Bitcoins have been making news for quite some time now. But the exponential surge that it has seen along with other crypto currencies in a relatively short span of time has surely grabbed (or even popped) many eyeballs.
Everyone has heard the word at least. If you have not, well, it’s a little embarrassing, given the relevance it has attained recently, but worry not, I will be providing you with all the basic essentials you need to know about Bitcoins.
Understanding the ambience
Let’s first understand a few things in the ambience of Bitcoin. It ain’t essential to know them but it is always good to know.
Type of currencies
Today, majorly three types of currencies rule the world. These include:
- Fiat Currency: It is the physical money that you see. The currency is regulated by the government bodies and hence the government has the monopoly over it. Hence, it is completely under the control of centralized institutions (Governments).
- Virtual Currency: So, you hired a cab and you have to pay $2.23 as the bill. You are struggling to tender the exact change. Let virtual currency come to your rescue. Virtual currency is Fiat currency in digital format. While Fiat currency is physical, virtual is digital. Since virtual currency, except for the form in which it exists, is same as fiat currency, all the features remain the same. The currency is regulated by the government bodies and hence the government has the monopoly over it. Hence, it is completely under the control of centralized institutions (Governments).
- Cryptocurrency: This is the category where bitcoin lies. Ah! now you are paying more attention. Good job! Cryptocurrency is also a digital form of currency but not regulated by the governments. Since it ain’t regulated by the Governments, forget monopoly, the government has no control over it. Hence, it is a decentralized version of money distribution and the power to control it lies in private hands (the miners, including you if you chose to become one). But it is not regulated by the government, so is it not very risky? The answer is no. Transparency is the bedrock of cryptocurrency, with Blockchain being the cornerstone technology.
What is Bitcoin?
Bitcoin is a worldwide cryptocurrency – the first decentralized digital currency. It is a digital asset (just like any of your other assets) and a payment system, created and held electronically. Bitcoins are minted by miners, using a software that solves complex mathematical problems. Don’t worry, if you didn’t understand the last line completely. A reading of this article will certainly clear all your doubts, but let’s save that for later.
Satoshi Nakamoto. Etch this name to your memory. Bitcoin was invented by an unknown person (or a group) under the name (or an alias) Satoshi Nakamoto.
On 31st of October, 2008, Satoshi Nakamoto released the Bitcoin Whitepaper.
How are bitcoins stored?
Consider my email address firstname.lastname@example.org and an associated password Iwonttellyou . While I can share my email address email@example.com publicly, I can’t share my password Iwonttellyou. Thus my email address is a public key while my password is a private key.
In bitcoins too, public and private keys are created. Balances are kept using these public and private keys. The public keys serves as the address from which you will send/receive bitcoins to/from someone else’s public key (Think firstname.lastname@example.org sending/receiving an email to/from email@example.com). The private keys serves for the authentication purposes (Unless I don’t know the private key or password Iwonttellyou , I won’t be able to send/authenticate the mail ).
What is the Unit of Bitcoin
Remember, how in high school, your marks were deducted for not mentioning the appropriate units against a value (e.g., A piece of land measuring 2 square feet). Similarly, in the fiat and virtual currencies, we have various units like dollars (represented by $) and cent(one-hundredth of a dollar), rupee (represented by ₹) and paisa(one-hundredth of a rupee) etc.
Bitcoins use a unit called bitcoin, represented by ₿.
The bitcoin sign is a part of Unicode 10.0 (released June 2017) with code point U+20BF. If you already don’t know what an Unicode is, you probably need not know. So, just don’t worry about the Unicode.
BTC or XBT are also very much in use to represent bitcoin.
As Dollar can be broken down into cents, or Rupee can be broken down into paise, Bitcoin can be broken down into satoshi, named in homage to bitcoin’s creator .
1 bitcoin = 100,000,000 satoshi (100 million satoshi) (American number system)
1 bitcoin = 10,00,00,000 satoshi (10 crores satoshi) (Indian number system)
1 Satoshi = 0.00000001 ₿.
There are few other units,
100 satoshi = 0.00000100 ₿ = 1 Bit / μBTC (micro-bitcoin)
100,000 satoshi = 0.00100000 ₿ = 1 mBTC (milli-bitcoin)
1,000,000 satoshi = 0.01000000 ₿ = 1 cBTC (centi-bitcoin)
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Is Bitcoin a legal tender in my country?
Some countries have faith in this currency while some countries have strongly objected to it and made it illegal. Yet, some are indifferent.
In India, it is NOT ILLEGAL to own Bitcoins. Although, RBI has admitted that it is uncomfortable for now and that Bitcoins can’t be used for any payments or settlements for now, but it does not make it illegal to own them. You can certainly trade it and pay to the merchants accepting the currency.
You can find a country-wise status here.
Can I trust Bitcoin?
Well, you don’t need to!
For Indian readers, if you have a currency note in your pocket. Take it out and read this ‘I promise to pay the bearer the sum of….’ signed by the Governor of India. Ever wondered what that means? It is a promissory note issued by the RBI. In simple words, it is a promise made by the RBI that the note is a legal tender.
Where there is a promise, there is a role for the trust. But with Bitcoins, you don’t need trust because you will instead have proof (in Blockchain Transactions)
Can I use bitcoin for any payments?
Yes. Just to give you an idea, Firms like PayPal, Microsoft, Dell, WordPress, Expedia are already accepting Bitcoins.
In fact, by 2015, Bitcoin was already being accepted by over hundred thousand merchants worldwide as per a report from International Business Times.
How convenient is using Bitcoin?
Bitcoin allows you to send any amount of money instantly to anyone. All you need is recipient’s bitcoin address.
Plus government can’t control it. Think demonetization. Think upper limit on e-wallet’s like PayTm. Whether that’s good or bad is subjective and debatable.
How is it different than PayPal or a credit card or an ATM card
Imagine, if your Payment Service Provider (like Visa, MasterCard, Maestro, Amex) decide (perhaps under the coercion of governments) that a user can’t transact more than $1000 or Rs 65,000 in a day, what can you do about it? In other words, these Payment Service Providers can cause atrocities (under the Government’s shield) on you since they have monopoly over it. You can’t decide any rule since you don’t control it.
But with Bitcoin, you are in control if you are a miner. The rules by which bitcoins transactions take place, need to be agreed upon by a majority( >50%) of the miners. So rules by which bitcoins are created or transacted can’t be anybody’s monopoly.
Thus, Bitcoin is the world’s first completely open payment network in which you too can participate in and hold a vote for any proposed change. All you need to do is become a miner.
I sent bitcoins to someone I did not intend to. Can I get them back?
Bitcoin transactions are irreversible. Once sent, there is no way you can reverse the transaction. Unless the recipient is benevolent enough to return it to you, they are gone for ever.
Has it any correlation with any currency? What brings the change in its price?
Bitcoins are independent of any currency. Bitcoins are like shares. Work purely on Demand and Supply basis. The greater the demand, the more the value. The lesser the demand, the lesser the value.
Bitcoins are traded in Real Time for Dollars, Euros, Yen, Rupees and other currencies. Depending on the demand, the prices fluctuate. Given that it is an emerging thing, the values are pretty volatile.
All said and done, How to buy Bitcoins?
In the United States, Coinbase will sell you Bitcoins after linking your Bank account or Credit Card. It requires a lot of identity verification to satisfy the authorities.
For people who don’t wish to reveal their identities, LocalBitcoins will come to the rescue by connecting the people who want to meet in person to buy and sell Bitcoins for cash, often without any need for identity verification.
How is bitcoin created?
Bitcoins are actually mined by miners, using the computing power in a distributed network.
Wait, wait, wait….who are these miners?
The people (individuals and companies) who own the governing computing power and participate in the above said Bitcoin network are known as miners as they mine for Bitcoins. The miners are rewarded (by the Release of a new Bitcoin) and transaction fees paid in bitcoin. These miners can be equated with a decentralized authority enforcing the credibility of the Bitcoin network.
The Bitcoin protocol mandate that only 21 million Bitcoins can ever be created by the miners.
There is generally a new winner about every 10 minutes, and this will continue till there are 21 million Bitcoins in the world. This cap is expected to be reached in 2140. Till now, ~16 million Bitcoins have been mined.
Every Bitcoin in existence was created through this method and initially given to a computer (miner) helping to maintain the records. Anyone can set his or her computer to mine Bitcoin, but these days only people with specialized hardware manage to win the race.
Can Bitcoin miners just give themselves more bitcoins?
Any miner can change his or her copy of the records to add more money. But the other miners would see this discrepancy and therefore, the changes would not be considered.
Are there any other cryptocurrencies?
There are many of them like Etherium, Ripple, etc., but they are not as worthy as Bitcoin is. Any currency is only as worthy as the number of people willing to accept it. And Bitcoin supersedes all the others by a huge margin.
Why is Satoshi Nakamoto anonymous?
Ever heard of the celebrities lamenting and complaining how they cannot enjoy the common life , how they long for a roadside delicacy as it is not safe for them and causes inconvenience? Well, Satoshi has found the solution by remaining anonymous.
Misuse of Bitcoins
- Misuse by online exchanges : The online apps and exchanges which trade cash for Bitcoins can be dishonest. Below is a screenshot of two leading bitcoin exchanges at the same time. Notice the huge difference between the selling and buying prices!
- Might is Right : Since simple mining techniques no longer work, mining is best achieved through pooling. There are mining pool organisers who may divide the share of any bitcoins discovered very vaguely and there is little that you can do about it.
- Technical Issues : This leads from time delay in confirmation. Bitcoins can be double spent during the interval of confirmation. Bitcoins travel peer to peer and hence take some seconds for any transaction to reach every node in the network during which some miner can submit a second payment of the same bitcoins to a different recepient.
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