What are Bitcoins and why have they become a talking point both online and offline ? Manil S Dodani decodes the mystery
What is this newage space tech you call Bitcoin?
Bitcoin is the world’s first decentralised currency bereft of regulation from central banks which allows anonymous transactions between consumers, firms and even the black market. Bitcoins can be spent anywhere, any time via computers or smartphones. No financial institution on the planet wields control over the Bitcoin. Bitcoins are generated by the Bitcoin community which anyone can join.
The Bitcoin first appeared in 2009 and was created by someone using the alias Satoshi Nakamoto. No one really knows the true identity behind this alias. Multiple conspiracy theories exist – some suggest he worked for the government (although why the government is interested in creating an anonymous currency with no trackbacks is beyond my understanding), while others point that he might be a student of cryptography, coding genius or simply someone supernatural at mathematics.
Who mints these coins?
Bitcoins exist only in cyberspace and hence aren’t minted like conventional coins. They are created by ‘mining’. Bitcoin mining is a global rat race run by millions of computers who solve brutal maths puzzles in order to earn Bitcoins. The finish line extends every 10 minutes i.e. every 10 minutes the puzzle morphs and a reward of 25 Bitcoins becomes available.
Bitcoin miners run and secure the Bitcoin network. They use powerful computers and massive amounts of networking power to verify the authenticity of Bitcoin transactions and add them to the general ledger, which is simply a record of past transactions. As a reward for contributing computing power and keeping the network running, Bitcoins are rewarded to miners, hence creating a steady supply of Bitcoins. Miners work together to keep the network synchronised and constantly verify transactions, much like a bank’s data centre that processes credit and debit card payments.
The exchange of Bitcoins is further facilitated by Bitcoin exchanges. These exchanges allow individuals to buy and sell Bitcoins in exchange for currencies including but not limited to US Dollars and the Japanese Yen. The largest Bitcoin exchange is BitStamp.
Why so shady?
Bitcoins in India have no official regulation or recognition from the RBI and hence their growth rate have been terribly stunted. With the RBI issuing warnings and multiple investor notices, the faith in this currency just cannot be reinforced. Additionally, any profits earned from the trading of this currency are technically untraceable which makes Bitcoins a very popular choice with hustlers and the black market.
Silk Road 1.0 was an online marketplace where individuals could buy guns, drugs, biotic materials, narcotics materials, scheduled grade chemicals, etc anonymously with Bitcoins. Bitcoins since then have been regarded as an avant garde underground currency that could be used maliciously, leading to worldwide violations of trade laws and almost free trade of narcotics and other banned substances. FBI shut down Silk Road 1.0 and arrested its administrator. However, Silk Road 2.0 is now live and operational.
What damaged Bitcoin’s image further was the fall of Mt. Gox. Mt. Gox was one of the world’s largest Bitcoin exchanges, handling Bitcoin transactions running into millions of dollars. In early 2014, Mt. Gox filed for bankruptcy proceedings and is in asset liquidation procedure (at the time of going to print). It was hacked by people who used a ‘transaction malleability’ attack – the original transaction data was modified and Bitcoins were stolen. According to reports, the last known value of the missing Bitcoins was $450 million. Anything digital is never foolproof.
The metaphorical ray of hope
Bitcoins are still in an informal Beta phase and will continue to be in the recent future. However, as the life cycle of this technology advances, Bitcoins will have their values hedged against a larger number of currencies. This advancement would mean more users across hemispheres being able to buy and sell Bitcoins. With the USA officially recognising the Bitcoin, the hope for a nascent future is already in the making. All that remains to still be mined is India’s approval of the newest currency in town, currently an unwelcome atithi – the humble, dual faceted Bitcoin.
WHERE DO I SPEND MY BITCOINS?
Bitcoins may display 50 shades of grey, but that hasn’t deterred a number of businesses and services from accepting them as legal payment. However, no Indian companies currently accept Bitcoins.
* University of Nicosia, Cyprus
* A HolidayInn branch in Brooklyn, New York accepts Bitcoin payments
Bitcoins are not the only digital currency that exist in cyberspace. Here are more:
• LiteCoin • PeerCoin
• PrimeCoin • NameCoin
Even with the availability of said currencies, their usage and implementation are limited as the number of merchants accepting cryptocurrencies are few and highly localised.
Read more about The Bitcoin being a bust currency
Volume 4 Issue 2