Bitcoin explained: The rising cryptocurrency and what it is used for

Bitcoin is, more often than not, in the news for all the wrong reasons. Cybercriminals and hackers have taken a liking to the cryptocurrency because of the ease with which the it can cross borders, the lack of regulation and the anonymity offered by the transactions. Bitcoin is demanded as the form of payment for attacks using ransomware — wherein malicious software is used to encrypt the files of users on a system. The attackers then demand a financial transaction before they provide the details necessary for decryption, to allow the owners to access their own data, stored on their own machines, but encrypted with a key that is in the possession of the hackers.

In a recent case in Bengaluru, the entire Wipro campus was held for ransom. Hackers threatened to mail in a dangerous biochemical powder — Ricin — to the Wipro campus, unless the company paid up a Rs 500 crore ransom in Bitcoin. Wipro responded by beefing up security on campus.

How cryptocurrencies are understood around the world.

How cryptocurrencies are understood around the world.

Bitcoin is a digital store of value, which is based on how much people are willing to pay for the currency. Around the world, Bitcoin is treated differently, according to the country. In Brazil, Europe and India, Bitcoin is called a "virtual currency". In Australia and Russia, it is a "digital currency". In China, it is a "virtual commodity", similar to in virtual items available through in-app purchases in games. The US treats the cryptocurrency as "property", and Bitcoin transactions attract the same kinds of taxes as the sale of land. In the UK, it is legally a "private currency". Bangladesh perhaps has the most accurate definition, calling it a "crypto currency", but Bitcoin transactions attract a jail term in the country.

01

To start buying and selling in Bitcoin, you first need a Bitcoin wallet. A wallet is similar to a bank account, and acts as a location to store your Bitcoin. A single person may have as many wallets as they want. There are two kinds of Bitcoin wallets, one that can be created and stored on your device, such as a computer or a mobile phone, and another that can be hosted in the cloud, usually for a fee. The Bitcoin wallets for personal devices can be stored on portable storage devices. Users can permanently store the bitcoin wallets in flash memory or removable hard disks, and use such drives directly as a replacement for cash.

04

Bitcoin wallets and transaction services, including two and fro conversion to Indian currency are offered by a number of Bitcoin exchanges, or Bitcoin trading platforms in India, including Zebpay, Coinsecure and Unocoin. Bitcoin can be mined by solving complex problems, but this method to obtain Bitcoin is no longer considered viable. Mining operations now involve large "mining pools" with dedicated hardware known as Bitcoin farms, where a single mined Bitcoin is shared among many users, who each get a fraction of the mined coin. The easiest way to get Bitcoin now, is to buy them. Some mobile applications and web services offer systemic investment plans, that allow you to set aside an amount every month for the purchase of Bitcoin.

02

Since its first introduction in 2008, Bitcoin has seen a meteoric rise in adoption. The value of the currency is at an an all-time high. A single bitcoin now sells for $1,400 (about Rs 89,806) in international exchanges. In India, the actual amount needed to purchase a single Bitcoin can exceed Rs one lakh. The surge is in part due to strong demand in Japan, where use of the currency is legal. Bitcoin is  considered a safe haven, in times of financial instability in any country. In India, over 500 merchants accept payment in Bitcoin. All over the world, Bitcoin is accepted as a payment by small merchants, for fees in universities, for signing up for web services, and by large software vendors.

03

Bitcoin is powered by an underlying technology that has far wider implications than Bitcoin. All Bitcoin transactions are tracked in the Blockchain, which is a distributed ledger technology (DLT) wherein all participants in a transaction are aware of all the other transactions in the network. While the identities of those who make the transactions may be anonymous, the transactions themselves are public knowledge, and available to everyone in the world. Banks and financial institutions around the world are increasingly including Blockchain in their own offerings, as it promises to cut costs and is considered the future of financial transactions. In India, Bitcoin transactions are used to dodge credit card fees and fees on foreign exchange transactions, especially for buying digital goods.

05

However, bitcoin is not just used to purchase that really cool 'founding fathers lava dragon mount' in a mobile multiplayer role playing game to dodge credit card fees. The cryptocurrency is abused by criminals to purchase weapons, drugs and other contraband. The web sites where such items are available are not on the open internet, but on the dark web, and can be accessed through anonymising networks such as ToR, which uses urls that end with the .onion domain name. One of the biggest such sites to be taken down was known as Silk Road — the owner of which was sentenced to life in prison.

06

Apart from Bitcoin, there are a number of other cryptocurrencies, with their own advantages, disadvantages and unique features. Some of the more common alternative cryptocurrencies include Dogecoin, Litecoin, Peercoin, Blackcoin, Torcoin and Ethereum. In India, the Reserve Bank of India has advised the citizens of the country not to use any cryptocurrency, as the creation of such currencies and their trade enjoys no legal protection in India. While Bitcoin transactions are not authorised in India, the use of cryptocurrency is not considered illegal.


Published Date: May 08, 2017 01:01 pm | Updated Date: May 08, 2017 01:01 pm