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Last Updated Friday October 20 2017 12:57 PM IST

What is bitcoin and how does it work? A brief guide | Video

Ramesh Chandran KP
Assistant Content Producer
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What is bitcoin and how does it work? A brief guide

Of late, there has been a lot of fuss around bitcoins. After the new-gen currency came under intense global regulatory scrutiny, the Reserve Bank of India (RBI) expressed apprehension over bitcoins. The RBI recently stated that it was studying the ramifications of using cryptocurrencies. Onmanorama takes a quick look at cryptocurrencies and bitcoins.

1. What is cryptocurrency?

Cryptocurrency (also crypto currency) is a digital medium used to secure transactions.

2. What is bitcoin?

Bitcoin is a digital currency. It became the first decentralized cryptocurrency in 2009. It does not have physical presence like a rupee note. It is not backed or controlled by any central bank or national treasury or government. It exists only on the Internet. It enables individuals to transfer value to each other and pay for goods and services bypassing banks and the mainstream financial system.

3. How did bitcoin originate

It is a mystery. Bitcoin was launched in 2009 by an unknown person or group of people operating under the name 'Satoshi Nakamoto.' In January 2009, Nakamoto proposed to the world to adopt a new decentralized currency system – bitcoins – by releasing it as an open-source software. The idea had subsequently gained momentum by attracting cyber enthusiasts.

4. How bitcoins work?

Like we said, bitcoins are not printed notes. It is created digitally by users, who 'mine' them. This means, a miner creates bitcoins by lending his/her computing power to verify other users' transactions. They receive bitcoins in exchange. Mining is a record-keeping service. The first issuance of bitcoins were made by mining the first block of bitcoins – the genesis block – which was created by Nakamoto. The receiver of the first bitcoin transaction was Hal Finney, a developer based in the US. He received 10 bitcoins from Nakamoto in the world's first bitcoin transaction. Later, Nakamoto dropped off the map. But proponents say that doesn't matter: the currency obeys its own internal logic. The coins also can be bought and sold on exchanges with US dollars and other currencies.

5. Can we create unlimited bitcoins?

The bitcoin protocol – the rules that make bitcoins work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts. The smallest divisible amount is one hundred millionth of a bitcoin and is called a 'Satoshi.' Its transactions are logged and verified on the Internet, via a publicly distributed ledger called 'blockchain.' The blockchain prevents rogues from spending the same bitcoin twice.

6. How popular is bitcoin

Bitcoins became extremely popular among cyber enthusiasts. It became popular among libertarians, speculators, and criminals as the transactions are largely anonymous. Recently, the perpetrators of the ransomware attack, WannaCry, had demanded payments in bitcoins. Soon after its invention, some the business groups showed interest in the new system. Overstock.com is the first large consumer-facing company to accept bitcoin payments. Presently, companies like Microsoft, PayPal and Subway accept this mode of transactions for their products and services.

7. How much is it worth?

One bitcoin is worth (approx) Rs 2 lakh as of today (September 15, 2017). The virtual currency has more than quadrupled in value since December to more than $4,100.

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The opinions expressed here do not reflect those of Malayala Manorama. Legal action under the IT Act will be taken against those making derogatory and obscene statements.

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