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Can you imagine a thing – the value of which was zero around ten years back and today, its value has touched almost $33,637 (25,06,134.78 INR)

We are talking about Bitcoin, which has recently touched its all-time high price point due to which is talked about in the market and media again

So in this article, we are talking about Bitcoin. What is Bitcoin? What is Bitcoin Mining? Why Bitcoin Price rise by 60% over a month? Why Bitcoin is in News? What prominent Economists have said about Bitcoin?

Bitcoin, which is in top search keyword of google every year, what is it that this word is being searched so much, After all, what is this Bitcoin? So let’s understand it

Why is it in news again? What Happened?

Bitcoin, the cryptocurrency, has breached an important psychological barrier against the US – the $20,000 mark – after having fallen just short during its 2017 rally

As of Tuesday, 06/July/2021, Bitcoin was trading above $33,000

The rally to these levels, which has sustained over the last four months, has also seen various stakeholders taking steps towards legitimising the cryptocurrency.

Introduction

What is Bitcoin? and Why it is called Cryptocurrency?

Bitcoin is a cryptocurrency. It is basically a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities.

Cryptocurrency uses a system of cryptography (AKA encryption) to control the creation of coins and to verify the transaction

Cryptography – the art of writing or solving codes

Cryptocurrency is a digital asset over which central banks or financial institutions have no control or regulation. For instance, the US Dollar is controlled by the Central bank of the US, Rupee is controlled by RBI. But there is no central bank or Financial institution that controls Bitcoin/Cryptocurrency.

Bitcoin did away with the third party by publicly distributing the ledger, what Nakamoto called the “Blockchain”

History (Where it Started?)

Merely 12 years ago, on 31st October 2008, a person named Satoshi Nakamoto published a paper on the internet. His motive was clear that a ‘Version of Electronic’ would allow payments to be sent directly from one party to another party without going through a financial institution.

Back then, Cryptocurrency was merely an idea in the mind of that person. But now, there is trading worth and on its crypto exchange just like shares are traded on normal stock markets

The idea of digital money – convenient and untraceable, liberated from the oversight of governments and banks – had been a hot topic since the birth of the internet.

Features of Bitcoin

Bitcoin is a digital that is not tied to a bank or government and allows users to spend money anonymously. No single institution controls Bitcoin Network. It’s like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet.

Bitcoin Public Ledger

All confirmed Transactions from the start to Bitcoin’s creation are stored in a ‘Public Ledger’. This complete record of the transaction is kept in the ‘Blockchain’, which is a sequence of records called Blocks. As f late 2016 The Complete Ledger is about 107 GBs of Data.

How Does Cryptocurrency Work? Who are Miners?

In order to understand this, one needs to have knowledge of advanced mathematics and computer science which not everyone has – but if you want to start investment or trading then basic knowledge would sufficient.

Let us take the example of Bitcoin.

There is a public accounting digital form, of all the Bitcoin transactions this is called ‘Ledger’ Users willing to devote CPU power to running a special piece of software would be called miners and would form a network to maintain the Blockchain collectively. In the process, they would also generate new currency. A copy of this ledger exists on all the systems that are a part of the Bitcoin network. Those who run this system are called ‘Miners’ the job of miners is to verify transactions. Say, A has to transfer 2 to B’s account, miners will have to confirm whether A actually does have 2 bitcoins in his account or not. To complete the transaction, miners will have to solve complicated mathematical equations, variables kind of thing which we studied in school, every Bitcoin transaction has unique variables, the job of miners is to calculate it. It is not that they sit with a pen or paper to solve the equations. All these calculations are carried out on the computers automatically because they are extremely complicated and their combination runs in the crores which is why these miners require computers with very complex and high processing power, once the equation is done, the computer within the other network confirms it and this transaction is added to the chain, a block of the transaction get created, and hence the technology is called ‘Block Chain’. And what do miners get in exchange? They get the most valuable thing that is Bitcoins. This system is called ‘Proof of Work’ the miners have to prove the computation work they do in order to get awarded the bitcoin in return. Concept of Economic History

In order to understand the paper of Satoshi and the context of cryptocurrency, we will have to understand some concepts of our economic history-

Our Financial system is based on trust. The currency notes and coins have value in our society because they are guaranteed/promised by the government and the central bank Take a look at any note in your wallet. For example 2000 note. It reads “I promise to pay the bearer promise to pay the bearer a sum of 200 hundred rupees” this is a promise made by the governor of the central bank that is the Reserve bank. There is his signature right below. This note will be reduced to an ordinary paper if it does not carry this signature There is a small but interesting story in this context, After the second world war, America became the most powerful country in the world and the rest of the countries had to align their currency with the US Dollar and what was US Dollar aligned or guaranteed by? A reserve of gold. The actual value is that of gold or . But it is not practical to carry gold or silver around in the pocket. The currency notes were printed for convenience. But the US did away with this rule back in 1971, after that, the central banks of the rest of the countries could print their notes as per their wishes. But what do notes as per their wishes? But what do Cryptocurrencies and bitcoin have to do with this? It helps you to understand how powerful the government and the banks – especially the central bank of the country are as far as monetary policy is concerned. The matter of fact is that when you deposit your money in the banks you give the banks permission to play with that money, in one sense making use of these deposits, the banks give loans to companies and individuals. This is what fetches returns, that is, interest on the money that you have deposited. Very recently, we have seen that these banks use these savings and deposits in a very irresponsible manner. It happens quite often that banks give loans to big industrialists without performing adequate checks and then these loans become bad debts/NPAs. And who becomes the victim in such cases? Depositors like us. In the last some months, three deposit-taking institutions have failed – yes bank, PMC BANK and Laxmi Vilas bank. But even the decisions of the government can put the common man in danger. Remember November 2016? Demonetization! The government laid to waste the 500 and 1000 notes in one strike 86% of Indian currency become unusable. Those in favour of Bitcoins and cryptocurrencies are so because they do not want the government or the central bank to exercise so much control over their money or currency. Satoshi imagined Bitcoin as an alternative Financial system that would be based on software technology and would be outside the controlling third parties. You might able to recall the global economic meltdown of 2008. Mega investment bankers like the Lehman brothers had become bankrupt. Cryptocurrencies were born right after this scenario Cryptocurrencies surfaced – Ethereum, Litecoin, and ripple. In fact, at the beginning of the year, more than 2000 cryptocurrencies were available on the internet.

Understanding the Philosophy of Cryptocurrency

Understanding the Philosophy, vision and future of crypto technology is far important than understanding the working of crypto technology. It is extremely important to understand that as well because, on one hand, some people use bitcoin as an investment while on other hand, some people use cryptocurrency as an alternative currency. A lot of people want to replace it with currency and use bitcoins in place of rupees and . But the main use of Cryptocurrency at present is like an investment. We invest in cryptocurrency hoping for higher returns in future and hence get more money in return. This then, becomes ‘ a store of value’, just like gold. Just like we don’t use gold in our daily transactions instead-but store it in bank lockers like a guarantee to get more returns in the future because the price of gold keeps rising gradually. People will do the same with Bitcoins and this why Bitcoins are also called ‘Digital Gold’. But just like other investments this too entails risks. And those who criticize this as a form of investment say that bitcoin is a digital currency, it has no inherent value of its own. For example, you can physically touch the gold with your hands. If you buy a house as an investment, it will be physically available to you. Bitcoins, on the other hand, are not physically available. Everything is happening on the computer. It could still be referred to as a “Niche Product” that does not have widespread acceptance in society cryptocurrency is not yet a medium of exchange, that is you cannot go to nearby shops and buy bread and eggs with bitcoins. But this trend might change in future because there are several restraints and hotels in western countries that have begun to accept Bitcoins as an alternative form of payment. There is a technical CHALLENGE here that makes it difficult to use Bitcoins as a medium of in daily transactions. The bitcoin transaction on the blockchain takes time to get confirmed. One blockchain process takes around 10 minutes for the computers to calculate. So you can understand that it not practical to wait for 10 minutes for a transaction to get complicated in daily life. But at the same time, there are some present use cases of Bitcoin where they work better than our traditional ways. The best example of this is our foreign fund transfer when you have to transfer money from one country to another, the banks deduct a lump sum in the name of foreign transfer fees, they charge a lot of fees and take a lot of time to transfer money from one country to another, the bitcoin is more economical in this case. Bitcoin does not charge any transfer fees and ten minutes is much lesser time than 1-2 days that the bank take. A similar thing applies to the credit card fees, cryptocurrencies can be more economical than credit card fees, this is why banks, credit card companies and remittance companies have been against cryptocurrencies and are so even today because cryptocurrency can become a rival to their business modal. In the last few months, especially due to covid pandemic situation have changed. While several industries and mutual funds have been struggling, the value of cryptocurrencies like bitcoin and Ethereum has been on the rise. From the first of March, until November 30, the value of bitcoin has risen more than 120%, that is, it has more than double in value. Paypal, the world’s biggest digital payment company, has introduced the feature of crypto transactions in November, J.P Morgan Bank used to be the biggest foe of bitcoins. When bitcoins were on the Bull run in 2017 that I, when its price was rising exponentially, the CEO of jp morgan bank had said it was a fraud. And now, just a few months ago, jp morgan has opened corporate accounts for famous crypto exchanges like coinbase & Gemini trust. So you can see how the doors that had earlier been shut for cryptocurrency have been opening up. Open-mindedness is being observed with regard to cryptocurrency in the general public and the financial industry. Talking about , a change of attitude has been observed in the third year in India as well. In April 2018, the RBI had Frozen out the crypto industry from the banking system. The RBI had instructed the bank via a circular to desist from dealing with crypto-related platforms or transactions. The mainstream media had claimed that RBI had placed a ban on cryptocurrency but it was technically inappropriate to say so. The cryptocurrency had never banned in India directly. RBI had merely blocked the banking access of the crypto ecosystem. The result of this was that the public could not deal with (INR).

Court Orders on Crypto Exchanges in India

Crypto exchanges i.e, exchanges where you can invest in cryptocurrency and convert rupees into Bitcoins had been operation since 2012. Some exchange founders decided to challenge the banking ban in courts it was not only a matter of their livelihood but also for principles, they got chances to explain how the crypto technology and blockchain technology and blockchain work to the government and the RBI.

They were of the opinion that the Negative points pertaining to cryptocurrencies are also valid to other asset classes as well. There can be Money Laundering over property, Fake Notes can be printed, there are many Fraud schemes that operate in a lot of other things, the software of banks and stock exchange can be Hacked, there are chances of that as well. So the problems that exist with Bitcoins exist with other things as well.

In response to this, the reputed Indian Platform included a lot of safeguards. For Example, KYC (Know Your Customer) process was made mandatory during sign up, the case reached the Supreme Court, Several famous senior lawyers refused to fight the case because there was a lot of negative news regarding cryptocurrency in the media. A lot of rumours were afloat as well. There were adjournments. Some exchanges were not able to survive during this time and consequently, they had to wind up.

Finally, a three bench judge heard the case in January 2020 and the court accepted the stance of exchanges and conceded that the Ban of RBI was ‘Disproportionate’ because RBI was not able to prove in the court that the crypto investment and trading had negatively hampered the financial systems or banks.

Under Article 19 (1) (g) of the Indian Constitution, it is the Fundamental Right of every citizen to indulge in any business/ occupation or trade.

The court said the banking ban imposed by the RBI was interfering with these Fundamental rights. This is a huge thing because it is no ordinary thing to defeat the RBI in court, Therefore, it is a historic day on the 4th march for the Indian Crypto Industry. The court clearly declared that there is no legal prohibition on cryptocurrency trading and investment. The business is legal and the RBI would have to repeal its banking ban overall.

How do people get Bitcoins?

You can buy Bitcoins using Real Money. Bitcoin price – 25,50,051.81 INR (July 2021) You can sell things and let people pay you with Bitcoins. Or they can be created using a computer.

Why is Bitcoins Valuable?

There are lots of things other than money which we consider valuable like Gold and Diamonds. The Aztecs cocoa beans as money. Bitcoins are valuable because people are willing to exchange them for real goods and services, and even cash.

Is it really Anonymous?

Yes, to a point. Transactions and accounts can be traced, but the account owners aren’t necessarily known. However, investigators might be track down the owners when bitcoins are converted to regular currency. For now, the three accounts tied to the ransomware attack appear untouched – and it’ll be difficult for perpetrators to cash in anytime soon without getting traced.

Advantages of Bitcoins

With Bitcoin, it is very possible to be able to send and get money anywhere in the world at any given time. You are in control of your money with Bitcoin. There is no central authority figure in the Bitcoin network. With the Blockchain, all finished transactions are available for everyone to see, however, personal information is hidden.

Disadvantages

Facts are many people are still unaware of digital and Bitcoin. Bitcoin has volatility mainly due to the fact that there is a limited amount of coins and the demand for them increases by each passing day. Bitcoin is still at its infancy stage with incomplete features that are in development.

Is Bitcoin a Good Investment?

After the decision of the Supreme court, several exchanges have burgeoned and this process has become extremely straightforward and easy in India.

Overall, this is good news for all of us we can freely invest in cryptocurrencies, if we wish to, we have this opportunity to diversify our financial investment. You could invest some money in cryptocurrency as an experiment.

Of course, you will have to follow some rules of common sense. For example, do not trade by taking loans, only invest that much money that you are comfortable losing because this is an extremely risky investment. The price of cryptocurrencies fluctuate a lot and it is extremely volatile. so it is pretty clear that is both opportunity as well as risk.

Quotes on Bitcoin

“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value” – Eric Schmidt, CEO of Google “I do think Bitcoin is the first [encrypted money] that has the potential to do something like changing the world.” – Peter Thiel, Founder of PayPal and investor in Bitcoin merchant processor Bitpay

Conclusion

Overall, it can be said that cryptocurrencies and Bitcoins could play an important role in future of Finance. It remains to be seen whether cryptocurrency can become a medium of exchange that will be subject to widespread use or it will remain a store of value investment, will we be able to buy pieces of bread from nearby shops with Bitcoins in the Future? that day might be very far but it cannot be ruled after impossible that easily.

Also Read: How the value of Rupee Determine?