Bitcoin is a hot word these days. Many know that it is related to money or currency. But what exactly is Bitcoin? What is a cryptocurrency? Is it legal in India? Why is it in the news? Read further to know.
Supreme Court of India has recently lifted the ban on cryptocurrencies imposed by the Reserve Bank of India.
But why did the Reserve Bank of India warn about Bitcoins? Let’s see each of these questions in detail in this article.
What is Bitcoin?
Bitcoin is a type of digital currency that enables instant payments to anyone. It was introduced in 2009.
It is based on an open-source protocol and is not issued by any central authority. It is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network.
“Bitcoin”, capitalized, refers to the protocol and transaction network whereas “bitcoin”, lowercase, refers to the currency itself.
- It is the first decentralized digital currency.
- They are digital coins you can send through the Internet.
- Compared to other alternatives,ย they have several advantages.
- They are transferred directly from personย to personย via the netย without going through a bankย or clearinghouse. (This means that the fees are much lower,ย you can use them in every country,ย your account cannot be frozenย and there are no prerequisitesย or arbitrary limits.)
How does Bitcoin work?
- The digital currency is generated all over the Internet by anybody running a free applicationย called a Bitcoin miner.ย
- Mining requires a certain amount of workย for each block of coins.
- This amount is automatically adjustedย by the networkย such that Bitcoins are always createdย at a predictable and limited rate.
- Your Bitcoins are stored in your digital walletย which might look familiar if you use online banking.
- When you transfer them, an electronic signature is added.
- After a few minutes, the transaction is verified by a minerย and permanently and anonymously storedย in the network.
It uses public-key cryptography, peer-to-peer networking, and proof-of-work to process and verify payments. They are sent (or signed over) from one address to another with each user potentially having many, many addresses.
- Each payment transaction is broadcast to the network and included in the blockchain so that the included bitcoins cannot be spent twice.
- After an hour or two, each transaction is locked in time by the massive amount of processing power that continues to extend the blockchain. (Bitcoin blockchain is a database that holds information about all transactions.) Using these techniques, Bitcoin provides a fast and extremely reliable payment network that anyone can use.
What are the advantages of Bitcoins?
Advocates highlight the following points in favor of Bitcoins.
- The Bitcoin software is completely open-source and anybody can review the code.
- It is changing finance the same way the web changed publishing. When everyone has access to a global market, great ideas flourish.
Let’s look at some examples of how they are already used today:
- You can purchase video games,ย gifts,ย books,ย servers, and alpaca socks.
- Several currency exchanges existย where you can trade them for dollars,ย euros, and more.
- They are a great way for small businesses and freelancersย to get noticed.
- It doesn’t cost anything to start accepting them,ย there are no chargebacks or feesย and you’ll get additional businessย from the Bitcoin economy.
Bitcoins are sent easily through the Internet, without needing to trust any third party.
- Transactions:
- Are irreversible by design
- Are fast. Funds received are available for spending within minutes.
- Cost very little, especially compared to other payment networks.
- The supply is regulated by software and the agreement of users of the system and cannot be manipulated by any government, bank, organization, or individual.
- The limited inflation of the Bitcoin system’s money supply is distributed evenly (by CPU power) to miners who help secure the network.
Are Bitcoins limited?
The total possible number of bitcoins is around 21 million. A bitcoin was valued at $10 in October 2012 but it leapt to around $1000 or Rs 67,000 in December 2013. Now, as of March 2020, a bitcoin is valued at around $8800 or Rs. 6,50,000.
How to get them?
- Exchanges with local currency.
- Mine.
- Sell something and get bitcoins in return.
Arguments against Bitcoins
- Assets are not backed by tangible entities such as land.
- Wastes computer power.
- Enables crime.
- Encourages anarchy.
- Itโs very much still an experimental currency and is a high-risk environment for consumers and investors at the moment.
Renowned economist Paul Krugman, is a skeptic that for example, says: โSo do we need a new form of money? I guess you could make that case if the money we have were misbehaving. But it isnโt. We have huge economic problems, but green pieces of paper are doing fine โ and we should let them alone.โ
In 2014 Warren Buffett warned other investors to stay away from Bitcoin, calling it โa mirage.โ He went soย far as saying that, even though thereย may be a better way of transmitting money, the โidea that it has some huge intrinsic value is just a joke!
Why is RBI not an advocate of Bitcoins?
The RBI issued a circular in April 2019 banning regulated financial institutions from providing services to crypto businesses. The ban went into effect three months later. Banks subsequently closed the accounts of crypto exchanges.
The Reserve Bank of India points out that users expose themselves to potential financial, legal, and security-related risks when they deal in virtual currencies like bitcoins.
In its list of potential risks, the apex bank highlights problems such as losses arising out of hacking, no sources of customer recourse, and the general financial volatility surrounding Bitcoins.
โThe creation, trading or usage of virtual currencies including Bitcoins are not authorized by any central bank or monetary authority. As such, there is no established framework for recourse to customer problems,โ the RBI said in a statement.
Several India-based trading platforms and exchanges have sprung up over the last six months, catering to Indian users by allowing them to purchase Bitcoin in rupees. The RBI, however, has pointed out that no regulatory approval has been obtained by any entities that carry out such activities.
Supreme Court of India ruling on Cryptocurrencies
The RBI ban on cryptocurrencies was challenged in the Supreme Court by the Internet and Mobile Association of India and a few other stakeholders.
In a significant judgment (March 03, 2020), the Supreme Court on lifted the curbs on exchanges in cryptocurrency imposed by the Reserve Bank of India. The Court held that the RBI’s circular preventing bans from dealing in transactions involving cryptocurrency was disproportionate.
Probable Questions
Bitcoins can be a topic in UPSC Prelims, Mains, or Interviews.
For UPSC Interview: Can Bitcoins replace the Indian Rupee? If yes, explain why.
For UPSC Mains: What are bitcoins? Analyze the effectiveness of digital currency in the background of recent RBI observations.
For UPSC Prelims: Which among the following statements about bitcoins are true?
- In India, RBI controls the Bitcoin market.
- Bitcoins are free from inflation and deflation.
- The total possible number of Bitcoins is limited.
- Bitcoins help in preventing money laundering and illegal trading.
Choices: A – 1 only, B – 1, 2, 4 only, C – 3 only, D – All the above
Read: Bitcoin halving
i have a doubt pls help me
” State auditor general (SAG) submit report to …………….?
I guess you are asking about State Accountants General (SAG). Before going into the details of SAG, let’s talk about CAG first. What are the functions of CAG? CAG is responsible for auditing the accounts of the Union and State governments and public sector organizations, and for maintaining the accounts of State governments. SAG works under CAG. The Finance Accounts and Appropriation Accounts are audited by the respective State Accountants General (Audit) before submission to the CAG of India for certification and submission to the Governor / Administrator of Union Territory for being caused to be laid before the State Legislature. So, the answer of your questions is : SAG submit its report to CAG who submit it to the Governor.
It really gives a good idea on bit coins…But recently we heard there are many other kinds of virtual coins also like for eg litecoins or alt coins….They are also gaining popularity among the people across the globe. Recently couple of companies have announced that they are ready to transact in lite coins.
If both these are open software and works on public key cryptography then is there any difference between bit coins and other alt coins ?……or are they just of the same species…..
Good question เดเตเดเตเดเดพเดฏเดฟ :-). Yes, they are of the same species. Since Bitcoin launched in 2009, there have been hundreds of other cryptocurrencies, also known as ‘Altcoins’, that emulate the same model that Bitcoin employs. Attaching below a few links which might help you understand more on these new cryptocurrencies.
1) Altcoins 2) Litecoins
I earned 10 times profit on bitcoins. I invested 20 lakh come out with 1 crorw and worth of 1 crore still in account. Thank u technology
Hello,
There are many ways to achieve your financial goals. Cryptocurrency has made more people millionaires than any other trade or investment opportunity in the world within the last decade. And the good news is this, it is never too late to start trading cryptocurrencies.
Make huge profits with minimum investment trading on cryptocurrencies with my professional investment broker.
Tested and Trusted. Here are what you benefit:
ย Investment is secure and safe.
ย Fast Payout assured.
ย Free registration available.
ย Trading tutorials for newbies.
ย Withdrawals delivered straight to your wallet in seconds.
Why send you this email?
What do I stand to gain?
What I stand to gain is a referral bonus from my broker. And also I will be given access to my own mining dashboard after 10 referrals.ย whatsapp: +1(727) 242-0043
Email: [email protected]
Website:ย https://binarymultitrade.com/
Thanks for sharing the tips. I am using this to make others understand
What is different between cryptocurrency and bitcoin
There are lots of purposes and utilization potential for the cryptocurrency projects and the overall blockchain tech from fast & secure transactions to wider use in the medical field for example or supply chain sectors, banking & fin tech, etc… The potential is enormous and we are still in the early development, testing, utilization & adoption stages. There is still lots of room to grow, progress and more innovation to happen. The crypto universe & blockchain tech will keep growing, transforming and developing rapidly over the next 7-10 years, there will be lots of new projects, utilization and faster adoption with $10+ trillion crypto market cap potential.
What the G20 economies need to do is to adopt crypto-friendly regulations and legal frameworks and facilitate its adoption into the mainstream financial sector. The crypto universe is here to stay with us and the EU with MICA Act has proven that it will create a universal EU legislation, which will in fact help facilitate faster crypto adoption rates % among citizens and growth of the crypto & blockchain start-ups across the EU territory. Other countries need to follow the suit.