If you are someone who is diligently following global economy & trending topics, then it's certain that you must have heard of one word “Bitcoin”. Starting from financial agencies, governments, regulating authorities, e-media & other experts, are frequently discussing about this term. What is this Because Bitcoin all about & how to own it?
The concept of Bitcoin came into the picture based upon 2008 white paper which was then released by Satoshi Nakamoto. He is named as the father of Bitcoin. It is said that in India there are close to fifty lakhs of peoples trading in Bitcoins & other virtual currencies. As per the recent developments, transaction's in Bitcoin is banned by three major topmost agencies of our country.
Finance Ministry- Finance Minister in his 2018 budget speech made it clear that any cryptocurrency is not a legal tender in India. However, acknowledged the power of Blockchain & Distributes Ledger Technology (DLT).
RBI - Prohibits on dealing with virtual currencies like Bitcoin. - Circular RBI/2017-18/154, effective from 05 April 2018 & issued 3 months of buffer period directing entities to end their transactions in Bitcoin.
Supreme Court - The Supreme Court of India refused to give grant a temporary stay on the RBI's prohibition on virtual currencies, filed by IAMAI i.e. Internet and Mobile Association of India through a writ petition.
Although citizens want to accept the emerging digital economy, but the government is not giving them a scope considering its decentralized feature & other associated risk factors.
How Bitcoins are generated-
In case of paper money governments of India printed currency until the RBI was established in 1935, which then took over the responsibility. But the process of getting Bitcoin is altogether different, as it does not have any physical existence.
The Bitcoins are generated through the process called Mining & is operated through peer to peer network. It is entirely executed digitally with the help of internet & suitable hardware's (i.e. Application Specific Integrated Circuit - ASIC), which does not require the traditional process of mining operation like through blasting, drilling & excavation etc. There are two ways of Mining in the Bitcoin process. One is Solo Mining & other is Pool Mining.
SoloMining- As the name suggests this process is done by a solo/individual miner without any others help.
PoolMining- Miners connect with other Bitcoin miners. More miner's means more secure network, as it requires validation by other miners as well. (Refer below) Pool miners find quick solution as compared to the individual miners.
Miners need to create a virtual ID & a Wallet for Mining. It involves compiling recent transactions into blocks & turning them into a mathematical equation/puzzle. It uses high computing power to solve a complex mathematical equation/puzzle. In this process first miner announces the solution with the others in the network. The other miners check whether the solutions to the puzzle are correct or not. If more people approves the correctness then the block is cryptographically added to the ledger. As a reward miners gets incentives in the form of Bitcoin. On the other hand if the cost to create the Bitcoin exceeds the reward, miners lose the incentive.
Block chain has no Apex regulating agency, like RBI who regulates the entire monetary policy in India. The major issues transacting in Bitcoin are like it is not backed by any assets & its price are highly volatile in nature as a result of speculation. The prices are generally determined by the involvement of a number of peoples in this transaction. If more numbers of users will go for buying, the price of the Bitcoin goes on increasing & vice versa. Although this is only one way of fixing the price, but it is very hard to know the exact mechanism & hence there exists no such transparency in Bitcoin pricing. It may unpredictably increase or decrease over a short span of time, hence it is a very high-risk asset. In many ransomware attack (like WannaCry), Bitcoins were paid by victims to regain the access.
All transactions in the Bitcoin are stored publicly & permanently on the network. Hence all the interrelated parties can see the balance & transactions of any Bitcoin address. But it is very hard to track the user behind such address, which may lead to Tax evasion, lack of consumer protection, Money laundering etc. To ensure proper regulation of Bitcoin transactions, there necessary a robust mechanism, stringent security infrastructures & the accountability, which may eventually foster the Digital India campaign of Government of India.