Bit Coin is a new revolutionary currency system which runs on the P2P (peer to peer) concept. This implies that there is no central authority controlling it and it is decentralized to the level that every node (i.e every computer on the network) plays a very significant role as a block.
This ensures that transaction fees are very low and more significantly it cannot be blocked or tracked by the state unlike paypal etc.
So, how does this work and how can it be a Hawala?
Let me explain the basic elements involved it in very simple language.
What is Hawala?
In the hawala system, money is transferred via a network of hawala brokers, or hawaladars. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in the recipient’s city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt at a later date.
What is a P2P system?
Peer-to-peer (P2P) computing is way to partitions tasks or workloads between peers. Peers make a portion of their resources, such as processing power, disk storage or network bandwidth, directly available to other network participants, without the need for central coordination by servers or stable hosts.
A popular application of the P2P concept is Torrents client. The client (Bittorrent, utorrent etc.) installs on your laptop making it a node in the network and when you download a file using torrents, you are just downloading from other nodes (computers) on the network. Hence, there is no server which stores the data.
What is Bit Coin?
Although BitCoin does not say that is a Hawala system but it can be used like a Hawala system and it definitely has many merits over the conventional one. Bit Coin is a new currency system whose virtual units are called Bit Coins. One can get BitCoins by 3 ways:
- Buying from exchanges
- Sell services or products and accept Bitcoins
- Create a Block (more technical stuff)
How does it work?
For the purpose of understanding how Bit Coin be used as a Hawala network, we will only consider the first two. So, if you sell your service using BitCoin, the whole transaction is untraceable by the state unless you declare it and if you decide to buy it off the market then the only traceable transaction is made to the exchange.
After that, all the trade is invisible and will only become visible again once it is sold for real world currency.
How is it better than Conventional Hawala?
Hawala is used only when you don’t want the state to snoop on your money. There may be many reasons for this but usually most of them fall under the category of illegal activities.
The reason for Hawala’s popularity is that it is secure, there is no actual transfer of currency it works good with cash and it is invisible. Bit Coin is better coz, it is also untraceable and almost instantaneous. The only fall back is that at the point of currency exchange it might come under the scanner. But there are ways to bypass that too.
On the other hand, BitCoin has 2 major advantages over the conventional Hawala system. It is instantaneous and the credentials of the middle man don’t matter. Not to mention that it isn’t illegal.
Is it a Good Idea to use BitCoin?
There is a lot more to Bit Coin than what I have discussed here. I have just covered how it is a new digital form of Hawala. Bit Coin System is almost like a parallel economy with its own supply and demand characteristics.
There are still doubts over its security and stability of its currency. But the concept is certainly very viable and should be working smoothly over time.
If you read more into the concept you will realise that there is a very clear chance of a Deflationary cycle happening in the Bitcoin system. So, I did some research on it and here is why it wouldn’t: https://en.bitcoin.it/wiki/Deflationary_spiral
Is BitCoin legal?
No country has said anything about the system as yet. Also, coz it is something entirely new so, there isn’t any law which prohibits it. And as law works on exclusion, BitCoin is certainly legal.
Here is an introductory video to BitCoin