Bitcoin

About a few weeks back an article in Times Of India (TOI) flashed, 'Bitcoin now in India'. So gazing into the details it was also told that this on line currency is earned from solving some complex math puzzle, and the transaction value being $850 for a Bitcoin. So before all that, we'll look into what exaclty a Bitcoin is.

What is Bitcoin? 

Bitcoin is a peer-to-peer payment network and digital currency based on an open source protocol, which makes use of a public transaction log. Bitcoin was introduced in 2009 by pseudonymous developer "Satoshi Nakamoto". It is called a cryptocurrency because it uses public-key cryptography. When paying with bitcoin, no actual exchange takes place between buyer and seller. Instead, the buyer requests an update to a public transaction log, the blockchain. This master list of all transactions shows who owns what bitcoins currently and in the past and is maintained by a decentralized network that verifies and timestamps payments using a proof-of-work system. The operators of this network, known as "miners", are rewarded with transaction fees and newly minted bitcoins.

Sound's complex, eh? Well, the user friendly version is," Its simliar to bittorrent, and has the characteristics of the currency we use in daily life, except it can't be touched and felt. It can be traded similar to the real currency, and to earn it one must apply the process of "mining", or to solve the puzzle as discussed earlier."

A Cafe` in Georgia.

Alternative to national currencies?

Some have suggested that Bitcoin is gaining popularity in countries with problem-plagued national currencies, as it can be used to circumvent inflation, capital controls, and international sanctions. Bitcoins are used by some Argentinians as an alternative to the official currency, which is stymied by inflation and strict capital controls. In addition, some Iranians use bitcoins to evade currency sanctions.

Financial journalists and analysts have suggested that there was a link between higher Bitcoin usage in Spain and the 2012-2013 Cypriot financial crisis.

Criticism

Rise In Price Of Bitcoin

Bitcoin has been a subject of scrutiny due to ties with illicit activity. In 2013 the FBI shut down the Silk Road online black market and seized US$28.5 million worth of bitcoin. However, the United States is currently considered to be Bitcoin friendly compared to other governments. In China, new rules mean bitcoins cannot be exchanged for local currency, and the European Banking Authority has warned that Bitcoin lacks consumer protections. Theft of bitcoins can and does occur. Generating and storing keys offline mitigates such risk, however.

Commercial use of Bitcoin, illicit or otherwise, is currently small compared to its use by speculators, which has fueled price volatility. However, Bitcoin is also used to pay for products and services. Merchants have an incentive to accept the currency because transaction fees are lower than the 2-3% typically imposed by credit card processors. Notable vendors accepting Bitcoin include OkCupid, Reddit, WordPress, and Virgin Galactic.

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