This story has been updated after the Supreme Court quashed an RBI circular banning banks and financial institutions from dealing with cryptocurrency trading in India.
You can buy a Maruti Swift with 1 Bitcoin. Just one Bitcoin! That’s because the value of a single Bitcoin is around Rs 6,68,000 as of March 2020. Of course, the value has fluctuated wildly, touching more than Rs 15,00,000 in the end of 2017.
The skyrocketing value, along with the digital nature and the anonymity of the stakeholders, has made Bitcoins the preferred medium of payment for the folks behind ransomware in 2017 that made 102 countries ‘WannaCry’.
However, Indian customers dealing in Bitcoin suffered a big blow on 3 July 2018, when the Supreme Court upheld a Reserve Bank of India circular from April 2018 that virtually banned trading in cryptocurrencies in India. However, as of 4 March 2020, the Supreme Court struck down the RBI circular.
According to the 2018 RBI circular, all banking entities were banned from providing any service in relation to virtual currencies, including those of transfer or receipt of money in accounts relating to purchase or sale of virtual currencies.
If you still want to understand Bitcoins, we’ve got you covered. Scroll down to know more.
The video on top of the article is an attempt to crunch the vast and virtually unlimited resource library available on Bitcoins and make it comprehensible. It should be taken as a primer, but if you seek an advanced, no-holds barred explanation, here’s the original paper by Satoshi Nakamoto, who invented Bitcoins in 2008.
Bitcoin is a kind of cryptocurrency, which is basically a digital currency produced and transacted online.
Just Like a Credit Card?
Well, the technology remains similar to buying something with virtual currency, but one advantage of Bitcoins is that the transaction remains anonymous. The identity of the sender and the recipient remains encrypted.
And that’s why it has become a trusted form of sending money online. Here’s what a transaction looks like.
But Where do Bitcoins Come From?
Bitcoins don’t exist physically and are merely a string of virtual data. It can be exchanged for real cash though, and are largely legal in most countries around the world.
There’s no central authority for Bitcoins, akin to a central bank which controls currencies. Instead, programmers solve complex puzzles to approve Bitcoin transactions and get Bitcoins as a reward. This activity is called Bitcoin mining, and with some knowledge of programming codes and dollops of lust for wealth, anybody can get cracking.
How to Mine Bitcoins
This is slightly complex. Okay, very complex. But if you want to take it head on, here’s how it works:
• Get a powerful computer with the best processing power.
• A blazing fast internet connection.
• Excitement for computer codes (Or bribe a geeky friend)
Got them? Now for the next step, there are many online networks which list out the latest Bitcoin transactions taking place in real time. Log on with a Bitcoin client (nudge your geeky friend), and try to verify those transactions by evaluating blocks of data, called hash. The window would look something like this:
The transactions travel through multiple systems, called nodes, which are just blocks of data. And since the data is encoded, a miner is required to check if his solutions are correct. Once the nodes get verified, a transaction becomes successful and the miner is rewarded with 25 Bitcoins (Treat your friend if he succeeds). In short, you’re acting as a bank clerk, along with multiple other bank clerks sitting online. Whosoever verifies the transaction gets rich. Simple right?
But like everything good in life there’s a catch. Miners from all over the world try to be the first to match their hash with the solution, and it takes an average of 10 minutes for the correct solution to emerge. The mathematical puzzle is designed so as to modify the difficulty level automatically. If the average time to guess the correct answer falls below 10 minutes, the puzzle becomes harder to crack, and vice versa. Also, after fixed intervals, the incentives keep getting halved until it reaches zero. Then the programmers who crack the right solutions are rewarded with just a transaction fee for their approval.
Such a closely-contested system also ensures the security wall of the Bitcoin network.
Bitcoins in India
There are an estimated 1 lakh Bitcoin users in India and the number is growing. Many companies such as UnoCoin, Zebpay, BTCXIndia, and CoinSecure have joined the fray to claim a share of the swelling market of the virtual currency.
There are two segments of users (in India). Young 25-35 year olds, who believe in Bitcoins as an investment are buying them. The fact that the price of Bitcoins has doubled in the last year means many more people are buying their first Bitcoins. The other segment consists of freelancers and students who have started accepting Bitcoins from their international customers. This saves them 10-15 percent in fee compared to companies like PayPal and Western Union.Sandeep Goenka, Co-Founder, Zebpay (an Indian Bitcoin exchange company)
“We believe that the volume in India would be around Rs 500 crore per year as of now. This number is very small compared to the Rs 10,000 crore China does in a day,” adds Goenka.
Are Bitcoins Unlimited?
There are only 21 million Bitcoins to be minted, and thus the price is bound to rise as the number of users increase. Till now, approximately 15.5 million Bitcoins have already been mined, leaving just 5.5 million more in the wild web. Which means they’ll run out soon? With growing awareness, valuation, and improving technology, mining Bitcoins is getting more difficult.
There’s a chance you may run a machine round the clock for a year, and yet find nothing, because there are so many miners fighting for the same treasure. According to Blockchain.info, the approximate number of attempts it currently takes to find the correct key is around 194,254,820,283. But according to rough estimates, there’s enough time in hand. The current prize value of mining – 25 Bitcoins – is expected to get halved to 12.5 by 2017, eventually reaching a point where there’s no more Bitcoins to be mined. This is expected to happen sometime around the year 2140.
If time is money, calculate your return on investments carefully here.
Do you think of this as an exciting investment or a technological scare? Share your views below.
(This article is from The Quint’s archives and was first published on May 14 2016.)
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