Cryptocurrency : Here’s all the basic idea and hype around the Bitcoin

As we all are aware of the fact that Cryptocurrency has gained so much popularity in the last two decades or so. In this blog, we will see the same-the basic idea and the hype around bitcoin!

What is cryptocurrency?

Cryptocurrency in simple words is a virtual currency. Virtual means- they exist in electronic format and are accessible only through computers. Like the coins and cash currency, it is a medium of exchange with the only difference being that- it is digital in format and has no physical existence, unlike the Indian rupee and US dollar. It uses a system of cryptographic puzzles (AKA encryption) to control the creation of coins and to verify a transaction.

One of the most important features of cryptocurrencies is that they are generally not issued by any central authority or bank. Rather they are operated by individuals, stakeholders, and investors themselves. Therefore, crypto lakes legal tender status.

In India, investing and trading in crypto is allowed but the laws are not clear as to how they are regulated in particular. It is just the center that has to bring the bill in the parliament for cryptocurrency. It is most likely that the bill will be introduced in the upcoming budget session.

Cryptocurrency index

India has launched its first-ever cryptocurrency index which is named IC15. It was supposed to be launched by the global cryptocurrency super app Cryptowire. Its main work is to monitor the performance of the 15 most-traded cryptocurrencies.  These include- Bitcoin, Ethereum, Litecoin, Binance coin, Chainlink, XPR, bitcoin cash, Solana, Terra, Avalanche, Dogecoin, and Shia Inu. It will not only help investors to keep a track of the cryptos but will also serve as a benchmark on digital markets.

The most popular cryptocurrency- Bitcoin

Bitcoin is the world’s largest cryptocurrency which was launched in 2009 by market capitalization. It uses cryptography to control its creation and management, rather than relying on central authorities. So yes, we can say that it is operated by a decentralized authority and uses technology- called Blockchain.

Features of bitcoin

Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. Though there is no physical bitcoin as such, people are using it as an online version of cash and obviously, no single institution controls it. You can use bitcoin to buy products and services only where it is applicable because many countries are there that do not accept it yet as the medium of exchange. However, EI Salvador became the first country in the world to accept bitcoin as legal tender in June 2021.

Bitcoin public ledger

The public ledger has the records of all the confirmed transactions and balances. Moreover, a complete record of the transaction is recorded in the blockchain, which is a sequence of records called blocks. Since The blockchain is maintained by the public or investors, the balances kept on it are transparent and have excess to everyone.

The technology behind bitcoin trading- Blockchain.

To make bitcoin decentralized, it was thought that why not give its access directly to the public? for the same, those users or public were selected who were willing to devote their CPU power for running special software. Those users were called bitcoin miners. and their prime work was to maintain the block of information. Therefore, this process was called the blockchain.

In a technical sense- blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography.

Is it really anonymous?

Yes, to a point. Transactions and accounts can be traced, but the account owners aren’t necessarily known. However, investigators might be able to track down the owners when bitcoins are converted to regular currency.

Where did it all start?

The idea of digital money- convenient and untraceable, liberated from the oversight of governments and banks, had been a hot topic since the birth of the internet.

On November 1, 2008 (in the aftermath of financial crises), a man named Santoshi Nakamoto posted a research paper to an obscure cryptography listserv describing his design for a new digital currency that he called bitcoin.

Why is bitcoin valuable?

There are lots of things other than money which we consider valuable like gold and diamonds. There is one interesting story: During the Classic Maya period (250-900 CE), The Aztecs used cocoa beans as money. (YES, COCA BEANS/ CHOCOLATE AS MONEY) and why? because we gave them importance. Similar is the case with bitcoin, bitcoin is valuable because people are giving them the importance and are willing to exchange them for real goods and services, and even cash.

How to Buy Bitcoin?

There are two ways. The first is to buy it from someone using ‘real’ money. You can sell things and let people pay you with bitcoins. and the second is to mine new crypto itself by creating it using computers. In India, you can invest in crypto using trading platforms such as WazirX, CoinDCX, Kuber, etc.

Advantages of Bitcoin

With bitcoin, it is very possible to be able to send and get money anywhere in the world at any given time. You are in control of your money with bitcoin. And most importantly there is no central authority figure in the bitcoin network hence making it more flexible and quicker. With the blockchain to see, however, personal information is hidden.

“I do think bitcoin is the first [encrypted money] that has the potential to do something like changing the world.”- Peter Thiel (co-founder of PayPal and investor in bitcoin merchant processor Bit Pay.

“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value” – Eric Schmidt, CEO of Google (2011 to 2015)

Disadvantages of Bitcoin

The fact is that many people are still unaware of digital currencies. Bitcoin has volatility mainly because there is a limited number of coins and the demand for them increases with each passing day. Additionally, we cannot deny that Bitcoin is still at its infancy stage with incomplete features that are in development. The government indeed fears that it is misleading the youth as it is unregulated. And can even become avenues for money laundering and terror financing in the future. According to RBI, it can pose serious threats to the macroeconomic and financial stability of the country.

As Warren Buffett quoted-

“If you buy something like bitcoin or some cryptocurrency, you don’t have anything that is producing anything.”

Way ahead?

The world is cognizant of the fact that cryptocurrency is an evolving technology. It has its pros and cons but it can lead the currency world in near future, who knows? All in all, more research should be done in this field. Because it still needs improvement in many aspects. What government needs is a progressive and forward-looking approach towards cryptocurrency.

Do read: ‘Don’t risk life savings, invest with caution’: Elon Musk advice on Cryptocurrency