Bitcoin is the currency of new age. It’s an electronic payment system through which one can create and held the currency digitally. It is not paper like dollar or rupee but it’s a digital currency.
In simple words, it’s a virtual form of currency and used for electronic transfer and purchases.
What makes it interesting and different is that it is completely decentralized and no authority or bank owns it.
Bitcoin was invented by Satoshi Nakamoto, a software developer who wants to create a currency independent of any controlling authority and transferable electronically with low transaction cost.
How does Bitcoin actually works?
One can easily start with bitcoins with some basic knowledge and related terms (please refer to the bottom section of this article). One needs to install Bitcoin wallet on a computer or phone. It’s a mobile app or computer program which provides a personal wallet and allows users to send or receive bitcoins. When one installs it on mobile or computer it generates an address for bitcoins transactions. Bitcoin address is nothing but similar to an email and each address should be used only for one transaction as this address will get public to whole network once transaction made by the user.
There are 3 ways through which you can earn bitcoins –
- Accepting payments in the form of bitcoins, if you are offering any product or service.
- Buying and selling of bitcoins through online Bitcoin exchanges.
- Through competitive Mining.
Let’s see it with an example: Savita wants to send some bitcoins to Smita. Savita will open her wallet and copy the address of Smita, add amount and sends it to her. Now the wallet will sign the transaction with Savita’s ‘Private Key’. This transaction get broadcast to the network and then will be verified by miners. When Smita gets the bitcoins and confirms; the process will end.
How bitcoins price is determined?
It is determined by supply and demand factors of the market for bitcoins. Just like all other currencies bitcoins price also fluctuates. There is actually no fixed price for bitcoins but it is about both parties who need to agree on the price.
There are limited number of bitcoins (21 million) to transact and creation of new bitcoins are at very low rate. (Production rate is decided every 4 years).
Bitcoins in India
People are getting to know about bitcoins in India. Bangalore is leading in accepting and learning about bitcoins.
Earlier RBI wasn’t in much support of bitcoins but now it allows to operate with cautious warning about misuse of crypto-currency. Bitcoin is still an unregulated industry in India but it is expected to get it done soon in near future. Currently there are some Bitcoin exchanges which are successfully operating like Unocoin, Coinsecure and BTCXIndia.
Understand common terms in Bitcoin
Bitcoin/bitcoins: With ‘b’ capitalized refers to the entire system or network and without capitalization it is used as units or currency.
Wallet: Bitcoin wallet is like virtual bank account to send and receive bitcoins. It’s like a physical wallet to store bitcoins. It also holds your private key which is linked with your Bitcoin address.
Address: It is used to send and receive the bitcoins transactions on the network. Address is also known as public key which is use as a scan able QR code and use by user for digitally signed transactions.
Private Key: It is secret number that allows bitcoins to send. Each Bitcoin wallet contains one or more private keys and they are saved in wallet. It is important to keep this key secret and secure because it enables to spend the bitcoins.
Block: It is a record in the block chain. It is like file or page of the public ledger (block chain) which cannot be altered or removed once written.
Block Chain: It is public record (public ledger ) of Bitcoin transactions in chronical order.
Mining: It is a process used to generate new bitcoins by solving cryptographic problems using computer hardware.
Time to go grab some bitcoins! See you next time.