What is Bitcoin? Understand everything about digital currency

Bitcoin is one of the most talked about words that created a heavy buzz among people around the globe in 2017. Many people have been attracted to Bitcoin due to its rapidly growing value day after day. In a period of one year, the price of one Bitcoin has moved from a level of $700 to as high as $19,000, surging by as much as 27 times — Yes, that’s in just one year. A decade ago, at the time of inception, one Bitcoin was even less than a tenth portion of one dollar. Bitcoin, which doesn’t have an underlying asset, has been repeatedly called out by top regulators and bankers around the world as just a speculative bet, and not a security fit for investment. Nevertheless, it has beaten all the investment avenues available which were referred as wealth multipliers for years. The unmatched rise in the prices of Bitcoin has irked many money managers, bankers, chiefs, investment experts time and again.

We bring you 31 FAQs on Bitcoins which might help you to know the cryptocurrency much better.

What is Bitcoin?

Bitcoin is a digital currency which is traded on applications based virtual exchanges throughout the world. Bitcoin is often quoted in dollar terms but is widely traded in local currencies of the respective nation.

Who invented Bitcoin?

This remains a mysterious question till now. A person using the name Satoshi Nakamoto invented Bitcoin in 2009. According to Newsweek, he is an American-Japanese living in California with a full name Dorian Prentice Satoshi Nakamoto.

Where can you buy/sell Bitcoin in India?

Bitcoin is traded on virtual exchange based applications, it can be bought and sold on these only. In India, there are several Bitcoin applications which facilitate Bitcoin trading, for example, Zebpay, Unocoin and Coinsecure.

How can you buy/sell a Bitcoin?

Bitcoin can be bought and sold very easily after creating an account with the trading partner filling in your necessary details.

What is all needed to trade in Bitcoin?

In India, the mandatory things needed to start Bitcoin trading are an active email account, a bank account, a mobile number, an aadhaar card and a pan card.

How is Bitcoin price calculated?

As of now Bitcoin is not regulated or governed by anybody anywhere. Bitcoin prices are calculated based on the demand and supply on respective exchanges.

Why is there so much difference in Bitcoin prices across exchanges?

Bitcoin neither have an intrinsic value nor it is derived from an underlying asset. With a huge difference in the number of people participating on different exchanges, the price of Bitcoin varies accordingly.

Can you trade Bitcoin between different exchanges?

Several traders enjoy a huge price arbitrage across Bitcoin exchanges. But there is no common or central depository for Bitcoin unlike that in the stock market. Therefore Bitcoin is usually bought and sold on the same exchange only.

Can you buy things with bitcoins?

In India, credit and debit cards are rarely accepted in rural and even in few semi-urban areas, imagine yourself how much Bitcoin can be accepted. Though there have been few places which have started accepting Bitcoins but with a very high volatility and price fluctuations people refrain from transacting in Bitcoin.

Do you know the total value of Bitcoins in the world?

According to the latest data, the total value of all the Bitcoins in circulation has reached $283 billion. “That makes its total value – sometimes dubbed its “market cap” – greater than that of Visa, and bigger than the market cap of BlackRock and Citigroup combined,” Reuters said in a report.

How many Bitcoins are there?

Around 21 million Bitcoins are available right now, according to a Reuters report. Interestingly, about 12.5 new Bitcoins are released into the system every 10 minutes through a process called “mining”.

How many Bitcoins are there without owners?

Less than 16 bitcoins that have been already mined in circulation and accessible had been lost till now. This happens because of forgotten passwords of accounts, accidental losses, hoarding, owners forgetting about coins or even dying. It is impossible to know for sure how many bitcoins have been permanently lost, because those bitcoins are still in the system, in dormant addresses.

What is cryptocurrency?

Cryptocurrency is nothing but a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Bitcoin is one such example of cryptocurrency.

How many cryptocurrencies are there?

There are more than 1,000 cryptocurrencies which are present in world traded on different exchanges. Popular being, Bitcoin, Ethereum, and recently spiked Litecoin.

How is Bitcoin created?

Bitcoins are created through a process called mining. There are many Bitcoin miners in the world, reportedly most of them located in Japan, China, US and Singapore.

What is Bitcoin mining?

Bitcoin mining is a process of creating virtual currencies like Bitcoin. Mining is an iterative process which incorporates machines with supercomputing power as in creating one Bitcoin, it takes about running an algorithm for about a million times.

Are Bitcoins available in physical form?

Yes, Bitcoins are also available in physical form. In the United States, there are several places which have Bitcoin ATMs also.

What is Bitcoin ATM? How many are there in the world?

Bitcoin ATM is just like another ATM machine, a difference is just that it gives out Bitcoins after you insert money into it. Reportedly there are about 1,400 Bitcoin ATMs in over 50 countries, as of August 2017.

What is blockchain?

Blockchain a technology in which transactions made in digital currencies are recorded chronologically and publicly. Blockchain as a technology supports Bitcoin trading, but it not synonymous with Bitcoin. Blockchain can be used for a wide variety of applications, such as tracking ownership or the provenance of documents, digital assets, physical assets or even voting rights.

Smaller size of Bitcoin

If you want to invest in Bitcoin then there is no obligation that you should buy a whole one unit of it. Bitcoin has a smaller unit called Satoshi, which is named after the anonymous inventor of cryptocurrency, Satoshi Nakamoto. One Satoshi is one-hundred-millionth of a Bitcoin. According to a price of $16,000, one Satoshi equals $0.00016.

What is Bitcoin Futures?

Amid the rapidly rising popularity of Bitcoin, very recently, leading exchanges such as CME Group, CBOE and NASDAQ have announced that they will be offering future contracts over Bitcoin. Now, this is like anticipating the future of something, if you can’t anticipate its underlying asset.

Where is Bitcoin legalised?

Bitcoin is a legal currency in over 60 major nations including the United States, China, Japan, United Kingdom, Mexico, Canada, Hong Kong, South Korea, Singapore, Germany, Switzerland. Interestingly, Bitcoin has not been legalised in India but many Indians are after it, in order of quick millionaire dream. Apart from India, Bitcoin is also stated as illegal tender in Pakistan, Bangladesh and Nepal.

Can you mine Bitcoin at your home?

Yes, you can mine Bitcoins at your homes but you will need supercomputers and very powerful servers which can handle the algorithms through which Bitcoin is mined and moreover, a habitual environment for those machines. These mining computers require a vast amount of energy to operate. As the prices of Bitcoin increase, more and more miners enter the market, driving up the energy consumption further. Earlier last week Reuters said in a report citing a tech news site Motherboard “the energy cost of a single Bitcoin transaction at 215 kilowatt-hours, assuming that there are around 300,000 Bitcoin transactions per day. That’s almost enough energy as the average American household consumes in a whole week.”

Can you steal Bitcoins?

Bitcoin thefts have been reported many times as according to some experts bitcoin stealing requires moderate knowledge of hacking. Reportedly, over 9.8 lakh bitcoins have already been stolen from exchanges, either by hackers or insiders. At current prices of bitcoin, it is worth more than $15 billion.

Are you biggest Bitcoin owner?

There are 5,638,155 Bitcoins in the 1,000 biggest wallets, Reuters said in a report. This is more than a third of all Bitcoins in circulation which makes the 1,000 biggest wallet-holders worth a collective about $87 billion. This value keeps on changing with the movement in the price of Bitcoin.

Where is largest Bitcoin trading happens?

Reportedly, China was touted as the largest Bitcoin trading nation until early 2017, accounting about 90% of trading volume. “But it has become clear that some exchanges inflated their volumes through so-called wash trades, repeatedly trading nominal amounts of Bitcoin back and forth between accounts,” Reuters mentioned in a report. Chinese trading volumes have plummeted heavily after Chinese authorities have imposed transaction fees and now represent less than 20%, Reuters reported citing a website Bitcoinity. Now, the largest Bitcoin trading happens in Japan as there are huge retail investors which have taken riskiest bets in the past. According to a Reuters report, Japan has emerged as a major force in Bitcoin’s spectacular rally, now accounting for an estimated 30-50% of trading in Bitcoin.

Is Bitcoin trading safe?

No, not at all safe. There have been clear warnings by many persons from around the world which has repeatedly stated that Bitcoin is a bubble with no intrinsic value.

Is Bitcoin tax-free?

Yes, in some countries. But with the rising reach of Bitcoins, it is now being used as a method to evade taxes. Even in India, tax regulators are reportedly conducting investigations into tax evasion using Bitcoin, and are mulling bringing the transactions under the tax net.

Who has all warned about Bitcoin?

World’s biggest investment wizard, the maestro of Wall Street Warren Buffett said that “You can’t value Bitcoin because it’s not a value-producing asset.”

Words from Chief of world’s largest investment bank

Jamie Dimon, Chief Executive Officer, JPMorgan Chase. “Bitcoin is a fraud and will blow up,” Jamie Dimon said at an event in New York in September 2017, adding, “The currency isn’t going to work.”

Finance Minister Arun Jaitley said India does not recognise cryptocurrencies as legal tender. “Recommendations are being worked at. The government’s position is clear, we don’t recognise this as legal currency as of now,” Arun Jaitley said. Earlier in August, Arun Jaitley informed Parliament that, there are no regulations governing virtual currencies, including Bitcoins, in India and the RBI has not given any licence to any entity/company to operate such currencies.

Risks associated with Bitcoin

With aforementioned risks of losing money, there is another major risk associated with it. There is no governing body, no regulator, no centralised check, no government intervention under any of its ministries be it department of finance or Electronics & Information Technology. As Bitcoin exchanges are very vulnerable to hacking and heists, even your personal data is at a risk of leak! One may recall bit threats of a dreaded ransomware earlier this year.

High fees

The average fee paid to process Bitcoin transactions has soared over the past year, outpacing even the staggering price increase of the cryptocurrency itself. Each Bitcoin transaction now costs around $7.3 to process, up from around 30 cents at the start of the year, according to trade website BitInfoCharts.