Bitcoin - A digital currency But Not a Legal Tender In IndiaIn 2011 if you have bought 100 USD (₹ 5000), by Dec 31, 2016, you have earned ₹68 Lakhs (1360% rise). Should you deal in bitcoin?
What is a Bitcoin in layman language?
Bitcoin (BTC or BTX) is a virtual currency. It is cryptocurrency and a payment system. It is a digital currency like your credit/debit card or PayPal system. It means you can spend them on goods and services, and exchange them for
other currencies. Unlike other currencies, it is decentralised i.e. no country or no central authority controls it.
For its transactions (Bitcoin to Bitcoin), there is no middle man involved and transactions costs are negligible.
It is a software protocol and is defined as “decentralised means of tracking and assigning wealth or economy.It was invented by an unidentified programmer, or group of programmers, under the pseudo name of Satoshi Nakamoto. It was introduced on 31st October 2008 to a cryptography mailing list as a paper 'Peer-to-Peer Electronic Cash System.
In 2009, it was released as open-source software.
Slowly, an increasing number of people have started using Bitcoin, and what began as an experiment became a multi-billion dollar economy in terms of total market value.
If you buy or earn a bitcoin, you will be assigned a Bitcoin address (similar to a bank account number). People represent their bitcoin address using QR codes to send and receive bitcoins. All accounts and transactions are maintained by a public ledger. Anyone can access the public ledger, unlike banks which maintain private ledgers. The public ledgers are cryptographically secure (as block chains) and are maintained by software miners. The software miners are the people who contribute their computers to the currency network. The miners act both as ledger keepers and auditors for the transactions.
Bitcoin uses two cryptographic keys, one public (bitcoin address) and one private (like your PIN number in Credit card) are generated, no name, IP address or phone number is recorded. It is estimated that there a total of 21 Million Bitcoin. Just like 1Rupee=100 paisa, 1Bitcoin= 108 Satoshi. You can google its price charts against other currencies.
Ways to invest or earn Bitcoin
There are 3 ways to earn Bitcoin:
- Exchange currency (i.e. exchange your fiat currency for Bitcoin and vice versa). In India, sites like Unocoin, Zebpay manage selling and buying of bitcoins. There may be other websites offering such services.
- Goods and service Exchange.
There are websites (see list here) which offer their services via bitcoin currency. However, no Indian company (like Flipkart or Amazon) is known which sells its products or services using bitcoins.
- Solving data blocks (Mining Software)
Bitcoin transactions are maintained as block chains. Whenever a bitcoin transaction occurs, this information is broadcasted to the network of miners, which updates the block to the public ledger. The process of preparing block and appending to block chain is little technical and complex (CPU intensive process). For this miners are rewarded with few units of bitcoins.
Benefits Of Bitcoin
- Bitcoin cannot be copied. Public ledger is frequently audited (at an interval of 10 minutes).
- It is an international currency; anyone can send bitcoins to anyone else in the world, in any amount, almost instantly.
- No Tracking
- Negligible Transaction costs
- It can easy be converted into other currencies
Drawbacks of Bitcoin:
- No central bank has authorised Bitcoin (Though some consider it a benefit.)
- No trade through BSE, NSE, commodity exchange (SEBI, FMC)
- FEMA (Foreign Exchange) using Bitcoin is considered illegal. However, its currency conversion is legal. RBI clarified that it does not come under Securities, Derivative or Negotiable Instruments. It is considered as 'goods' as per Indian law.
①Like net banking, it can be Hacked, phished, damaged by malware, password lost. In all case, money will be lost.
② Consumer courts cannot help as these bodies follow this sort of virtual or fiat currency.
Considered as mere digital code i.e. it is not backed by Gold Silver or crude oil. It has no intrinsic value.
③ Many other cryptocurrencies also exist e.g. lite coin, BBQ coins, dog-ecoin etc. Even in India Laxmicoin.com was founded but RBI denied their proposal in 2013. Reserve Bank Of India and People Bank Of China denied it as legal tender. The USA also does not treat it as legal tender but it stands for bitcoin payment (e.g. wages paid to employees as bitcoins), unlike India Income tax authority which does not stand for it.
History of Bitcoin at Wikipedia
FAQ at Bitcoin.org