The much hyped electronic
currency: bitcoin is gaining popularity among everyone at an exponential rate.
In future the extinction of currencies and their replacement by the virtual
currency is a high possibility. As stated by Rahul Mishra, Vice President
Data64 “It is high time to take bitcoin seriously, since this virtual currency
is compelling us to adjust the way we look at value transfer .”
Bitcoin is a global virtual
currency that was designed by the pseudonymous developer Satoshi Nakamoto. This
peer to peer electronic currency was coined in 2009 and was a hotstock. Bitcoin’s
value has escalated from around zero in 2009 to around 1200$ in November 2013. In
this context Mumpi Ghosh, Digital Forensic Analyst, Data64 remarked “Although
the bitcoin market is volatile, people are coming forward and considering it a
positive investment plan.”
Now, a riveting question that
strikes our mind is “what gives bitcoin its value? Being the most valued
currency what value does it have?” The answer to this is very simple. Like any
other thing people are promptly willing to trade in it, and this gives bitcoin
its value. Furthermore, bitcoin is a peer to peer transaction scheme that does not
involve any intermediary financial institutions, and thus involves negligible
transaction fees. As a result, more and more people are investing in bitcoins every
day.
For investors willing to invest
in bitcoins there are ample bitcoin markets, the most popular one presently
being Mt Gox. Investors largely rely on these markets to decide about their
investments in bitcoin.
What gives bitcoin an
edge over normal currency?
·
Transaction using bitcoin is peer to peer
without the involvement of any trusted 3rd party or financial institution.
·
There is almost no transaction fees involved.
·
All the transactions in bitcoin is public
providing transparency.
·
There are no arbitrary fund transfer limits.
·
Account cannot be frozen.
·
This currency is global in nature.
What actually is a
bitcoin?
Bitcoin , the cryptocurrency is
based on the concepts of public key cryptography and digital signatures. The
public key is the address to which others can send bitcoins to the user,
whereas the private key is used to digitally sign any transaction to be made.
The bottleneck of this electronic
currency is the problem of double spending. However, this problem has been
taken care of by making all the transactions taking place in the bitcoin
network public. This public ledger and log maintaining record
of who owns how many bitcoins presently alongwith all the prior transactions
since genesis is called as a Blockchain. A general question that arises is that
“who maintains the blockchain?”
It is the miners, who devote
computing power in solving cryptographic puzzle relating to information in the
block chain to add transaction blocks to the chain and maintain it. These
miners are not a centralised body but are volunteers distributed in the
network. They get bitcoins as a reward for solving the cryptographical puzzle.
Initially the reward was of 50 bitcoins per block, however, it was decreased to
25 bitcoins per block on the 4th year. However by the process of
mining, unlimited number of bitcoins cannot be generated since the founders of
bitcoin has designed the system in such a way that generation of bitcoins is to
cease on generation of a total of 21 million bitcoins.