What is bitcoin? – Bitcoin as we all know is a cryptocurrency or an electronic currency, originally invented by a group of people using a pseudo-name Santoshi Nakamoto. It is a decentralized digital currency which was designed in order to eliminate the need of a third party or an intermediary.
Its a peer to peer system to transfer electronic cash. Normally if you want to buy a product online, you can either pay by Credit/ Debit card or you can pay via a third party merchant. For enabling these payments –the merchants/Banks charges a commission, however with bitcoin- you can directly transfer money from one user to another without having to pay a commission to any intermediary.
As mentioned above its a decentralized digital currency- which means their is no authority that controls bitcoin. The next question that arises is then how does bitcoins come into the market? Well…Bitcoins needs to be mined (not like gold or diamond- its just a term of reference used). The user needs to solve a mathematical problem and once he/she is able to do so, they get bitcoins as a reward. Their is a maximum amount of 21 million bitcoins that can be mined- after which they will simply be transferred from one user to another and the price of which would change as per the demand and supply (its expected to increase in value once the supply stops)
The current price of 1 bitcoin = 4.78 lakhs(Indian currency). Now one would think how can a user make transaction payments of small denominations using bitcoins? SO, bitcoin can be divided into as small as the 8th decimal place (i.e. 0.00000001) know as 1 santoshi. These are stored in a virtual wallet in the form of codes and numbers- in order to use this digital currency/transfer money to another user one has to verify his own identity by solving a set of mathematical problems. Now since its a decentralized currency- the miners verify the transactions for which they receive certain part of a bitcoin as a reward. All the transactions made are permanently stored, which records how and what fraction of a bitcoin has been transferred and to whom in a series called Blockchain. Since the money is stored in a wallet in your hard drive- once if lost or if you forget your password cannot be recovered (so… money gone forever)
- Its a decentralized currency or Fiat currency- hence completely private, no one can see your assets, you only transact through your online name.
- Since each and every transaction is recorded there is no chance of illegal cash or black-money.
- Completely secure because every time you transfer money-your digital signature is verified using a mathematical problem.
- Transactions can easily be made all around the world –without having to pay any addition commission (so only the true value of the product you buy)
- With time- as we reach towards the upper limit of the bitcoins- the value is expected to increase.
- Bitcoins are not backed by anything. Since its decentralized- unlike the paper money we use- which is backed by the government as a legal tender. Its value is based solely on fiat- that people will continue accepting the payment in the form of bitcoins.
- The machinery that is used to solve the mathematical problems is expensive and required a lot of electricity. Therefore huge costs involved.
- Since the transactions are verified by the miners itself- it may sometime lead to delays in the payment.
As per the popular belief Bitcoin is not banned in India its neither legal or illegal in India. If one wants one can transact it bitcoin-its just that as per the RBI bitcoins holds no intrinsic value in its eye and hence-trading in bitcoin is not allowed in India.