What is bitcoin? How does it work?
In the simplest form, Bitcoins can be described as a “Peer to Peer Electronic cash system.” Bitcoins can be used as a method of payment for numerous goods and services and for simple transactions like purchasing vouchers, paying bills, etc. In different jurisdictions, Bitcoins are treated as a property, currency, virtual asset, good, security or commodity for the purpose of trading on a stock exchange or commodity exchange.
Essentially Bitcoin is a cryptocurrency,
i.e., it operates on the principles of cryptography to manage the
creation of Bitcoins and securing the transactions. Cryptocurrencies are
managed by private parties, without the need for a government authority
to monitor the currency system. The currency has been designed in a way
that the number of total units of Bitcoins in circulation will always
be limited. Going by the pace at which Bitcoins are being minted, the
last unit will be mined around the year 2140.
Also Read: What Is The Difference Between Deep Web, Darknet, And Dark Web?
The cryptocurrencies essentially work on
the Blockchain system. A Blockchain is a public ledger of Bitcoins that
is designed to record all the transactions. The chronological order of
Blockchain is enforced with cryptography and each new ledger update
creates newly minted Bitcoins. This is designed in a way that Bitcoin
wallets can calculate their total balance and new transactions can be
verified. The integrity and the chronological order of the block chain
are enforced with cryptography.
The buyer and seller can enter into
transactions by using their Bitcoin wallets that are secured by a secret
piece of data called, a “Private key.” The key is used to authorise the
transactions by the owner of the wallet, and cannot be normally
tempered by anyone, once it is issued. The
transactions are performed by adding the Bitcoin wallets on an
exchange, acting as a facilitator for sale and purchase of Bitcoins. All
transactions are displayed between the users and usually begin to be
confirmed by the network through a process called “Mining.” It is
essentially the process of creating new Bitcoins out of the total
Bitcoins that are designed to be “Mined” using computers. The
transactions transfer the value between the users and get recorded in
the Blockchain, ensuring that each transaction is valid.
Is Bitcoin legal money?
The legality of Bitcoins is
controversial, while some jurisdictions have express laws and
regulations to deal with Bitcoins, others still fall in gray areas. As
per a recent bill in Japan, Bitcoins and other virtual currencies have
been given legal recognition and are accepted as a mode of payment.
While in China, trading in Bitcoins come under the regulatory
restrictions imposed by People’s Bank of China.
In the U.S.A, different states have
adopted varying approaches to Bitcoins. Recently a U.S Magistrate in the
state of New York ruled that Bitcoins are not money, while a
contradictory stance was taken by a judge in Manhattan, who ruled that
bitcoins are acceptable means of payment. The Internal Revenue Service in
the United States, defines bitcoin as property rather than currency for
tax purposes. The U.S. Treasury, by contrast, classifies bitcoin as a
decentralised virtual currency.
In Russia, reportedly, Bitcoins may soon
be regulated in a bid to tackle money laundering, though, in the past,
Russia has expressed its displeasure with Bitcoins and other
cryptocurrencies. In India, as of now, no regulations have been framed
by either Reserve Bank of India or Securities and Exchange Board of
India, the two contenders, for the purpose of drafting regulations
pertaining to Bitcoins and acting as a watchdog.
In India, who ultimately acts as a
regulatory authority can only be decided based on whether the government
decides to treat Bitcoins as “Currency” or “Security/Commodity.” As per
current Indian laws, “Currency” can only be issued by the government
but the residuary powers in this regard lie with the Reserve Bank of
India which can notify “Bitcoins” as currency. After
the demonetization drive in India, the demand for Bitcoin has more than
doubled in less than two months. The Indian government has reportedly
set up an inter-disciplinary committee to regulate the Bitcoins amidst
the apprehensions that the black money hoarders may have invested into
Bitcoins.
Bitcoin trends in 2017
Bitcoins are extremely volatile in nature. While the future trends for Bitcoins can’t be predicted with utmost certainty, as per a report
published on Forbes, the market is set to show strong waves in the
favor of cryptocurrencies, as predicted by a crypto market intelligence
startup. As per the latest position, The 24-hour average rate of
exchange across USD Bitcoin markets is US$1184.87, the 7-day average is
US$1204.85, and the 30-day average is US$1080.26 confirming only the
volatility of Bitcoins.
There are possibilities that some countries may introduce an Exchange Traded Fund (ETF) to
make Bitcoin Trading easier and accessible. While a similar application
to create an ETF has been rejected by The US Securities and Exchange
Commission (SEC), the chances of other countries adopting it are not
bleak. Currently, sale and purchase of Bitcoins is a multi-step process.
Creating an ETF would make it possible for the investors to buy
Bitcoins through the stock market.
Further, In the future Blockchains, the underlying technology to Bitcoins may bring revolution in the music industry. Cryptography
could transform the music industry by using Blockchain ledgers. As per
reports, an attempt is being made to bring music distribution under the
cryptography. This can be done by adding the music to blockchain and
letting the users distribute the music by paying a sum. This can also
bring down music piracy.
To sum up the discussion, it can be said
that while Bitcoins may not replace the “Fiat Currency” anytime soon,
but there has been a phenomenal growth in the acceptance of
cryptocurrencies around the world. While the investors may still be
reluctant to invest in Bitcoins, given the high risks associated with
it, the demand for Bitcoins has grown manifold. In the end, it could be
argued that a good legal and regulatory framework for Bitcoins would
help the investors decide the viability of Bitcoins in the long run.
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