You may have heard the word Bitcoin being used by your tech savvy friends and wondered what a bitcoin is supposed to be. Well, look no further, as we hope to enlighten you on what Bitcoin exactly is and how it concerns you. With the current demonetization and the pusah for digital economy by Indian Prime Minister Mr. Narendra Modi, this form of digital currency is one of the option in which one can invest.
Here are top 10 facts about bitcoin:
This will seem straight out of a mystery novel but there is a mystery surrounding the ownership of Bitcoin. They operate under the name of Satoshi Nakamoto, who might be an individual or a group of programmers. An Australian named Craig Wright came forward and claimed being the owner of bitcoin but his claim was rejected as he had no proof. There is no intermediary in the system, as it is fully peer to peer and transactions take place directly between users.
Bitcoin was created by Satoshi Nakamoto, who posted this to a cryptography mailing list in a research paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. It was adopted as open source code and released to the world in January 2009. It is defined as the first decentralized crytocurrency or digital currency. The receiver of the first bitcoin transaction was Hal Finney, who was a very strong and initial supporter of bitcoin. Satoshi Nakamoto has handed over the control of bitcoin to Gavin Andresen, who became the lead developer at Bitcoin Foundation, which can almost be called as the face of bitcoin. The first bitcoin ATM was installed on 13th October in Vancouver, Canada.
It is basically a ledger which records all the transactions, that happen on bitcoin. It is a very innovative system which functions without any central authority, and the blockchain in handled by a network of nodes which communicate with each other as they are connected. Network nodes validate transactions, add them to their ledger and then inform of these changes in ledger to other nodes. About six times per hour, a new group of transactions, a block, is created, added to the blockchain and quickly published to all nodes. This prevents double spending, as the Bitcoin software finds out when someone spends any amount.
If you are interested in buying Bitcoins, you can buy them both online and offline. Bitcoins can be bought offline by approaching an individual who is in possession of them and at a bitcoin ATM. Bitcoin machines are a bit different from normal ATM’s as they are connected to the internet and you have to insert cash in exchange for bitcoins. These ATM’s may charge transaction fees as high as 6% and they also charge exchange fees. Online purchase of bitcoins can be made through online exchanges that offer bitcoins for buying and selling. However, there is a risk involved in such transactions and some transactions fail.
Bitcoin is a very volatile currency as compared to U.S. dollar and gold. There are many reasons given by scholars as to bitcoin’s high volatility, some say, it is because of concern for its long term and some say since it is a startup, there is always risk involved. 1 bitcoin is equal to 76767.32 INR currently and 1 bitcoin equals 1152 U.S. dollar. The price of bitcoins has gone through a lot of ups and downs. In the year of its release its price was very low as compared to U.S. dollar and it started to increase in 2011 from 0.30$ to 32$. From this point on, the price of bitcoins underwent several bouts of appreciation and depreciation, therefore bitcoin is referred to as a very volatile currency. The company is currently valued at more than US$12 billion.
6. Bitcoin acceptance
In 2015 bitcoin was accepted by more than 1, 00,000 merchants. Merchants who accept bitcoins pay fees in the range of 0%-2%, whereas credit card processors charge up to 2%-3%. Some firms which accept bitcoins are:
– Virgin Galactic
Bitcoins are also accepted by non-profit foundations such as Greenpeace, The Mozilla Foundation, by some retail outlets and some financial institutions.
7. Criminal Activity
Bitcoins have also become popular with criminal elements and many have started using it because of the ease with which they can purchase illegal goods using bitcoins, plus the absence of a central regulator is an added bonus. Several dark web websites such as Silk Road, shutdown in 2013, accept bitcoins where you can get anything from murder-for-hire, child pornography, drugs and weapons. There have been various instances, where such shady websites have been closed by the authorities on the suspicion of carrying out illegal activities and these websites were known to be accepting bitcoins.
8. Protection against cyber attacks
There have been several cyber attacks on the bitcoin network as well as on several online exchanges which offer bitcoins for buying and selling. There have been steps taken to ensure protection against such attacks. To prevent unauthorised spending, a public-private key system is in place. So, if a third person wants to spend someone else’s money, he/she cannot do it without having the private key of the owner of bitcoins. To prevent double spending, all the transactions that occur, are added to the blockchain and visible to everyone so that they can crosscheck their transactions. To prevent illegal activity, deanonymisation is implemented, in which different anonymous data is cross referenced with each other to figure out the anonymous data source. This is used to figure out the user’s IP address, which may help in identification of the user.
9. Number of Bitcoins
The company has declared that only 21 million bitcoins will be ever made and be in circulation. Miners who mine the blockchain are rewarded with bitcoins and currently 12.5 new bitcoins are generated per block, which has been added to the blockchain. This number is slated to decrease, as the limit of 21 million comes closer and the reward will reduce to 6.5 new bitcoins, which ultimately become zero when the 21 million bitcoins limit is attained. It is estimated that, following the current pace, the limit of 21 million bitcoins will be attained in 2140 C.E. and after that the rewards will be from the transaction fees.
Wallets have the information which is important if you want to deal in bitcoins. A bitcoin uses public-key cryptography in which two keys, one public and one private, are generated. In Layman terms, a wallet is one which stores the public and private keys which are necessary for transacting bitcoins. There are several types of wallets such as software wallets, online wallets and physical wallets. Software wallets are of two types:
- Full clients – which transact directly on a local copy of the blockchain or a subset of the blockchain.
- Lightweight clients – which takes reference from the full client to send and receive information without the need of a local copy.
Online wallets are fairly easy to use and the credentials of users are stored online and not physically. Physical wallets can be coins, on which the credentials are printed on metal or on simple paper printouts and these can be used for offline transactions.