Bitcoins: what is it and how to use it?
“Bitcoins will do to banks what emails did to the postal industry..”
What are ‘Bitcoins’?
Bitcoins, also known as the virtual banking currency of the internet, are a new kind of global payment network. Bitcoins are electronic currency, otherwise known as ‘cryptocurrency’. Bitcoins are a form of digital public money that is created by extremely complex mathematical computations and policed by millions of computer users called ‘miners’. Bitcoins are, in essence, electricity converted into long strings of code that have money value.
Like MasterCard or PayPal, it allows money to be transmitted electronically. But Bitcoin is different from these conventional payment networks in two important ways.
- First, the Bitcoin network is fully decentralized. The MasterCard network is owned and operated by MasterCard Inc. But there is no Bitcoin Inc. Instead, thousands of computers around the world process Bitcoin transactions in a peer-to-peer fashion. No company really owns Bitcoins.
- Second, MasterCard and PayPal payments are based on conventional currencies such as the US Dollar. In contrast, the Bitcoin network has its own unit of value, which is called the bitcoin. The value of one bitcoin fluctuates against other currencies in the same way the Euro’s value fluctuates against the Dollar.
How do Bitcoins work?
Bitcoins are completely virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money. Once you own bitcoins, they behave like physical gold coins: they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.
Bitcoins are traded from one personal ‘wallet’ to another. A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud.
For all intents, bitcoins are forgery-resistant. It is so computationally-intensive to create a bitcoin, it isn’t financially worth it for counterfeiters to manipulate the system.
What makes Bitcoins different from conventional financial systems?
- Bitcoins are not created by any central bank, nor regulated by any government. Accordingly, there are no banks logging your money movement, and government tax agencies and police cannot track your money.
- Bitcoins completely bypass banks. Bitcoins are transferred via a peer-to-peer network between individuals, with no middleman bank to take a slice.
- Bitcoin wallets cannot be seized or frozen or audited by banks and law enforcement. Bitcoin wallets cannot have spending and withdrawal limits imposed on them. For all intents: nobody but the owner of the bitcoin wallet decides how their wealth will be managed.
- Bitcoin transactions are irreversible.Conventional payment methods, like a credit card charge, bank draft, personal checks, or wire transfer, do have the benefit of being insured and reversible by the banks involved. In the case of bitcoins, every time bitcoins change hands and change wallets, the result is final. Simultaneously, there is no insurance protection of your bitcoin wallet: If you lose your wallet’s hard drive data or even your wallet password, then your wallet’s contents are gone forever.
Why are Bitcoins so controversial?
The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media. Because Bitcoins are untraceable, they have become very popular with criminals, drug dealers, traffickers, and the like. Because of the huge use of Bitcoins with those of criminal intent, the value of these Bitcoins has skyrocketed.
How can I buy and use Bitcoins?
A Bitcoin wallet is first required to get started with using bitcoins. A wallet can be created easily through different online applications, such as Coinbase, BlockChain, Paxful, Bc-wallet, etc. Once you have a wallet, you can obtain bitcoins in one of these 3 common ways:
- If you are selling a good, you can accept bitcoins as a form of payment.
- You can purchase and sell bitcoins through Bitcoin exchanges (this is the most common way. Exchanges are typically found online, such as BitQuick, CoinCorner, Xapo, CoinIn, ZebPay, etc.)
- You can trade bitcoins for traditional currencies of countries.
Bitcoins is a form of virtual currency- meaning, if you have bitcoins, you do not physically purchase goods by handing notes or tokens to the seller. Bitcoins are used for electronic purchases and transfers. You can use bitcoins to pay friends, merchants, etc. Every single purchase is immediately logged digitally (on computers) on a transaction log that tracks the time of purchase and who owns how many bitcoins. When you want to buy something, all you have to do is find out the anonymous identification number attached to the seller’s wallet, and transfer coins from your wallet to his.
Are Bitcoins a good investment opportunity?
Forbes named bitcoin the best investment of 2013.In 2014, Bloomberg named bitcoin one of its worst investments of the year. In 2015, bitcoin topped Bloomberg’s currency tables!!
Yes it has given fantastic returns in the past, but is an investment opportunity filled with risks and threats, too. Understanding how it works and the risk you are exposing yourself to is of utmost importance before taking any step.
Today, 1 bitcoin is valued at approximately Rs. 1.83 lakhs!
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