New Delhi: Bitcoin has been one of the biggest buzzwords in recent times and the curiosity surrounding the cryptocurrency as an investment option has seen a massive surge.
Bitcoin was in news last month when it was reported that actor Amitabh Bachchan’s fortunes skyrocketed by more than USD 100 million when the cryptocurrency was trading at nearly USD 20,000.
Bachchan, whose investment in the currency is small and indirect, however, lost a sizeable share of that fortune as bitcoin’s value plunged almost immediately and finally settled at USD 15,000.
The government has been cautioning people against bitcoin transactions with Finance Minister Arun Jaitley saying that bitcoins are not considered legal tender.
With confusion surrounding what is bitcoin, here is a lowdown on all you wanted to know about the the cryptocurrency:
WHAT IS BITCOIN?
Bitcoin is essentially a digital currency and the transactions done through bitcoin are secured through cryptography, a complex coding system. The bitcoin network is unique as it does not uses any intermediary and the transaction is done directly between two entities.
WHO INVENTED BITCOIN?
It is largely believed that Satoshi Nakamoto, whose real identity is not known, is the brain behind bitcoin. The concept of “cryptocurrency” was, however, first described by Wei Dai, a computer engineer, in 1998.
WHAT WAS THE IDEA BEHIND BITCOIN?
The question, to an extent, has been answered in the paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ authored by Satoshi Nakamoto.
Nakamoto introduces bitcoin as a “a purely peer-to-peer version of electronic cash (which) would allow online payments to be sent directly from one party to another without going through a financial institution”. The paper proposes an electronic payment system that is based on cryptographic proof instead of trust on a third party (read banks).
HOW DOES BITCOIN WORK?
The bitcoin system works pretty much the way a digital wallet works, allowing an individual or entity to send and receive bitcoins.
According to bitcoin.org, the network shares a public ledger called a block chain which is a record of every transaction ever processed. The authenticity of each transaction is protected by digital signature corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own bitcoin addresses.
ARE BITCOINS MINTED LIKE REGULAR CURRENCY?
No, bitcoins are not minted but are created as a reward for a process called mining. Miners are those who process transactions, in turn also verifying them, using the computing power of specialised hardware and earn rewards in bitcoins for their service.
WHY DO BITCOIN PRICES FLUCTUATE SO MUCH?
The bitcoin market is very small and this means that even not-so-large transactions have the power to influence bitcoin’s value, thereby, making the currency extremely volatile.
CAN THE BITCOIN NETWORK BE HACKED?
Last month, Slovenia-based NiceHash, which is a cryptocurrency mining marketplace, said that it lost nearly USD 64 million worth of bitcoin after its payment system was hacked.
There is still ambiguity over how foolproof is bitcoin. According to Satoshi Nakamoto, even if a “greedy attacker is able to assembly more CPU power than all honest nodes”, he or she would have to “choose between using it to defraud people by stealing back payments or using it to generate new coins”.
Nakamoto argues that by logic the attacker would find it “more profitable to play by the book than to undermine the system and the validity of his own wealth”.
Experts, including the Reserve Bank of India, have raised doubts over virtual currencies, including bitcoins, and warned people against financial and security-related risks in dealing with them.
Bitcoins were in news after a massive global ransomware attack ‘WannaCry’ hit systems in more than 100 countries and hackers demanded a fee of nearly USD 300 in crypto-currencies such as bitcoin for unlocking affected devices.