- The main purpose of Bitcoin was to provide an alternative to the legal tender via mobile app or computer program using a personal Bitcoin wallet which allows a user to send and receive Bitcoins with them.
- However, some entities started establishing exchanges on lines of stock exchanges for people to buy and sell Bitcoins against fiat money such as dollars or euros or pounds.
1. History of Bitcoin.
- After the financial crisis of year 2008, A group of people, known as Satoshi Nakamoto has published a white paper about a peer-to-peer electronic cash system, which would allow online payments to be sent directly from one party to another without going through a financial institution.
2. Working of Bitcoin.
- One aspect of Bitcoin is that only 21 million units will ever be created. However, transactions can be denominated in sub-units of a Bitcoin. Satoshi is the smallest fraction of a Bitcoin. .
- Bitcoin has a Bitcoin address, comprising 26-35 alphanumeric characters starting with either “1” or “3”. This address, which remains anonymous, represents the destination/or part of destination of a Bitcoin. The public ledger part of the Bitcoin is what happens behind the scenes.
- Using websites, There are two ways to get bitcoin. First is to buy and the second is to mine new bitcoins.
- Depending on the demand and supply, the price of Bitcoin keeps fluctuating.
3. Authentication process
- In a Normal transaction of money, The Bank assures that the money is genuine and the transaction is recorded.
- But in Bitcoin, Miners with a chain of computers constantly working towards authenticating the transactions by solving complex cryptographic puzzles, This process is called Bitcoin mining.
- Miners are the people who validate a bitcoin transaction and secure the network with their hardware. In return, they are rewarded for their services with new Bitcoins.
4. What is Blockchain ?
- A technology to keep Database, where all the transactions are recorded on a publicly available open ledger in digital ,anonymous and encrypted form.
5. Is this legal ?
- In 2013, RBI issued a warning with caution to users, holders and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
- Thus, Bitcoins are not illegal in India per se. Bitcoins are currently unregulated in India and there are no specific legal frameworks for Bitcoins and cryptocurrencies in India yet. Users, who are doing the transactions of bitcoin , are doing at their own risk.
- Also, The State Bank of India is soon expected to launch banking solutions based on blockchain to prevent fraud.
- Warren Buffet had described Bitcoin as a “real bubble”, and said that one couldn’t value it considering it was not a value-producing asset. Some of the countries such as Nepal, Bangladesh, Kyrgyzstan have declared Bitcoins as a means of payment illegal and in violation of the state law.