What is Cryptocurrency? Know all about Bitcoins and others here
Why in News?
Bitcoin has recently crossed the value of 20,000 US dollars. Cryptocurrencies are banned in many countries but Bitcoin has remarkably crossed this value in spite of that. Know more about cryptocurrency, Bitcoin and many other details below.
What is a cryptocurrency?
- A cryptocurrency is a digital/virtual form of currency that is secured cryptography. This makes it next to impossible to counterfeit.
- Various cryptocurrencies work as decentralized networks that are based on blockchain technology.
- Cryptocurrencies are generally not issued by any central authority, leaving them theoretically immune to government interference or manipulation.
- Cryptocurrencies are systems that allow for secure payments online
- These are denominated in terms of virtual tokens and are represented by ledger entries internal to the system.
- The word "Crypto" refers to the various encryption algorithms and cryptographic techniques Techniques like elliptical curve encryption, public-private key pairs, and hashing functions safeguard the ledger entries.
- The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular among players.
- It was launched in 2009 by Satoshi Nakamoto, which no one knows was a single person or a firm.
- By the end of 2019, that is after 10 years of launch, there were more than 18 million bitcoins in circulation with a total market value of around 146 billion dollars.
- Bitcoin was originally intended to provide an alternative to fiat money to become a universally acceptable mode of exchange.
- Bitcoins are regulated by software and the agreement of users of the system.
- Only 21 million units of Bitcoins will ever be created
Benefits of Cryptocurrencies:
- Cryptocurrencies can make transferring funds directly between two parties easier, without the need for a bank or credit card company.
- These transfers are also secured by the use of public keys and private keys or various forms of incentive providers such as Proof of Work or Proof of Stake.
- In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions.
- Fund transfers can be done with the least amount of processing fees.
- It allows the users to avoid the steep fees charged by banks and financial institutions for wire transfers.
- Bitcoin blockchain has helped authorities to arrest and prosecute criminals. Dash, Monero, or ZCash, which are far more difficult to trace.
Disadvantages of Cryptocurrencies
- The semi-anonymous transactions make them well-suited for illegal activities.
- The cryptocurrencies can be used for money laundering and tax evasion.
- Privacy of any user may not be breached at the front end but the records can be easily hacked too.
Other cryptocurrencies in the market:
Other than Bitcoins the currencies are known as altcoins. These include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. The aggregate value of all the cryptocurrencies is around 214 billion dollars out of which Bitcoin holds more than 68% of the total value.
Bitcoins in India:
- It was in the 2018-19 budget speech when the Finance Minister announced that the government would not consider cryptocurrencies as a legal tender
- The government also showed determination to take various measures to eliminate the use of cryptocurrencies to finance illegitimate activities becoming a part of the payment system.
- The Supreme Court, SC struck down the ban on the trading of virtual currencies, VC in India, that was imposed by the RBI.
- In 2018, Reserve Bank of India barred all the entities regulated by it to deal in virtual currencies providing services for facilitating any persons or entity in dealing with or settling virtual currencies.
- The Supreme Court has held that cryptocurrencies are in the nature of commodities and hence they can not be banned.
How can one access Bitcoin?
Bitcoins can be mined if the buyers have the
- computing capacity
- can purchase them via exchanges
- can acquire them in over-the-counter
- Through person-to-person transactions
What is a Bitcoin Exchange?
A Bitcoin exchange is sort of a bank where any person can buy or sell Bitcoins using traditional currency. Just like shares, the price of a Bitcoin keeps fluctuating depending on the markets demand and supply.
It has been observed lately that the market of the cryptocurrencies especially the Bitcoin has grown during the pandemic which can be considered as one of the reasons for its growth.
Various payments firm PayPal, and Indian lenders like State Bank of India, ICICI Bank, HDFC Bank and Yes Bank have recognized the cryptocurrency. Many insurance companies and pension funds are also investing in Bitcoins giving this cryptocurrency market the required boost.