadays there are mining farms offered by some companies to the investors, which can mine lot faster than the individual computers. This progress made it difficult for the individual users to mine, since the cost of electricity spent by these computers made the individual mining activity a disadvantaged investment. So it is possible to admit the fact that the Bitcoin now became more of an investment strategy for bigger players.
Is It Safe to Invest?
Since it is an online currency, Bitcoin is vulnerable against all digital and online threats as well. Due to its digital structure, although its market value is around USD 182.000.000.000, it can still be subject to big heists. To give an example, in January 2015, Slovenia originated Bitstamp got hacked and around BTC 19.000, which was worth of USD 5.000.000, got stolen from their operational wallets. Again in February, 2015, China based currency exchange BTER, lost BTC 7.170 which was equal to USD 1.750.000 at the time, in an apparent hack on its cold wallet system. But this does not mean that Bitcoin is not safe to invest. All the security warnings which are applicable to all your online transactions apply to your Bitcoin transactions as well. Experts are stating that users shall secure their wallets by using more complicated passwords and/or using better programs to protect their computers. Also, the users must bear in mind that the Bitcoin transactions cannot be taken back and shall use known and secure platforms to do their transactions.
How about Legal Implementations?
Bitcoin’s popularity led many countries to take actions against it. Some restrict, or even ban the public use of Bitcoin. Currently, the use of Bitcoin is illegal in five countries; Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Nepal. The Nepalese government has even jailed almost a dozen cryptocurrency enthusiasts, for operating a small-scale bitcoin exchange platform. Other countries have been taking different measures. Many countries have issued statements indicating that bitcoin and other digital currencies are not regulated and do not exist as officially sanctioned currencies, which means that Bitcoin users and miners are not violating, but also not protected by any law. For example in Germany, Bitcoin is a unit of account and can be used for the purpose of tax and trading in the country, meaning that purchases made by using Bitcoin must be subject to VAT as with Euro transactions even though Bitcoin has not yet been defined as a foreign currency. In the United Kingdom, the Bitcoin is currently unregulated and is treated as a foreign currency and “private” money. This means that when bitcoin is exchanged for actual banknotes, no VAT will apply, but VAT will be applicable to transactions from suppliers of any goods or services sold in exchange for Bitcoin.
How Is the Bitcoin Climate in Turkey?
Currently no legislation on the Bitcoins exists in Turkey. According to the Banking Regulation and Supervision Agency of Turkey’s statement (“BDDK”), Bitcoin is not considered as virtual money within the scope of the Law on Payment and Securities Reconciliation Systems, Payment Services, and Electronic Money Institutions, and therefore its regulation is currently not possible within the frame of such law. Meanwhile, the Central Bank of Turkey has already created a working group with the BDDK, Capital Markets Board and the Treasury of Turkey, in order to officially recognise the Bitcoin as a currecy type. Furthermore, after Estonia’s statement on the creation of a national virtual currency, a PM belonging to the main opposition party, submitted a resolution to the Prime Minister, inquiring the legal status and the legal developments on the Bitcoin. These developments are clearly indicating that there will be changes in the legal status of Bitcoin in Turkey in the near future.
It has been less than 10 years but Bitcoin became a huge hit and started to attract investors all around the globe due to its complex and unpredictable nature. Some experts are stating that it is just another financial bubble since it has no use value, but only exhange value. Others states that Bitcoin did not even reached to its full potential yet and will continue to reward its investors. As of today, there is not even a common legal view on how to regulate the Bitcoin. If we are being exposed to a bombardment of Bitcoin news today, it is just because of its unique attributes as we haveexplained above. Is Bitcoin simply a modern version of gold or is it just a short-lived popular bubble that may evolve into something different? This, time will tell.
ABOUT THE AUTHOR: Ms. Serap Zuvin, Mr. Yigit Turker
Serap Zuvin is the founding partner of Serap Zuvin Law Offices. Ms. Zuvin has specialized on corporate finance. She has been extensively involved in various cross-border joint ventures and mergers and acquisitions. She has established the subsidiaries and/or representative offices of multinational companies in Turkey.
Yigit Turker is an associate lawyer at our office. Mr. Turker focuses on corporate finance and aircraft finance law. Mr. Turker provides legal assistance to corporate clients in cross border finance transactions with a focus on loan and acquisition financing.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.