The
digital wave has hit the humankind like never before. Everything from shopping
to booking our tickets to ordering food has all gone the digital way. We have
actually become so dependent on technology that what was made as a way to help
us, has now become a way of life for most of us. So, it comes as no surprise
that man in the name of development has also given birth to a special kind of
digital currency called Bitcoin. Don’t know what it is? Here, read the article
and find all the answers you have been looking for.
What is Bitcoin?
Bitcoin
is a form of digital currency, created and held electronically. It’s unit for
representation could be BTC, XBT or
.Small amounts of bitcoins used as alternative units are
called millibitcoin (mBTC), microbitcoin (µBTC) and Satoshi. The Bitcoin
protocol was formulated as a payment system by Satoshi Nakamoto, supposedly a
Japanese, in 2008 and the open source code for the same was shared online in
2009. There is a mystery behind the creator’s identity, to the extent that it
may not have been a Japanese and that it’s a group of creators, and not just
one.
How do they work?
Bitcoin uses peer to peer
technology to operate with no central bank or authority. Managing transactions
and issuing Bitcoins are collectively done by the network. To use a Bitcoin,
one needs to install a Bitcoin wallet in his computer / mobile phone. Bitcoin
wallets keep a secret piece of data called “private key” or “seed”, which is
used to sign transactions and serves as a proof of the authenticity of
transactions.
“Block chain” is a shared public
ledger on which the entire Bitcoin network relies, and all confirmed
transactions are included in the Block chain. The transactions are confirmed
using Bitcoins via a process called “mining”. Mining enforces a chronological
order in Block chain, protects neutrality of the network and prevents users
from rolling back their spends and misusing or reusing the Bitcoins.
The rise of Bitcoins
Over time, Bitcoin as a form of
payment for products and services has
grown, and merchants are incentivized to accept it as the fees are lower than
the 2-3% levied by credit card processors.
The problem
The European Banking Authority and other sources have warned that bitcoin users
are not protected by refunds or chargebacks (returning of funds to consumer by
the charging bank for settlement of debts). In retail transactions, however,
this cryptocurrency does not hold much momentum. The use of Bitcoins by
criminals has attracted the attention of many regulators, legislative bodies,
law enforcement and media. In 2012, a
study stated that 4.5% to 9% of all transactions in Bitcoin were within Deep
Web (a world wide web that exists on ‘dark net’, which overlays the public
internet) also called Silk Road, where one can access sites on child
pornography, murder-for-hire and weapons
purchase. Then, there have been many instances of Bitcoin Ponzi (fraud) schemes
as malwares also started stealingusers’ Bitcoins.
Coming closer to India, The
Reserve Bank of India has often issued warnings against usage of Bitcoins as it
may leave users exposed to financial, legal & security related risks. Despite
these warnings, Bitcoin has been gaining currency in India and quite a few
trading platforms have sprung up catering to Indians wanting to purchase
Bitcoins for Rupees.
The Big Question
But the question still hangs in
the air: Are we ready for a digital currency? Maybe, not right now. However,
going forward we may be more open to using digital currencies or
cryptocurrencies, if there are enough protective firewalls in place and, when
we become increasingly environment conscious and work towards printing less
currency notes.
What’s your take?
-Monica Mor
Senior Faculty, INLEAD
Images Courtesy- Google Images
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