What is Bitcoin?
Bitcoin and its similar type of digital coins are computer generated virtual currency (invisible currency) that has no physical value and existence but allows people to do transactions with each other. Bitcoin uses peer-to-peer technology to operate with no central authority or banks.
In case of normal currency, it needs to be converted into a foreign currency (through a central authority or banks), for performing international transaction e.g. If a person ‘X’ in India needs to buy an iPhone from U.S.A, he will first have to convert the amount of rupees into dollars. But in case of Bitcoin, they need not be converted as they will be acceptable internationally.
Bitcoin came into existence in 2009, and is widely used in global market for exchange of money.
Bitcoin is not accepted by Central Bank of any countries around the world i.e. it is not a currency of any country and no country has control over this virtual currency. It generally provides a virtual currency exchange platform for different currencies.
Working of Bitcoins :
For transferring, Bitcoins exchange platform is required. In this platform our traditional currencies are converted in Bitcoins and stored in a personal account called as ‘Digital Wallet’.
By using this ‘Digital Wallet’, the person can access to this virtual currency and convert these Bitcoins into traditional currency.
When transactions using Bitcoins are to be done, these Bitcoins are first to be elaborately verified. This verification is done by a community of Bitcoiners (also known as Miners). i.e. In the above example where person X needs to buy an iPhone using Bitcoins, the miners will first check the genuineness of his Bitcoins. The miners will be paid a fee for their service and will also earn Bitcoins as a reward for executing these complex calculations.
It is this earning of Bitcoins which will create new Bitcoins in the system and introduces more Bitcoin currency in circulation. The process of verification is programmed to get harder and harder every passing day and for this reason ‘supply of new Bitcoins into the general pool is limited. There will be a maximum of 21 million Bitcoins by the year 2140.
The Bitcoin platform keeps the public register of every unit existence and this network needs no central authority for monitoring purpose.
Who created Bitcoins?
When this currency platform was launched in 2009, the credit to create this virtual currency was given to “Satoshi Nakamoto”. But the existence of him is not known to anyone and no one has seen him.
Some speculate that he is a computer scientist working for NSA (National Security Agency) of U.S.A or similar type of organisation.
There are more than 12 million Bitcoins in circulation according to Bitcoin charts (website that tracks activities across Bitcoin exchanges).
What are its uses?
Bitcoin allows users to make purchases, transactions in a form that anyone can accepts these Bitcoins and can be exchanged for real currencies. Around the world there are 20,000 merchants who are accepting Bitcoins.
The world’s first Bitcoin ATM went live in Vancouver (Canada) in October 2013, allowing people to exchange cash for the digital currency.
The popularity of Bitcoins has increased in past years. Different websites, some airlines companies and universities are accepting it for transactions.
What is the value of Bitcoin?
The value of Bitcoin is subjected to sharp fluctuations and keeps on changing, decided by the supply and demand. When demand increases for Bitcoins, the price increases and vice versa.
During transactions, several platforms offer different values for Bitcoins.
When it was launched, it was worth few cents and now it has changed to about $1000. (Please note that by the time your read this article the value of bitcoin might have changed).
What are risks with use of Bitcoins?
As Bitcoin is not backed by any financial authority or treated as real asset, its transactions are not subjected to the same regulations and restriction as that are for other currencies.
So in the transaction, the identity of the user remains anonymous, making hard to track the people involved in transaction.
There is possibility, that it can be used for money laundering, illegal business and activities, terrorist activities, drug-trafficking. So government around the world are taking safety measures on this issue.
China has banned, the use of Bitcoin to avoid any cases of money laundering.
From user point of view, the physical cash stored in digital form, Bitcoin wallets can be accidently deleted, lost or stolen and cannot be recovered once lost or deleted. In February, 2014 the largest and the most active Bitcoin Exchange in the world – Mt. Gox went bankrupt, partially because 8,50,000 Bitcoins belonging to its members and its own treasury worth 450 million dollars (at that time) had gone missing.
RBI’s stand on Bitcoin
Reserve Bank of India (RBI) on Dec 2013 warned the public against the use of virtual currencies such as Bitcoin, pointing out that users may expose themselves to potential financial, legal and security related risks.
Why Bitcoin is famous among users?
As there is no central authority, to monitor the transactions the government cannot take away illegal and tax evaded money.
Bitcoins are not affected by inflation.
Privacy of transactions is maintained between users. Bitcoin allows people to do business without leaving a trail or revealing their identities. They don’t leave any digital footprints like credit card records, bank transactions, etc.