Blockchain Technology and Bitcoin
Since blockchain is still a new concept, it is quite difficult to find a complete and precise definition in the literature. However, pursuant to the definition in the scientific article entitled “Blockchain Technology and its State in the Financial Services Sector in Turkey” and published in the Journal of Finance Economic and Social Research, it is possible to roughly describe this new technology as follows: “Blockchain is basically a technology designed for the safe and secure storage and management of data containing value -such as money, identity, valuable papers- (Ethereum Blog, 28.06.2018)’’.
In order for business processes to operate safely and efficiently, the data need to be transferred as quickly and accurately as possible. At this point, the blockchain technology meets this need by creating a virtual ledger which contains relevant records and is only accessible by authorized network members. The fact that the members who can access this system are not allowed to make any changes to the data brings the factors of reliability and transparency into the forefront, for this technology. In brief, it is clear that this incorruptible and unalterable technology, which has an anonymous structure and is not a centralized system, represents a revolution in the world of technology in terms of both reliability and transparency.
Working Principle of Blockchain
In blockchain technology, the concept of identity is created as a user identification number recognized by all networks. By this means, personal data such as user name and surname can be kept in the background as part of data security and stored by individuals. All transactions carried out through blockchain are confirmed by means of the users; and thus, the records become permanent. This confirmation made by the parties to the relevant transaction without involving a centralized system in the process is the most significant indicator for the understanding of decentralized technology. When a new transaction or an edited transaction is received by a blockchain, the majority of nodes in a blockchain application usually run algorithms in order to assess and verify the history of the proposed blockchain block on an individual basis. In case the majority of nodes reach a consensus indicating that the date and signature are valid, the new transaction block is admitted into the ledger and a new block is added to the transaction chain. This is actually the main reason why it is named “chain”. In case the majority does not agree with the addition or modification of the ledger entry, it is rejected and not added to the chain. This distributed consensus model enables the blockchain to function as a distributed ledger; and most importantly, there is hence no need for a central authority that says which transactions are valid and which ones are not available (or which one is more important).
Blockchain World in the Future
With the advancement of blockchain technology, it is predicted that many applications and services we use today will be decentralized and transparent. As the fact of interoperability between blockchain applications increases further, it will be witnessed that the Internet world gradually becomes a blockchain-based one. This approach is called web 3.0. This term represents a more democratic and decentralized Internet that runs entirely as a blockchain-based one. On the other hand, users could be the decision-makers in all processes requiring explicit consent, such as data processing and sharing, by having full control of their own data on this new Internet.
Blockchain technology has started to be widely used in banking sector, by other financial institutions and in the cryptocurrency industry; and new areas are built each passing day. In this context, one of the first concepts that comes to mind is, of course, the concept of “Metaverse”. Metaverse is the name assigned to the perceptual universe where people feel completely mentally, without spending any physical effort, thanks to augmented virtual reality devices. The concept of Metaverse recently becomes the favorite of particularly giant companies such as NVIDIA, Microsoft and Facebook. The point that will be reached by this concept in the course of time causes different predictions to be put forward in many respects.
The Concept “Cryptocurrency” and Its Use in Turkey
To define briefly, cryptocurrency is a digital, online and decentralized currency that can be used in order to purchase goods and services. The decentralization of cryptocurrencies results from a blockchain which functions as a distributed accounting book (ledger) i.e., a public transaction database.
According to the statistics, Turkey ranks fourth in the world in the field of ownership or use of cryptocurrencies by 16%, while the number of persons who own cryptocurrencies in Turkey is declared to be approximately 2.5 million by 2021.
Pursuant to the Regulation issued by the Central Bank of the Republic of Turkey (CBRT) on April 16, direct or indirect use of crypto-assets for the purchase of goods and services is prohibited as of April 30, 2021.
In respect of restricting the use of cryptocurrencies for purchases of goods and services, it is stated that “crypto-assets are not subject to a regulatory and control mechanism, crypto-assets do not have a centralized addressee, market values of crypto-assets exhibit extreme volatility, it is possible for crypto-assets to be used for illegal activities due to their anonymous structure, it is possible for the wallets to be stolen or to be used irregularly or illegally without the knowledge of their owners, and transactions are of irreversible nature”, while no restriction is introduced against cryptocurrency trading. Furthermore, under the Regulation, a definition is made for cryptocurrencies, which did not previously have a definitional equivalent in Turkish Law.
Subsequent to the developments, the Regulation Amending the Regulation on Prevention of Laundering Proceeds of Crime and Financing of Terrorism is published in the Official Gazette on 01.05.2021. Pursuant to the Regulation, crypto-asset service providers are also deemed to be obliged parties accountable to the Financial Crimes Investigation Board within the Ministry of Treasury and Finance under the Regulation. Furthermore, provisions have been introduced regarding the reporting of suspicious transactions to the Ministry of Treasury and Finance irrespective of the amount by crypto-asset service providers, after detailed customer identification during each transaction exceeding a certain amount.
When these developments are considered, we can see that, in each development which occurs in this field full of innovations, the legal world also tries to make sense of these innovations and draw their boundaries by means of certain legal provisions.
The Concept “Bitcoin”
Created by Satoshi Nakamoto in 2009, Bitcoin is deemed to be the first decentralized cryptocurrency. The transaction, where this cryptocurrency was used, took place between Nakamoto and the first users of Bitcoin in January 2009. On the other hand, the first known payment transaction was made by a bitcoin miner in 2010. Bitcoin, as a cryptocurrency, started to attract wider attention in the course of time. Thus, in 2012 and 2013, many retailers began using Bitcoin in business life. Particularly in crisis periods, Bitcoin becomes the favorite of investors who are looking for a safe haven. With the Bitcoin halving that took place in May 2020, this cryptocurrency gradually produced more difficultly started to be admitted as an investment instrument. Bitcoin is limited in supply due to its structure, and its price occurs depending on the supply-demand relationship only. The prices and the market volume are determined automatically through the purchases and sales of Bitcoin carried out by the investors.
There are basically two ways to own Bitcoin: One is to purchase Bitcoin in consideration of real currencies on cryptocurrency platforms, and the other is to achieve the result as a reward after block production by decrypting cryptographic passwords (mining). Purchases and sales of Bitcoin can be carried out on many platforms.
Bitcoin Production Capacity
Bitcoin is not unlimited due to its structure. However, as can be understood, this characteristic, which already makes Bitcoin valuable and enables it to be considered as an investment instrument, becomes one of its prominent characteristics. Only 21 million Bitcoins will be produced, and the relevant process is predicted to be completed in 2140. Given Bitcoin’s current position, it is possible for the process to be completed earlier, and this is a remarkable probability.
The process of creating new Bitcoins is called “Mining”. This term also strengthens the comparisons with gold. Bitcoin mining is carried out with challenging password decryption, whereby new blocks are generated. The release of new Bitcoins is also possible in this way. Miners make a gain in return for these challenging processes. This is called “Block Reward” or “Mining Reward”.
In conclusion, in spite of the fact that cryptocurrencies gain value day by day and become the favorite of investors and that they make positive impressions on their investors in terms of reliability and transparency, they are used from time to time by malicious persons in the markets for the purpose of defrauding the masses. This undesirable consequence arises from the fact that economic literacy does not exhibit sufficient development and that cryptocurrencies are complex and unclear due to their structure. By virtue of these issues, it becomes inevitable for the authorities to introduce a number legal provisions. As a matter of fact, it is observed that many countries, and particularly the United States of America, take concrete steps in this regard. Moreover, one of these countries i.e., El Salvador becomes the first country that adopts Bitcoin as an official currency. Pursuant to the relevant law that entered into force in that country, all workplaces and places of business are under the obligation to accept the payments made using Bitcoin, in addition to those made using US Dollars. Even if such positive steps are taken, the fate of cryptocurrencies is still uncertain in many respects. In a period that the demand constantly increases on the part of investors and that the effects of central authorities on the economy are criticized negatively; it is quite possible to say that cryptocurrencies, which are presented by focusing on the concept of decentralization, will continue their existence.