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All You Need to Know About Bitcoin

Aug 14, 2018 | 2 years ago | Read Time: 3 minutes | By CA Sandeep Vinod Kanoi

The Background of “Bitcoin”

The digital currency that stunned the world economy ‘Bitcoin‘ was invented in the year 2009 by a person called Satoshi Nakamoto. Nakamoto’s goal was to establish a new cash system that can work electronically, completely decentralized without any central authority. In the year 2011, after cultivating the concept and technology of Bitcoin, Nakamoto turned over the domains and the source code to others in the bitcoin community and subsequently vanished.

What is Bitcoin?

Bitcoin is just like a digital token that can be sent from one person to another, anywhere in the world electronically. The payment network on which this digital token move is also known as Bitcoin. Traditional payment networks like American Express (Amex) or Visa run by single company or person but in the case of Bitcoin, a decentralized network of computers all around the globe keep the record of all Bitcoin transactions. This Bitcoin network is similar to the network of servers that makes the internet work.

The pioneers of Bitcoin wanted to put the seller in charge, cancel interest, eliminate the middleman, and to make the transactions transparent. Therefore, created a decentralized network, where one could control their funds and know what was going on.

How the value of Bitcoin determines?

Bitcoin’s value is determined by what people are paying pay for it. This is somehow similar to the pricing of stocks. The protocol which Satoshi Nakamoto established dictates that only 21 million bitcoins can ever be mined.  However, 16.7 million (approximately) Bitcoins have been mined so far, and hence there is a limited supply, like precious metal (gold), but no real intrinsic value.

As mentioned above that the Bitcoin isn’t run by a single company or any government, Bitcoin uses something called a blockchain to keep the records of its transaction. This blockchain is a public ledger for each and every transaction conducted ever, one that’s circulated to all the machines connected to the Bitcoin network. This blockchain will be there forever and is next to impossible for anyone to edit the same. Instead, when a transaction in Bitcoin takes place, computers that are connected to the network check the balances of the Bitcoin addresses involved automatically and edit the ledger.

Is it legal?

It is difficult to ban bitcoins for any government, as they don’t have geographical limitations, but that has not stopped governments in Bolivia, Bangladesh and Ecuador from prohibiting the trading in cryptocurrency.

Is it secure?

The Bitcoin is not absolutely secure. Hackers are targeting different bitcoin exchanges. Last Year, an exchange in Slovenian lost 64 million dollars of cryptocurrency and a similar sum of cryptocurrency (bitcoin) was stolen from a Hong Kong-based exchange.

Due to the absence of central authority running Bitcoin, no one can force new users to disclose their identities. The Bitcoin network was structured this way to create a digital currency and a financial network outside the control of any single company or government.

How to buy bitcoin?

Any person can buy bitcoin directly through a bitcoin exchange or from a holder of bitcoins. In order to buy a bitcoin you have to create an alphanumeric address (just like an account number), this alphanumeric address will be available publicly and you can use this address to receive bitcoins, and a private key (just like bank account password.). Once you have bought this cryptocurrency, you should move the bitcoins to your private digital wallet. The bitcoin exchanges follow KYC (know your customer) norms just like the bank account.

Are there any other cryptocurrencies?

Yes, there are thousands of cryptocurrencies apart from Bitcoins. Currencies which are inspired by Bitcoin are collectively called altcoins. Bitcoin Cash, Ethereum, Litecoin and Ripple are among the other large cryptocurrencies. 

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