Bitcoins – A Brief Study

What is a bitcoin?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like Rupee, dollars or Euros; they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

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What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, Euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who created it?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one prints bitcoins. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.

This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

So we can’t churn out unlimited Bitcoins?

Yes we can’t churn out unlimited bitcoins. The Bitcoin protocol – the rules that make bitcoin work says that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’ (after the founder of bitcoin).

What is bitcoin based on?


Unlike Conventional currency that has been based on gold or silver Bitcoin is based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.


What are its characteristics?

Bitcoin has several important features that set it apart from government-backed currencies.

  1. It is decentralized

The Bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t try to mend with monetary policy and cause a meltdown or simply decide to take people’s Bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

  1. It is easy to set up

You can set up a Bitcoin address in seconds, no questions asked, and with no fees payable.

  1. It is anonymous

Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.

  1. It is completely transparent

Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.

  1. Transaction fees are miniscule

Your bank may charge you some transaction fee for international transfers. Bitcoin doesn’t charge any transaction fee.

  1. It is fast

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

  1. It is non-repudiable

When your Bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.


The State of Bitcoin in 2016

  1. Global Bitcoin trade is skyrocketing touching 35 billion USD per month in December 2015. Billion dollar companies like Dell, Expedia, Overstock, Rakuten (Japan’s Flipkart) have started accepting Bitcoins on their websites.
  2. Bitcoin companies raised almost 1 billion USD in VC funding in 2015. All the major banks and credit card companies have got involved with Bitcoins last year. So in just 6 years of its existence, Bitcoin has achieved spectacular success.


In India:


In India, Bitcoin adoption has a slow start but awareness is growing rapidly. Bitcoin trade in India grew exponentially and is at estimated Rs 500 crores per year. There are around 50,000 Bitcoin wallets in India and around 700-800 Bitcoins are traded every day.


RBI, in its recent report on financial stability, has appreciated the strengths of the underlying ‘blockchain’ technology in Bitcoin.


After early adopters, Bitcoin is attracting a new class of users like professionals, HNIs and all institutions. As the Bitcoin community matures, we shall see an increase in the quality of analysis of Bitcoin price.


Users are now using Bitcoin for E-Commerce, paying bills, buying gift vouchers from popular online retail sites. Bitcoin transactions in India are about Rs 500 crores a year. We believe India will see an explosion in Bitcoin over next 2 years.


Why India needs Bitcoin?


Given that 60 percent of the population in India is unbanked, Prime Minister Narendra Modi and Reserve Bank of India takes financial inclusion as top priority. Therefore, India is viewed by many to have significant potential for Bitcoin usage and adoption. The primary ways to obtain Bitcoin are buying on an exchange, mining new ones and accepting them for goods and services.

A financial infrastructure based on Bitcoin and its underlying technology-blockchain is likely to herald a revolution like Internet did. The stored currency notes can be stolen easily but one can recover Bitcoin wallet at any point of time by locating wallet words or wallet backup folder.


Currently, the value of one Bitcoin is Rs 44,254.66.




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