Bitcoin is a virtual currency of crypto-currency. Bitcoin is the first global decentralized digital currency that allows us to send money from one person to another without involving a third party broker, such as a bank. It is created and held electronically. Bitcoin was introduced in 2009. As a decentralized currency, Bitcoin is based on an open source protocol and not issued by any central authority. If we sum up -
- Bitcoin is the first global decentralized digital currency.
- Bitcoin is a virtual currency that is based on peer-to-peer technology to facilitate instant payment.
- Bitcoins are transferred directly from one person to another via internet without involving a third party broker or clearing house or central authority.
- Bitcoin was created in 2009 by a mysterious software developer named Satoshi Nakamoto, whose true identity is yet to be verified.
How does Bitcoin work?
- Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant transactions or payments.
- It is an open source technology and nobody controls or owns it.
- Bitcoins are generated all over the internet by independent individuals and companies running a free application called Bitcoin miner.
- Bitcoin mining is the process through which Bitcoins re released to come into circulation over internet.
- Bitcoin run on the Block chain, the technology behind Bitcoin is one of the most accurate and secure system.
- A block chain is a decentralized ledger that keeps records of digital transactions.
- Instead of having a central administrator like a bank, block chain organises data in batches called blocks.
- It you want to create Bitcoin you need to generate blocks on the network. Each block is created crypto-graphically by using the computing power of its users and then appended to the block chain. So users earn by keeping the block running.
- Your Bitcoin are then stored in your digital wallet, which looks similar to online banking.
- When you transfer Bitcoins an electronic signature is added to it and after few minutes, the transaction is verified by a miner and permanently and anonymously stored in the network.
Advantages of Bitcoin
- With Bitcoin it is very possible to send and get money anywhere in the world at any given time as it is a decentralized currency.
- The ease of transactions and the privacy factor are another biggest advantage of Bitcoin. Users can hold multiple Bitcoin addresses and they are not linked to name or any personal identity, so privacy is protected.
- Bank may charge a fee for international transactions. But in case of Bitcoin payments, currently there is either no fee or very low fees.
Disadvantages of Bitcoin
- Due to lack of awareness and understanding people are still unaware of digital currencies and Bitcoin
- It is very much still in an experimenting stage and there can be high risk for consumers and investors at the moment. Therefore Bitcoin still needs some development before it comes to its full potential.
- In 2017, the value of Bitcoin has significantly increased. In late December, the value of one Bitcoin was about $16,500 as compared to $1000 in March, 2017.
- The Reserve Bank of India points out that it has not given any license or authorization to any entities to operate such schemes or deal with Bitcoin or any virtual currency. RBI also says that by dealing in Bitcoins or any other virtual currencies users expose themselves to potential financial, legal and security related risk.
- Finance Minister of India on January 2018 clarified that Bitcoin is not a legal tender in India and government is waiting for report of experts on crypto-currencies before taking any decision. So for now, Bitcoin is not a legal tender in India and we have to wait for another few months until Government takes a decision.
- In 2017, Bitcoin was legalized as a formal method of payment in Japan. But is most countries, the legality of Bitcoin is not clear, with no official ban or approval.