What is Bitcoin All About? The Simplest Approach to Cryptocurrency!

Considering Popularity and hype of Cryptocurrency these days an enquiry like “What is Bitcoin” seems of no way significant. Having said that, this search term is still getting lots of traction.

If have your ever googled “what is Bitcoin” you get tons of results sounding too technical. You may be wondering that Wikipedia too is getting technical in their approach these days.

So, I thought breaking down the concept as to what this Bitcoin thing is all about.

To me, in layman terms Bitcoin is something like this.

Bitcoin is the first cryptocurrency of the modern world.

And what is cryptocurrency? Simply, the currency which is very much symbolic and generated and self-regulated by the rules of cryptography.

Then naturally, what is cryptography? In most simple terms, it is the science that enables communication between two sources anonymously and safely.

So, I would conclude Bitcoin like this: It is the advanced form of barter system transaction that can be done anonymously on Internet.

Bad things first about Bitcoin

Bitcoin offers considerable anonymity in transactions that has allowed miscreants to run criminal activities in the recent past. Instances of drug smuggling, system hacking and things alike are believed to be facilitated with Bitcoin.

WannaCry ransomware attack is the latest example whereby the hackers were demanding the Bitcoins in exchange for de freezing your computers.

There is no buyer protection in the absence of a central regulatory.  If the seller doesn’t send the promised goods to you, nothing can be done to reverse the transaction.

The wallets for Bitcoin if goes un retrievable, your Bitcoins are lost beyond redemption.

Bitcoins are highly speculative in nature, their value fluctuates unpredictably, so it is less like a currency and more like a trading item

What is Bitcoin in Futuristic terms?

The simplistic approach of peer to peer transaction through Bitcoins is beginning of a new economic order. This new order is envisioned as hassle free, corruption free and fully democratized.

So, the economic order ahead that Bitcoin promises to bring along is being perceived as euphoric. Experts foresee it as a tool for the most democratized, decentralized and inflation proof economy.

The Bitcoin transaction are not absolutely anonymous. They can be tracked whenever required. So, Governments might adopt them given the fact, that Bitcoin transactions can be brought under tax regime.

Bitcoins thus, could be an effective means of fast, effective and transparent transactions with considerable anonymity. Governments would surely want to adopt the underlying technology of Bitcoins if not the currency itself. In academic interest the underlying technology is known as blockchain with decentralized and distributed ledger.

Bitcoin was invented by an unidentified person using the alias Satoshi Nakamoto in 2009. Sources speak of the vision of this legendary man. He envisioned Bitcoin as a technological solution to save economy from financial crisis by not depending on Govt. and the entire institutions which regulate economy. Initially, the world ridiculed at the idea but the idea is turning into a reality today.

The open-source software released by Nakamoto is believed to envision a cleaner and transparent economy.

As of today, Bitcoin can be used to book hotels on Expedia, shop furniture on Overstock and place orders on Amazon. Microsoft and Dell too, have started accepting payments in Bitcoin. Reports are there that many others are going to follow the suit.

Few Noteworthy Instances of Recognitions to Bitcon

Arnhem (Netherland) is called as ‘Bitcoin City’ for wider acceptance of Bitcoins in everyday trade there.

Switzerland, Japan, Singapore, United States, South Korea are today seen as the cities with favourable regulatory environment.

Belarus has accorded a legal status to the Bitcoins and cryptocurrency in general.

Several Real Estate projects in Dubai have been priced on Bitcoin. You can buy properties by paying in Bitcoins there.

Chinese Bitcoin enthusiasts have major stake in mining. Of late although the state is discouraging its miners but then Canada is welcoming them.

So, apparently, the Bitcoin is not something that the current civilization can stop its going into mainstream.

If Bitcoin is the Currency of future, How To acquire One?

Buying on Exchanges

Many marketplaces called “Bitcoin exchanges” have evolved during past 7-8 years. They provide a platform to buy or sell bitcoins using different fiat currencies. Coinbase, Bitstamp, Bitfinex are leading exchanges to name a few. Zebpay based out of Ahmedabad is first Bitcoin Exchange of India. Koinex based out of Mumbai is fast gaining reputation in the community who want Bitcoin for INR.

Exchanging with Altcoins

There are more than 1000 cryptocurrencies apart from Bitcoin. They are together called altcoins (alternative coins). Buy these altcoins with your indigenous fiat currency and get them exchanged for Bitcoins. There are a number of Exchanges which facilitate such exchange of altcoins for Bitcoins.

In fact, there are two types of exchanges operating in the market. The ones, who provide you Bitcoins or Altcoins in lieu of fiat currencies(for instance: USD, EURO, INR etc.). And the ones, which only facilitate exchange from one cryptocurrency to another.

The Exchanges which give you cryptocurrencies (Bitcoins or Altcoins) in lieu of fiat currency have strict norms of KYC. On the other hand, the exchanges which only facilitate interchange of one crypto into another are least bothered about KYC.

Localbitcoins and Koinex are my favourite Exchanges for buying Bitcoins with INR. Getting Bitcoins from Localbitcoins is fast with relaxed norms of KYC but you can buy only Bitcoins there. Contrary to this, KYC at Koinex is time consuming affair but you can get few altcoins also there. I normally buy bitcoins from Localbitcoins and shift them to one of my another favourite Binance for trading purpose.

Investing in ICOs and later use the new coins to buy bitcoin

There are lot of start-ups coming up in cryptocurrency payment network. The method to raise funds by these is called ICO or Initial Coin Offering in crypto space. ICOs have same objective as IPOs but largely differ in so far they are not regulated by authorities.

The early investors of the cryptocurrency start-ups are issued token coins during the ICO period. And further, when the start-up payment networks are listed on exchanges your token coins may yield high returns as a new Altcoin. These Altcoins so acquired, can be used to exchange with Bitcoins the most popular.

The ICOs are though a risky affair and should be purchased after employing your due diligence.

Involve into mining the Bitcoins

A huge community of Bitcoin enthusiast is involved in Mining the Bitcoins. Mining is a competing process to solve complex math puzzles with help of large computer power.

Technically, it is about updating the transaction ledger called a Blockchain. The Blockchain itself is a series of blocks and these blocks in turn are made of transactions logs. These transactions are essentially have occurred on the designated bitcoin network.

The blocks made of transaction history keep coming up before miners. The one who solves the puzzles first is rewarded with Bitcoin. If you chose to jump in Mining activity you can earn Bitcoins.

Pool to Bitcoin mining

Bitcoin Mining is not possible with CPU or computers in our regular use. Mining of Bitcoins requires GPU or specifically designed processors called ASIC. Some Altcoins can however be mined with CPU with ease. You can mine yourself some altcoins at your home.

You can also lend your computer power to big projects for mining Bitcoin Altcoins. Further these Altcoins can be converted into bitcoins if  you so wish.

Keeping Your Bitcoin Safe

The security remains a concern though if you chose to store your Bitcoins with Exchanges. Bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016. Given the volume of trade however, these sporadic incidents are too insignificant.

From security point of view, the Bitcoins are stored in a “digital wallet”. The digital wallets are available on cloud space as well as a hardware device. The wallet is a kind of virtual bank account that allows you to send or receive bitcoins, pay for goods or keep your bitcoin safe.

Let us understand that, in absence of any regulations on Bitcoin your deposits in wallets are not insured.  To clarify, FDIC (USA) or DICGC (likely to be replaced by FRDA, India) do not insure your wallet.

Storing the Bitcoins safe is entirely your responsibility. Hence, specially designed hardware wallet or a cloud wallet where secret key is in your control is a recommended choice.

Future of Bitcoin Cryptocurrency

While many of the visionary entrepreneurs, including Bill Gates & Richard Branson are big time supporter of the use of Bitcoins, the Governments for the most part, do not seem much enthusiastic about the idea.

Official statements from many of the govts have been antagonistic about the inclusion of a new kind of transaction system in mainstream. Governments are concerned about taxation and their lack of control over the currency.

Experts understanding is that, the antagonistic approach of the Govts. is because of limited understanding of the whole theory behind Bitcoins.

Embarrassing situation goes like this. At the one hand, the Govts. are skeptical of losing control over taxation and potential misuse of Bitcoins for illegal trades. On the other hand, they do not want to miss out on a technology that could be used in the larger interest.

The saddest part is that only a handful of Govts. have bothered to form any task force to study the viability of Bitcoin for mainstream use.

So, a lot on the part of Govts. has to be done to make real assessment of a promising tool for economy that involves Bitcoins and its technology in general.

The entire eco system of cryptocurrency with market dominance of Bitcoins is standing roughly at $450 bn plus and just counting.

Experts opine that Bitcoins and the underlying technology is going to find place in administrative uses at some point of time.

Indian Scenario and Bitcoin

Post Demonetization however the Govt of India seems to be favoring cashless transactions but it does not have a candid policy in place for Bitcoins. An inter-disciplinary meeting chaired by FM, GOI was held in June, 2017 with an aim to explore the viability of bringing the virtual currencies under regulations.

Although no official statements are issued but the meeting is believed to be positive about embracing the digital age currency and regulations thereon. Feedback from common citizens are invited on https://www.mygov.in

Update: In budget 2018-19, the FM asserted that Bitcoins is not  a legal tender (it is however not illegals by any means) and that its wrong uses shall be strongly cracked down.

Future of Regulating the Bitcoin

Experts suggest that regulating the Bitcoin transaction will go against the very spirit of Bitcoins as a decentralized money. At the best, they could be accorded legal status. And at the worst, they could be delegitimized.

The crypto enthusiasts are optimistic to the extent that the crypto economy would co-exist with fiat economy. The Govts. will exercise taxation over crypto transactions and gradually the big institutions regulating the fiat currency would lose the relevance in the interest of a brighter economic order.