Bitcoin is a digital currency that is traded between two parties , without the need for intermediaries such as banks or other financial institutions.
To comprehend Bitcoin it is necessary to comprehend the fundamental structure of Bitcoin as well as the workings in the Bitcoin ecosystem and the level of use of it in India.
How Does Bitcoin Work?
Bitcoin eliminates intermediaries thanks to the blockchain technology it is based on.
If you need to transfer money to someone else in the future, one of the methods is to give cash or employing an intermediary who is trusted (example of a bank). All of the methods that you can use, whether physically money (with an institution like the central bank in the country acting as the guaranteeer) or electronic transfer require some intermediary (in the latter case the case of a bank or a different banking institution). When intermediaries are involved there are transaction fees.
The way that blockchain technology can help in eliminating intermediaries is through replacing the trust intermediaries bring to the table by providing cryptographic evidence through using CPU computing power.
The trust in cryptography is constructed into Bitcoin via a wallet public key, and secret key in the Bitcoin program.
Anyone can set up an Bitcoin wallet at no cost through downloading the Bitcoin software. Every wallet has an public key as well as a private key.
The public key acts as an an account number through which anyone can get Bitcoins.
A private key acts as digital signatures that an individual can send Bitcoins. The name implies that private keys are only accessible to the owner , while public keys are able to be shared with anyone who is interested in receiving Bitcoins. This is why you have read in the stories about Bitcoins being lost because of a private key not being accessed or stolen by hackers.
The owners of Bitcoin addresses aren’t clearly identified, however all transactions made on the blockchain are made public.
Since the beginning of Bitcoin in 2009 every transaction has been recorded in an ledger. It is considered unalterable, indestructible and irrevocable.
Bitcoin transactions are confirmed by nodes of the telecom network using cryptography, and then are stored in a distributed ledger that is decentralized known as the blockchain. This is among the main differences of Bitcoin as opposed to other cryptocurrency assets, which have a an exchange that is centralized (like that of the exchange for stocks) where all transactions must be verified or routed.
How Does Bitcoin Mining Work?
Within the Bitcoin ecosystem, there’s miners in the network who make use of their CPUs to handle transactions.
- If a person who plans to transfer Bitcoin is able to enter the address of public record and the amount of Bitcoins to be transferred and attaches the private key to create signatures The encrypted data is sent to a miners’ network who are charged with confirming the funds to fund and verify the transaction.
- The more powerful the processor that the miner is using, higher is the chance that they’ll be able to verify and reward the miner in Bitcoins to facilitate the transfer.
- The miner’s task is to only provide power to the CPU, which then executes this Bitcoin program to verify Bitcoin transactions. No manual interventions are required of Bitcoin’s Bitcoin miner.
- After the transaction has been processed by the Bitcoin mining machine, this amount of transactions will be broadcast to miners’ networks who are given a duplicate or download of the block.
- The blocks that are created using a timestamp mechanism are saved in an order that is chronological or sequential sequence, creating the blockchain. Every miner in the network is expected to have an updated and full version of the ledger or blockchain for those who want to make the transfer of Bitcoins and earn.
The program is constructed in the manner that the ledger, or the blockchain is constantly changed.
As stated in the original whitepaper about Bitcoin, the likelihood of hackers hacking into the Bitcoin blockchain is close to zero due to the copies of the latest ledger that each miner is carrying. If someone tries to alter or hack the ledger using any method to gain unfair advantage immediately the miner will be ineligible and is unable to complete transactions until they are able to copy the ledger that is not altered.
Can Bitcoin be Considered a Real Currency?
It is a matter of debate whether Bitcoin is actually a currency, and the reason why any nation would seek for it to be replaced with an current currency since Bitcoin is not a currency with any intrinsic worth of its own.
According to the definition, a money can be described as “a way of paying in widespread use in the country in which it is used,” or “the fact or the quality of being widely acknowledged and in usage.” There is some movement in the amount of businesses making use of Bitcoin as a method of payment. However, there is no country or economic system that has recognized it as a currency in general usage. A notable one exception to this could be El Salvador, which adopted Bitcoin as an official currency in September 2021, and was the first nation to adopt it.
One of the major factors behind the extraordinary growth in the development of Bitcoin is the tightening of Know Your Customer (KYC) as well as anti-money laundering (AML) rules by the financial and banking institutions as well as banks. There is now a greater exchange of data between countries regarding transactions made through bank systems.
This is why it is also said that Bitcoins are extensively used to facilitate the transactions that would otherwise be considered illegal in certain countries.
Another aspect that is important is the acceptance for Bitcoin as a worldwide payment method, that is not tied to any specific currency of a particular country and therefore, is not directly affected by advancements within a particular nation.
Regulation of Bitcoin in India
On the regulatory side, India saw two major changes this year:
In February 2022 in India in the year 2022, the Indian government was planning to introduce taxation of digital assets that are virtual and cryptocurrencies, which could lead to the creation of a tax system for cryptocurrency but there isn’t information on whether the Indian government considers cryptocurrencies to be legal as an “asset” as well as “currency”.
The Finance Minister of India has clearly said that “taxing cryptocurrency does not mean the legalization of the use of them.” This means that India’s government has been looking at the various aspects that go with cryptocurrencies . It would be premature to make any assumption about their legality.
What Happens If I Invest In Bitcoin in India?
Although there remains a lot of uncertainty and uncertainty about the price for Bitcoin as well as its legal stipulations in India but it is certain that blockchain technology will bring a amount of innovations and changes to the method in how transactions are completed.
If you’re planning for a way to make an investment in Bitcoin it is important be sure to keep in your mind that only investors with a high risk interest should be considering a percentage of their portfolio investing in Bitcoins. This is due to the risk of downside cost risk, a taxes that are high on gains generated by the sale bitcoins in India as well as a possible GST (GST) tax hazard as well as the uncertainty of the legality for Bitcoins in India.
For investors who have already invested in Bitcoins there is no need to worry because even in the event of any legal ban, it’s likely that provisions for a transitional the sale of Bitcoins would be made. Anyone who has put money in Bitcoins and then sold the same, but not been able to report the profit in taxes should be able to declare their investment.
