Frequently Asked Questions about Bitcoin
What is Bitcoin?
- Bitcoin is a digital currency used for secure payments and storing money that uses decentralized technology and does not require any bank name. It was founded in 2008. It follows blockchain technology. It is designed for better secured financial transactions that require no government regulators or checks of central authority. Bitcoin would prevent anonymity and keep transactions secure along with elimination of middleman fees.
Who Created Bitcoin?
What does it hope to achieve?
- Bitcoin being purely digital is not controlled by government regulators. We know that the values of currencies can fluctuate as and when the central Bank decides but as Bitcoin is digital and present in a limited number it is not prone to devaluation.
How secured is Bitcoin?
- Though a secret, numerical key is required by bitcoin users to unlock their accounts but the need of the virtual currency to be exchanged for dollars is quite difficult. A lot of banks around the world decided to ignore the currency that caused the prices to fall down sharply.
The working of Bitcoin
- Bitcoin works on blockchain technology, which holds a decentralised record of all transactions that is held by all users of the network and updated frequently.
- The process of creating bitcoins starts with users generating blocks on the network. Here each block is created cryptographically by harnessing user's' computer power and is finally added to the blockchain, allowing users to earn while they keep the network running.
- A limit for how many bitcoins can be created is fixed into the system to prevent dilution. The maximum amount is below 21 million bitcoin. Presently there are 15 million bitcoins in circulation, each of which costs around 4000 dollar.
How is its Price Effected?
- The price of a bitcoin has fluctuated sharply in the recent years. In 2013, before the collapse of Mt Gox, the biggest online bitcoin exchange,the prices had rose by almost 10,000 per cent. But this incident reduced its price deliberately.
- Prices rose steadily after that but have never risen so drastically since then. This is largely put down to regulators appearing to warm to bitcoin and the rise of initial coin offerings - a way for projects to raise money by selling cryptographic tokens similar to bitcoins. It is believed by many sceptics that we are in the middle of a new bitcoin bubble while advocates say we are just beginning to see the rise of bitcoin.
Has bitcoin been accepted in India?
- In April this year, an incident happened in Mysore where an IT company was demanded Bitcoins by the attackers in return for sharing the key to restore the company’s computer systems. Moreover, one of India’s biggest Bitcoin trading platform, BuySellBitCo.in, suspended its operations recently as Reserve Bank of India announced the risks involved in dealing with virtual currencies. Despite poor internet services and natural scepticism, Bitcoin and other virtual currencies have gained a lot of popularity in India. A notice was issued by the central bank on the risks involved and said that it could be used for money laundering and funding of terrorist activities.
Advantages of Bitcoin
- Bitcoin can be considered to be a real currency. There are many who think bitcoin can’t be used to buy anything real and so they are definitely spreading some misinformation. Bitcoins are being accepted by many independent businesses and even big brands like a Subway restaurant at Pennsylvania and software giant Microsoft Corp. MSFT. It would be wrong to say that one can’t buy real things using cryptocurrencies.
- Bitcoin transfers are easy and flexible. While many organizations would work as middlemen and even charge some amounts for transactions but bitcoin transfers are completely free. But you would need some technology and have it in bitcoin form. But as there are no middlemen and costly processing fees.
- It can be inferred that Digital currencies will grow a lot. While bitcoin doesn't seem to be perfect Icons from Bill Gates to Richard Branson to Mark Cuban see potential in the concept and the blockchain technology that works behind bitcoin. though a lot of controversies are going on regarding bitcoin but there is definitely a good future for this.
- A lot of investors misunderstand the concept of the working of a bitcoin. Instead of a central institution of record, the digital currency uses a widespread network of users who all keep transaction ledgers using blockchain technology. However it must be noted that the long chain of transaction histories is shared, encrypted and independently verified by a disparate group of users — not simply made up out of thin air or subject to deletion at a whim. It is true that it is very difficult to collectively record who has how much currency and where it has been used rather than relying on a verified financial institution. But this hasn't been seen as a drawback.
- Bitcoins have a long way to go and techies are already excited regarding this. Merchants have started to gain knowledge regarding the potential of connecting with bitcoin, and individual consumers learning to use digital currencies; Just like mobile payments and credit cards have made their place in the market bitcoins are expected to do the same.
Disadvantages of bitcoin
- Bitcoin being a new technology is facing a lot of issues. However, the fact that bitcoin is easily linked to the U.S. dollar means the ebb and flow of sentiment is painfully obvious — and may make volatility even worse.
- Even if digital currencies become mainstream, there’s no guarantee that bitcoin will be able to survive the competition.
- Bitcoin isn’t actually frictionless. which means it would be wrong to think that bitcoin to bitcoin transfers are completely error free. Initially users need to exchange real-world dollars or euros for the currency where most of the third parties do charge an fee for that. In fact many merchants who accept bitcoin don’t actually deposit bitcoin into their account but they use a similar third-party exchange to instantly convert bitcoins back to dollars.
- While bitcoin itself may be legitimate but there are lot of risks involved with it at the initial phase as there are plenty of gamers looking to hack. Additionally lack of awareness has led to plenty of activities like taking money with the promise to provide bitcoins.
Though it is clear that the market for bitcoin will grow very rapidly and all the problems related to this will be solved in course of time due to proper consumer education. But there's doubt as to why people would invest here from now on.