In January 2009, a digital medium of exchange was invented under the name Bitcoin. It is a digital currency that allows online transactions from person-to-person without involving any intermediaries. Bitcoins are not backed by any Central Banks, Governments or single administrator. In addition to this, users from around the world can control bitcoin.
History of Bitcoin:
On 18th August 2008, the domain name ‘bitcoin.org‘ was registered. Later, a link to a paper authored by Mr Satoshi Nakamoto. It was titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ and was posted to a cryptography mailing list on 31st October 2008. Mr Nakamoto published the bitcoin software as open-source code in January 2009.
On 3 January 2009, Mr Nakamoto mined the genesis block. It was the first block of the chain and created the network. Furthermore, in order to spread responsibility and to avoid any one person or a group from easily gaining control over the bitcoin project. Mr Nakamoto gave ownership of the domain to additional people, separate from the Bitcoin developers while leaving the project.
How does Bitcoin work?
A new user is supposed to install a bitcoin wallet. Once accomplished, a Bitcoin address will get generated. It is when a user can disclose with friends in order to pay or get paid.
All the bitcoin transactions are recorded in a shared public ledger which is known as a blockchain. It is a chain of blocks wherein each block contains a hash of the previous block up to the genesis block of the chain. All confirmed transactions are recorded in the blockchain.
Furthermore, transactions comprise one or additional inputs as well as outputs. When a user sends bitcoins, they label each address. Further, the amount of bitcoin sent to that address in an output. Each input must refer to a previous unspent output in the blockchain so as to avoid double spending. The use of multiple inputs means the employment of multiple coins in a cash transaction. Users can send bitcoins to various recipients in one transaction as transactions can have multiple outputs. To avoid alteration of transactions, all transactions are broadcasted to the network. They usually begin to be confirmed within 10-20 minutes, through a process called mining.
Mining is a record-keeping service that is used to confirm pending transactions by including them in the blockchain. Further, Mining also prevents any individual from easily adding new blocks consecutively to the blockchain. In this way, no individual or group can alter or replace blocks in the blockchain.
Bitcoin lacks stability in price, the high energy consumption, high and variable transactions costs. In addition to this Bitcoin is criticised for poor security and fraud at cryptocurrency exchanges. Vulnerability to debasement (from forking) and the influence of miners are several criticisms made on bitcoin. It has been identified as an economic bubble.
Moreover, bitcoin has been also criticized for the amount of electricity consumed by mining. In order to minimize the cost, bitcoin miners have set up in places like Iceland. It is where geothermal energy is cheap and cooling Arctic air is free.
Further, bitcoin is allegedly said to be a Ponzi scheme or a pyramid scheme. It is vulnerable to theft through phishing, scamming, and hacking. Till December 2017, around 980,000 bitcoins have been stolen from cryptocurrency exchanges.
Future prospects of Bitcoin
Along with simplicity in the transaction, bitcoin offers several features such as:
Bitcoin allows transactions anywhere and at any time, regardless of a bank account. It is helping in flourishing international trades by reaching to the large number of countries which are still out of the reach of most payment systems.
Control against fraud-
Bitcoin offers a remarkable level of security against most frequent types of frauds such as chargebacks, unwanted charges. Moreover, bitcoin allows its users to have complete control over their money by encrypting or backing up their wallets.
Peer-to-peer transfer of currency makes it much cheaper.
Crowdfunding campaigns will be made easier with the help of bitcoin.
Future upgrades of bitcoin are designed in order to make micropayments more susceptible.
Tips and donations-
Sending money over a click and receiving by displaying a QR code will make the process of offering tips and donations sufficient and transparent as well.
Bitcoin can be used to develop innovative dispute mediation services using multiple signatures. This will lead to free competition and higher quality standards.
Multiple signatures will allow additional security to bitcoins. Moreover, this will be beneficial to a board of directors as well as banks.
Resilience and decentralization-
With no centralized administrator, bitcoin is offering a high level of resilience. Decentralization has made attacking the network difficult. Bitcoin could step forward in securing local and global financial systems.
Bitcoin offers flexible transparency by making all the transactions public and transparent and the identity of the people behind transactions private.
Bitcoin is suited to be used in a new generation of automated services to cut their operating costs.
In 2018, the sale and purchase of cryptocurrency for entities regulated by RBI was banned by Reserve Bank of India (RBI).