BITCOIN

“I ain’t say money is everything,

but it has got power to steal attention of  everyone”

And when it comes to something none less than money or very much of equivalent strength, has definitely got the power to pull attention of many from whatever business they are in. The thirst for money pushes them to show their wilful interest in any news which had shown glimpse to their eyes or even a breeze which had kissed their ears. No matter what the source is, it could be newspapers, it could be news channels, it could be the social networking sites or it could be the movies (eg: “Wolf of the Wall street”) people enjoys the flow (money) and swim with it. Well, money can buy you anything (from salt to software to experience to everything), “you name it and you have it”. And when it comes to some currency which in its nascent stage, gaining popularity day in and day out, which has drawn recognition of every institutional investors and make them watching its movement, every retail investor which are exploring every bit of opportunity for trying their luck. This has drawn heed of particularly every top management and pundits across the globe (whether it for good reason or for bad that is different thing) in very short span of time. Yes, here I am talking of newly developed currency BITCOIN!!!. 

What the heck “Bitcoin” is?

Bitcoin is a virtual currency system. The concept of Bitcoin was developed by Satoshi Nakamoto in the year 2009 who himself is a mystery. If you have bitcoin you could not physically buy goods by handing notes or coins. These are used for electronic trading purpose only. Every time you purchase something, that purchase transaction get logged digitally on transaction log which contain info like transaction id, time of transaction, who owns how many bitcoins (userid or nick name); basically it contain every piece of information about every bitcoin transaction and that is why this transaction log is called as ‘blockchain’. With every transaction the ownership of bitcoin keep on changing. The people who are constantly verifying the blockchain ensure that all the info is correct and updating every time a transaction is made. These people are called ‘miner’. These are the one who confirm the transaction and ensure that the transaction secure and processed properly and safely. And in return to their service these miners are paid by their vendors if form of bitcoin. This system is basically works on ‘peer to peer network’ means there is no controller or regulator or any authority govern this system. Every peer itself works as server as well as client. This Bitcoin system make all the currency transaction anonymous, no one will come to know about the transaction and any info regarding the transaction, not even about the senders and receiver.

How to get hold of bitcoin?

There are basically three ways by which one can get bitcoin:

1        1. Mining.

2        2. If you are producing or manufacturing something, you can sell it for bitcoin.

3    3. Through bitcoin exchange.

Where can one store them?

To store any currencies you need wallet likewise to store bitcoin a wallet is must, but this wallet is digital one on the hard disk of your computer, laptop or mobile and we call it as ‘Bitcoin Wallet’. Bitcoin wallet is similar to an app, you need to download it and install it on your hard disk. Bitcoin wallet basically store the private keys that you need to access a bitcoin address and spend you fund. It is advisable to maintain this wallet in offline mode and have a copy of this as well. This prevents you from cyber attacks.

How to value bitcoin?

Like valuation of any other currency, valuation of bitcoin is also relative (valued with respect to dollar) and solely depends on the very basic concept of demand and supply which says that if demand of some commodity increase its value shots up and with increase supply of that commodity its value dive down. There are approx 11 million bitcoin in system which are gradually gaining acceptance worldwide. A lot of biggies (like overstock.com, NBA's Sacramento Kings, Zynga – Bitpay payment service for players of “Farmville2”, “Castleville” and other games) started accepting payment in bitcoin, which has raised the demand for bitcoin in the market and ultimately its value.

Here's a graph covering few months of the relative value of bitcoins against US dollars. 

What are its advantages over existing currencies?

The first and the foremost lucrative feature that Bitcoin carries is, ‘no or very low transaction fee’. Any bank or any third party payment process basically charge fees to perform secure and safe transaction on customer’s behalf, which is not there in case of Bitcoin transaction and if there exist some fee, it is very low as compared to banks charges. Besides this, Bitcoin also provide alternative mode of payment to the user other than cash, credit or debit cards, or any other form of electronic payment. It provides security, transparency to transaction and to counterfeiting. No one can steal them as bitcoins doesn’t exist physically. Digital nature makes them easier to carry than cash, which could be beneficial to various economies where most of the transactions are carried out in form cash which again leads to less counterfeiting and less corruption.

The biggest problem with existing currencies is that they lose out their value with time because of government interference. Today, there are approx 11 million bitcoin in the system which is increasing every four year in geometric progression at 50% rate. The Bitcoin system is designed in such a way that maximum of 21 million bitcoins will ever be released which lower the possibility of bitcoins being inflated i.e. low inflation risk. As already discussed, Bitcoin anonymous transactions make them untraceable.

What are disadvantages of Bitcoin?

Since these bitcoin are still in nascent stage, people are not able to digest the idea of virtual currency, its safety & security. It is still in development stage, many governments do not levy tax to Bitcoin transactions but this behaviour may change in future which may make Bitcoin transactions more costly than other transaction. And Bitcoin may lose edge over other currencies which might result in crashing it value.

Though bitcoin is gaining popularity across the globe still these are not widely acceptable, people are still shy off accepting payment in bitcoin. Bitcoin transactions are untraceable, which is making it vulnerable to smugglers and to other illegal activities. With no central authority or processing agency, the payment once made is irreversible.

In an economy like ours (developing or under developed) where one bitcoin cost around 50000 INR or more, people find it difficult to buy their general stuff. Many believe that this virtual currency will further widen the gap between rich and poor. Rich are getting richer with increase in value of bitcoin and poor is getting even poorer as they can’t get hold of bitcoin.

Future scope

Well, at this point of time I am not sure of future of newly developed digital currency. Many experts believe Bitcoin as currency of new era while on the flip side many believe it gives boost to illegal activities.

If we talk about India, RBI already issued a warning that Bitcoin usage is unsafe due to potential money laundering and cyber security risks. While on the other hand, many corporate join bitcoin brigade to lobby for digital currency.

It will be interesting to see, how this new currency behave and how the world respond to it.