Bitcoin: The phantom that came to life

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All of us can recall that few months ago, a virus attacked and took over technology. Yes, it was Ransomware virus. If we try to recall a bit more, you may remember that it demanded payment in cryptocurrency or a type of it like Bitcoin. To be honest, I think me and most of us heard about Bitcoin the first time then. So, thanks to the virus and the hackers, I decided to put my grey matter to use and here is what I discovered, learned & found about Bitcoin –

BITCOIN HAS BEEN HERE SINCE JANUARY 2009.

Satoshi Nakamoto

The founder & inventor of Bitcoin, had implemented the first blockchain. He is the reason we have bitcoins today. But there is no hard proof available on the person. I searched and searched a lot. All I could manage to find are some theories.

So now, as per Wikipedia –

Satoshi Nakamoto is the name used by the unknown person or persons who have designed bitcoin and have created its original reference implementation. As part of the implementation, they also devised the first blockchain database. In this process, they were the first to solve the double-spending problem for digital currency.

All of this happened back in 2008-2009. Now we need to understand certain terms.

What is blockchain?

Blockchain is the technology that enables the existence of cryptocurrency. A blockchain is typically managed by a peer-to-peer network.

Blockchain works similarly like Wikipedia. In both the cases, there is a master database or copy which notes every transaction made. But in case of Wikipedia you get the authority to edit the master copy. Here is where the blockchain is secured. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.

The blockchain database isn’t stored in any single location, meaning that the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”

Vitalik Buterin, inventor of Ethereum

What is cryptocurrency?

A cryptocurrency is a medium of exchange, such as the US dollar or INR, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.

Cryptocurrencies are fully decentralized, unlike the centralized banking where the governments control the value of a currency through the process of printing their respective currency. Most cryptocurrencies are designed to decrease in production over time like Bitcoin, which creates a market cap on them. There has been a proliferation of cryptocurrencies in the past decade and there are now more than 900 available on the internet.

What is Bitcoin?

Bitcoin is the name of the best-known cryptocurrency, the one for which Blockchain technology was invented. As per a website -

“Bitcoin uses peer-to-peer technology to operate; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.”

The Bitcoin protocol is also limited to 21 million bitcoins, meaning that no more than that can ever be created. This means that no central bank, individual or government can come along and simply ‘print’ more bitcoins when it suits them. In this sense Bitcoin is a deflationary currency, and as such is likely to grow in value based on this property alone.

So how does Bitcoin work?

First you open a wallet account on your computer or mobile. There are some websites and apps like – Zebpay, Coinsecure, Unocoin, Ethereum etc. These are exclusively for bitcoins and cryptocurrencies.

Get your account verified by submitting the documents.

Transfer money to the wallet. Buy and sell bitcoins. This is the way it works! Just like how we trade in share market minus the regulatory body.

Bitcoin makes payments fast and inexpensive. With bitcoin, there are no overhead costs or extra charges, making it a more appealing form of payment. According to leading cryptocurrency exchanges in India, cryptocurrency is gaining popularity, primarily as a financial asset. While global trade volume is about $5 billion a day, India’s annual bitcoin trade volume stands at $20 billion.

Let’s understand it in a transaction. Supposedly, you have a relative living abroad. Now the global currency is USD. So if your relative transfers you $1000 US, as per the current rate, you should receive around INR 65,000. But it will be done via bank; the bank will levy its transaction charges. Depending upon the transaction cost, you receive less than INR 65,000. This is just a very small example of how bitcoin is helping realise close to 100% value of your money.

Present & Future

There has been a lot of debate going on in India as well as abroad.

RBI does not want to acknowledge Bitcoin as legal settlement way and is not recognizing bitcoin exchanges. But I feel this would have happened with any other new currency that would have come in place of bitcoin. The reason is that the bank can’t control it, can’t regulate and can’t even print it. As per a PIL in Supreme Court, despite the RBI’s call for caution against the use of virtual currencies, domestic Bitcoin exchange have been adding over 2,500 users a day and have reached over five lakh downloads.

China and South Korea have banned Initial Coin Offerings (ICO) (IPO version of cryptocurrency). China has also banned on domestic exchanges conducting transactions between renminbi and digital asset. The reason is that the ruling party of China is known to control almost every aspect of society.

The CEO of JP Morgan Chase has said that the bank will never go into bitcoins and he won’t let anyone in the bank, trade in it either. But I feel this statement is in short-sight.

Undoubtedly, there are risks associated with bitcoins and cryptocurrencies. But so are the risks associated with current digital transactions too. If we say that Bitcoin exchanges get hacked, credit cards and bank accounts have been hacked too.

Globally, we have suffered Oil Shocks, Technological bubble, Subprime crisis, etc. But we have evolved.

In India, we can remember a guy almost gulped INR 400 crores of Citibank in Delhi by duping customers. And this is not the only instance, there are many. Harshad Mehta scam did also happen even though there was presence of regulatory bodies.

And when we are pushing towards digitization and cashless transactions, why not accept Bitcoins? As per a World Bank report, despite an 8.9 percent drop in 2016, India has retained its position as a top receiver of bitcoin-related remittances worldwide.

We as humans, started with the barter system, and then came the currency systems, eventually the cards came in, now e-wallets and mobile apps. So where are we headed in the future? One of the answers definitely is Bitcoins. All parties involved have a copy of all transactions. When a transaction is made, it is noted in everyone’s copy, and they all tally up. Plus, an entry made can never be edited or deleted, so it is a 100 on the transparency scale.

So, instead of fearing the unknown and rejecting it, I think we should accept Bitcoins and start working on ways to evolve it in a manner to suit our needs. Because one thing is for sure, Bitcoin is here to stay.