Bitcoin - The virtual currency

Bitcoin - The virtual currency

Bitcoin, the word we often come across while reading through the economic and business page of newspapers. The least a layman can understand from bitcoin is that it is a virtual or “online” currency which is used by traders across the world.

But how does the Bitcoin currency system work? Or what a Bitcoin currency actually is?

These are one of those few questions which keep striking our mind but remain unanswered. The reason is the technical terms involved in explaining the fundamentals of Bitcoin. So, we will try to decode the world of “Bitcoin” and the reason why it collapsed recently-

Bitcoin is the term used for an online currency created or started on June 3, 2009. It is a decentralized peer – to- peer (P2P) payment system. P2P is a communications model in which each party has the same capabilities and either party can initiate a communication session. One most important fact for bitcoin is that there is no central or regulatory authority to monitor Bitcoin which has fast become the cash for internet.

There is no physical Bitcoin, infact it is like any mobile app or programme that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. Bitcoin is an open source software, so anyone can use it. Any bitcoin transaction is a digitally signed message which is recorded in the Bitcoin network. And the ownership of Bitcoin is transferred to the buyer.

Bitcoin is creted by a process of “mining”. The crucial work of verifying transactions with the occasional payoff of new Bitcoins in a process known as Bitcoin mining. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies. They are held in virtual wallets with unique keys. You can send the Bitcoin from one wallet to another with the help of unique keys in a cryptographic process verified by computer across the Bitcoin network.

Now let’s look at the problem arising out of Bitcoins. Recently, we heard that a Bitcoin bank in Japan was robbed. Theft occurs when an unauthorized transfer of Bitcoins is made from a wallet using the private key to unlock the wallet. The thief hacks an online wallet service by finding a bug in its website or spreading malware to computers holding the private keys. It being online software carries the risk of being bugged by malwares or certain hacking programmes which make the use of Bitcoin very risky.

Many a times it has been reported that Bitcoin is being used for buying illegal gold or smuggling. The FBI and European Banks have raised concerns about Bitcoins being used for money laundering. Bitcoin is 7 to 10 times more volatile than gold. Thus, the Bitcoin markets suffer the risk of volatility where people are allowed to buy in Bitcoins, prices are denominated in fiat currency at the amount of Bitcoins paid is determined by the prevailing exchange rate.

Bitcoin or crypto currency or virtual currency is a term which yet needs a fixed and proper explanation regarding its mode of working. It is yet to be seen how Bitcoin survives in the market when so many risks are being attached.