$ BITCOIN $

 BITCOIN

Bitcoin is the world’s first decentralized borderless currency. It is a virtual currency, or crypto-currency, used only for online transaction. It is also called Money 3.0, the next gen currency.

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins are not printed, like Rupees or euros, they’re produced by lots of people running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as crypto-currency.

 With most transaction being effected online these days, e-payment world is finding it convenient to shift to bitcoins. It can be stored either virtually or on a user’s hard drive and it offers a largely anonymous payment system but it is still in its childhood and this brings with it both challenges and opportunities. It is based on an open source protocol, Which makes use of public transaction log. It is the world’s most expensive currency.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional Rupees or euros  which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network.

Who invented it?

It was invented in the wake of global financial in November 9, 2008 by mysterious computer guru pseudonymous developer Satoshi Nakamoto. He proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one. This currency is not physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

What is it based on?

Conventional currency has been based on gold or silver. But bitcoin is not based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it. The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

Procedure of Bitcoin transaction :

There is no exchange of notes or tokens between purchaser and seller. Bitcoin comes into existence through mining only. If you want to buy anything, you should have bitcoins in your e-wallet. 

It can be obtained through two ways:

 1) Purchase from Exchange

 2) Mining

1. Purchase from Exchange:

            It can easily be exchanged with conventional currencies. It can be bought and sold in return for traditional currency on several exchanges, and can also be directly transferred across the internet from one user to another by using appropriate software.

2. Mining:

              If you don’t want to purchase the bitcoin, you can mine it through super computers dedicated towards processing mathematically complex calculations. These are mathematically generated as the computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin “mining”. The mathematics of the Bitcoin system was set up so that it becomes progressively more difficult to “mine” bitcoins overtime.

Advantages of Bitcoins :  

        1.    Lesser Transaction Cost

        2.    New Investment Venue

        3.    World Wide Acceptance

        4.    Peer to peer transactions (no single authority)

        5.    Anonymity:

        6.    Limited number of coins will ever be produced (cap at 21 million), thus            no inflation.

        7.    completely transparent

Limitations of Bitcoins :

1.    No Authorized Agency

2.     Speculation

3.    Cyber Security Risk

4.    Illegal/Illicit use

5.    Others: Bitcoin transactions are untraceable, untaxed and ownership changes instantly.

It is an entirely new global monetary system - both a currency and a payment network for that currency. Bitcoin is thus the only currency and money system in the world, which has no counter-party risk to hold and to transfer.

Source : www.coindesk.com , icai student journal.