BITCOIN

There are a number of currencies in this world used for trading amenities.
Rupee, Dollar, Pound Euro, and Yen are some of them. These are printed
currencies and coins and you might be having one of these in your wallet.
But bitcoin is a currency you can not touch, you can not see but you can
efficiently use it to trade amenities. It is an electronically stored currency. It
can be stored in your mobiles, computers, or any storage media as a virtual
currency.

Bitcoin is an innovative digital payment system. It is an example of

a cryptocurrency and the next big thing in finance.
• It is a virtual currency designed to act as money and outside the
control of any person or group thus eliminating the need for third-
party in financial transactions.
• It is used as a reward for the miners in bitcoin mining.
• It can be purchased on several exchanges.
There are 3 ways you can get a bitcoin in your electronic storage:
1. Trade Money For Bitcoin: Say that the value of a bitcoin is 1 lakh
rupees, so if you want a bitcoin, you can trade a bitcoin in place of
1 lakh rupees. This Bitcoin will further be stored in your electronic
storage media which you can further use.
2. Trade Goods For Bitcoin: Say that the value of a bitcoin is 1 lakh
rupees and you have a commodity that has its value as 1 lakh
rupees, so you can trade that commodity in place of a bitcoin, and
the bitcoin will be stored in your electronic storage media.
3. Mine Bitcoins: Other than trading, you can also mine bitcoins.
Since it is a decentralized currency, there is no authority that brings
bitcoins into the market. Bitcoins only come into the market by
mining them.
Brief History:
“Satoshi Nakamoto” is presumed to be the pen name for the person or
people who designed the original bitcoin. Bitcoin was first introduced in the
year 2009 as a medium of exchange. Bitcoin then started as a peer-to-peer
network to generate a system for electronic transactions. Since then, there
has been a rapid growth in the usage as well as the value of bitcoin which is
a popular system of digital currency.

Features:
 • Distributed: All bitcoin transactions are recorded in a public ledger
known as the blockchain. There are nodes in the network that
maintain copies of the ledger and contribute to the correct
propagation of the transactions following the rules of the
protocols making it impossible for the network to suffer downtime.
• Decentralized: There is no third party or no CEO who controls the
bitcoin network. The network consists of willing participants who
agree to the rules of a protocol and changes to the protocol are
done by the consensus of its users. This makes bitcoin a quasi-
political system.
• Transparent: The addition of new transactions to the blockchain
ledger and the state of the bitcoin network is arrived upon by
consensus in a transparent manner according to the rules of the
protocol.
• Peer-to-peer: In Bitcoin transactions, the payments go straight
from one party to another party so there is no need for any third
party to act as an intermediary.
• Censorship resistant: As bitcoin transactions are pseudo-
anonymous and users possess the keys to their bitcoin holdings, so
it is difficult for the authorities to ban users from using their assets.
This provides economic freedom to the users.
• Public: All bitcoin transactions are available publicly for everyone
to see. All the transactions are recorded, which eliminates the
possibility of fraudulent transactions.
• Permissionless: Bitcoin is completely open access and ready to
use for everyone, there are no complicated rules of entry. Any
transaction that follows the set algorithm will be processed with
certainty.

Value of Bitcoin

A normal piece of paper and a currency note is physically the same but the
value of the note is decided by an authority or a centralized government.
But Bitcoin is a currency that does not have any centralized government or
authority to control and decide its value. It is a decentralized digital
currency.
 • As of now, the value of 1 bitcoin is 23,54,953.68 Indian Rupees
but this value fluctuates as there is no centralized authority to
control it.
• In December 2011, the value of a Bitcoin was estimated to be 2 US
dollars, in December 2013, it went up to about 1000 US dollars.

How Do Bitcoin Transactions Work?

Bitcoin transactions are digitally signed for security. Everyone on the

network gets to know about a transaction. Anyone can create a bitcoin
wallet by downloading the bitcoin program. Each bitcoin wallet has two
things:
• Public key: It is like an address or an account number via which
any user or account can receive bitcoins.
• Private key: It is like a digital signature via which anyone can send
bitcoins.
The public key can be shared with anyone but the private key must be held
by the owner. If the private key gets hacked or stolen then bitcoin gets lost.
A bitcoin transaction contains three pieces of information:
• Private key: The first part contains the bitcoin wallet address of
the sender i.e. the private key.
• Amount of bitcoin to be transferred: The second part contains the
amount that has been sent.
• Public key: The third part contains the bitcoin wallet address of
the recipient i.e. the public key.
Bitcoin transactions are verified by the nodes on the network. Once the
transaction is verified and executed successfully, the transaction is recorded
in a distributed public ledger called a blockchain. A bitcoin can also be
considered as an invisible currency with only the transaction records
between different addresses.

How Do Bitcoins Come Into Market?

Bitcoins are a decentralized currency, they aren’t printed, like rupees, they’re
produced by people, and big companies, running computers all around the
world, using software that solves mathematical problems.
 • Bitcoins are mined using the computing power of the distributed
network. This network also processes transactions made using
Bitcoin.
• Bitcoins are mined on the basis of computing power, so they take
time to be generated.
• To keep it valuable, it has been stated that only 21 million bitcoins
can be created by miners. By the year 2140, all the bitcoins will be
created.
• Around the world, thousands of computers with very high
computing power are processing transactions and securing the
network by solving complex mathematical calculations and
collecting new bitcoins in exchange.

How Does Bitcoin Mining Work?

In the Bitcoin network, there are nodes that use the computing power of
their CPU to process the transactions. The following are the steps followed
while mining a bitcoin:
• The user initiates the bitcoin transaction by listing the details like
the number of bitcoins to be sent, and the public address, and
affixing the private key to generate a digital signature. The
encrypted information to the miners present on the network.
• The miners will verify the transaction to check whether there is
sufficient balance to carry out the transaction.
• The faster the CPU of a miner, the greater the chances for the
miner to get rewarded for verifying the transaction. The miner’s job
is only to provide the CPU, there is no manual intervention from
the miner. The bitcoin program will run automatically on the
system.
• Once the transaction is verified, the number of transactions is
broadcasted to the network of miners who can copy or download
the block.
• These blocks through timestamps are stored in sequential order to
form a blockchain.
• Each miner in the network must have an updated copy of the
blockchain ledger in order to earn bitcoins.
How Do You Buy Bitcoin?
There are three ways to get a bitcoin:
1. Buying: Many marketplaces like Bitcoin exchanges allow users to buy or
sell bitcoins using different currencies. If one does not want to mine a
bitcoin, it can be bought using a cryptocurrency exchange. Most people will
not be able to purchase the entire BTC due to its price, so it is possible to
buy portions of BTC on these exchanges in fiat currency like U.S. Dollars.
The following steps can be followed to buy bitcoin outside the online
exchanges:
• Each person who joins the bitcoin network is issued a public key
and a private key.
• When a person buys a bitcoin or sends/receives it, the person will
receive a public key.
• The person can only access the bitcoin using the private key (it
has) with the public key (it received).
2. Mining: People on the bitcoin network compete among themselves to
mine bitcoins using computers to solve complex maths puzzles. This is how
bitcoins are created.
3. Transfer: Bitcoin can be transferred from one account to another just like
digital cash using mobile applications or computers.

How is Bitcoin Used?

Below are some of the ways of using bitcoin:

• Payment: Bitcoin is accepted as a mode of payment for goods and
services at many merchants, and retailers. To use bitcoin, wallets
are required. cryptocurrency wallets contain private keys to the
bitcoin, which need to be entered while conducting a transaction.
• Investing: portfolio: Bitcoin grew in popularity which made
Investors and Individuals interested in investing in the
cryptocurrency Bitcoin. Individuals can invest in Bitcoin to help
diversify their portfolio of stocks and bonds.

Benefits of Bitcoin

The following are some of the advantages of using bitcoins:

• User anonymity: Bitcoin users can have multiple public keys and
are identified by numerical codes. This ensures that the
transactions cannot be traced back to the user. Even if the wallet
 address becomes public, the user can generate a new wallet
address to keep information safe.
• Transparency: Bitcoin transactions are recorded on the public
ledger blockchain. The transactions are permanently viewable,
which gives transparency to the system but they are secure and
fraud-resistant at the same time due to blockchain technology.
• Accessibility: Bitcoin is a very versatile and accessible currency. It
takes a few minutes to transfer bitcoins to another user, so it can
be used to buy goods and services from a variety of places
accepting bitcoins. This makes spending bitcoin easy in another
country with little or no fees applied.
• Independence from central authority: Bitcoin is a decentralized
currency, which means there is no dependence on any single
governing authority for verifying transactions. This means that the
authorities are not likely to freeze or demand back the bitcoins.
• Low transaction fees: Standard wire transfers involve transaction
fees and exchange costs. Since bitcoin transactions do not involve
any government authority so the transaction fees are very low
compared to bank transfers.

Drawbacks of Bitcoin

The following are some of the cons of using bitcoin:

• Volatility: There are various factors that contribute to the bitcoin’s
volatility like uncertainty about its future value, security breaches,
headline-making news, and one of the most important reasons is
the scarcity of bitcoins. It is known that there is a limit of 21 million
bitcoins that could ever exist which is why some regard bitcoin as
a scarce resource. This scarcity makes bitcoin’s price variable.
• No government regulations: Unlike the investments that are done
through central banks, bitcoins transactions are not regulated by
any central authority due to a decentralized framework. This
means that bitcoin’s transactions don’t come with legal protection
and are irreversible which makes them susceptible to crimes.
• No buyer protection: If the goods are bought using bitcoins and
the seller does not send the promised goods then nothing can be
done to reverse the transactions and since there is no central
authority so no legal protection can be provided in this case.
• Not widely accepted: Bitcoins are still only accepted by a small
group of online merchants. This makes it unfeasible to rely
completely on bitcoin as a currency and replace it with traditional
bank transactions.
• Irreversible: There is a lack of security in bitcoin transactions due
to the anonymous and non-regulated nature of the bitcoin
transactions. If the wrong amount is sent or the amount is sent to
the wrong recipient then nothing can be done to reverse the
transactions.