Are you bitcoin savvy? Things you should know about the digital currency
In the news recently for the risks it poses to users, the e-payment system, Bitcoin, can no longer be ignored. Here is all that you need to know about this.
In the news recently for the risks it poses to users, the e-payment system, Bitcoin, can no longer be ignored. Here is all that you need to know about this digital currency.
What is bitcoin?
Bitcoin is a decentralised, peer-to-peer, electronic payment system.
This basically means that there is no central body controlling the Bitcoin network, and it's managed and regulated by its users. Unlike other electronic payment systems, it also has its own virtual currency, bitcoin. The network has a finite supply of 21 million bitcoins. The system automatically regulates the generation of bitcoins to ensure a steady growth of currency with minimal inflation.
Where can you use bitcoins?
Make donations: If you're a user of Wordpress or popular websites like Reddit, 4Chan, The Pirate Bay, EZTV and The Internet Archive, you can use bitcoins to make donations.
Buy cloud storage: If you're into online storage, you can upgrade the 50GB free storage that Kim Dotcom's Mega.co.nz offers.
Online gambling: You can try bitcoin gambling at places like Satoshibet.com and Bc-casino.com. There are also shopping sites like Somethinggeeky. com. While most major global retailers don’t accept bitcoins, you can view physical stores across the world at Coinmap.org.
How do you start?
Sign up with any international digital wallet that accepts bitcoins.
The first step is to sign up at Coinbase.com or any international digital wallet that accepts bitcoins. You'll get a unique Bitcoin address, a string of alphanumeric characters that you'll need for each transaction. You can create the address for free and even do it offline using freely available software tools like Armory (Bitcoinarmory.com). Each Bitcoin address is also case-sensitive.
Where can you mine bitcoins?
From BTC-E, one of the biggest Bitcoin exchanges.
After the Tokyo-based currency exchange, Mt. Gox, went bankrupt, BTC-E is one of the biggest Bitcoin exchanges you can mine bitcoins from. You can create an account for free and start buying bitcoins in a few minutes. The website displays exchange rates with various currencies on the home page, along with a minute-by-minute updated trade history. If you want to see the value of a bitcoin against your own currency, go to Preev.com. At the time of writing, 1 BTC is equivalent to Rs 28,365.
Bitcoins for free
There are three ways to get bitcoins without converting them from another currency.
1. Visit sites like Bitcoins4.me and Thefreebitcoins.com, where you only get Satoshi, usually every 30 minutes. They usually don't work if you have ad-blocking extensions on your Web browser.
2. The second way is by renting a portion of your computer's CPU power at Coingeneration.com in return for bitcoin payment, but you get only a small amount. If you have a more powerful computer with dedicated graphics card(s), you could earn more.
3. There are also hundreds of websites where you can watch videos or visit other sites to earn bitcoins.
How does it work?
Blockchain is the basic concept used by Bitcoin.
This is a public record of all transactions in the network, with the ledger maintained by everyone who uses it. It’s this collated computing power that makes it difficult for anyone to make fraudulent payments. It encourages people to donate their computing power to maintain the blockchain by rewarding individuals with bitcoins. As there are only a fixed number of bitcoins (12 million in circulation), the rewards are low.
While you can buy and sell bitcoins in India, there are virtually no physical or online stores that accept bitcoins. However, people are actively using the currency to trade and gain from its volatility. Recently, the RBI issued an advisory, cautioning users against the potential risks and losses in trading in bitcoins.
The total number of bitcoins that can be generated: 21 mn
The price of 1 bitcoin (as on 25 April 2014): $455
Advantages: Being a digital currency, you can carry thousands of bitcoins in your phone, computer or any electronic storage device. All transactions are untraceable and there is no tax or fee. Besides, bitcoins cannot be easily stolen as theft requires access to your authorised physical device to transfer them. Once you transfer or receive bitcoins, the transaction cannot be reversed as the ownership of bitcoins changes instantly. There's no restri ction on age or country, and it's not liable to any government or financial institution.
Pitfalls: The biggest drawback is volatility. In 2013, the price of one bitcoin surged from $13 to over $1,000. Since supply and demand are not monitored by a central authority, the liquidity is low. Besides, frequent hacking, confusion among buyers/users, and oscillating interest result in high volatility. Also, as transactions are not easily traceable, they can be used for laundering money and illegal online transactions.