8th November 2016 made me re-think our physical currency in use. Well, demonetization really hit hard and no one could ever stop talking about it. What indulged me into thinking about it so much was the concept of currency in itself. What is currency anyway? A few paper notes and metal coins governed by authority and buy us whatever we want and make us lure about it just like flies over sweet. Besides treating it as God, we always forget that it is made by us, humans (well the government is human too). But, someone in some other part of the world by the name Satoshi Nakamoto thought of inventing some other kind of currency, BITCOIN. As interesting as the word sounds, the concept of Bitcoin in itself is quite engrossing.
Before going any further into the topic, we cannot deny that we’ve all (especially millennials) had that wild fantasy of trading Bitcoins and becoming rich! But very few know how to do it.
So let’s give this fantasy a strong base and understand how exactly the concept of Bitcoins work.
NOTE: We will use the acronym BTC for BITCOIN in the upcoming lines of writing. Nothing technical, this is just to avoid getting fed up by the frequent use of the B-word.
So, in layman terms, BTC is a virtual currency. There is no central authorized body governing it. It is completely intangible, can’t be kept in your wallet of course. It can be just transferred digitally. The only way you can feel it is through some digits popping on your screen.
You can use bitcoins to pay for friends, merchants, etc. Every single purchase is immediately logged digitally (on computers) on a transaction log that tracks the time of purchase and who owns how many BTCs. Think of this transaction log as an audit trail: it contains every single piece of information on every BTC transaction. This digital transaction log is called ‘blockchain’. The blockchain records every single transaction – of present and past – and the ownership of every single BTC in circulation. The people who are constantly verifying the blockchain, ensuring that all the information is correct and updating it each time a transaction is made, are called ‘miners’. One way to think of miners is those who confirm transactions. Their job is to ensure that the transaction is secure and processed properly and safely. In return for their services, miners are paid fees by the vendors/merchants of each transaction and are also given physical, minted BTCs.
BTCs are growing in popularity, and although they were largely used by speculators who were looking at it as a way to make money by buying BTCs at lower prices and selling them at higher prices (much like trading foreign exchange or forex), there is a growing trend of businesses accepting BTC as a form of payment. Many big companies like WordPress, Overstock.com, and Reddit accept BTC, and growing numbers of brick and mortar stores are starting to accept them internationally as well
How are bitcoins priced?
The value of a bitcoin is constantly changing, and there is no centralized exchange for it. Think of it this way: each time a bitcoin changes ownership from the seller to buyer, the two parties need to agree on its price. There is no ‘fixed’ price. Usually, it’s the seller’s responsibility to give a fair price to the buyer based on what rate bitcoins are being traded in elsewhere. The difference between bitcoins and other currencies is that there is no centralized bank that prints the currency and sets relative values. Through transactions, the value of bitcoin fluctuates through supply and demand.
How do I get started?
You can obtain bitcoins in a number of ways, but before we get to that, you’ll need to get yourself a ‘Bitcoin wallet’.
A Bitcoin wallet is first required to get started with using bitcoins. A wallet can be created easily through different online applications. Your Bitcoin wallet is essentially just like, well, any other wallet.
Think of a Bitcoin wallet like an “app” that you would install on your phone. You can download your wallet on your computer through a software wallet, on your mobile, and also on the web. Once you’ve got yourself a Bitcoin wallet, you’re good to go. It takes just a few minutes to get a wallet; once you have one, you can start accumulating bitcoins.
How do I get bitcoins?
Obtaining bitcoins is a relatively easy process. The three common ways are:
- If you are selling a good, you can accept bitcoins as a form of payment.
- You can purchase and sell bitcoins through Bitcoin exchanges (this is the most common way. Exchanges are typically found online.)
- You can trade bitcoins for traditional currencies of countries.
In India, it’s not very easy to convert rupees to other currencies since the Indian currency is not freely convertible. Due to this hindrance, obtaining bitcoins is not as hassle-free as it is in other countries. Another problem with obtaining bitcoins in India is that there is an electronic method to transfer funds safely; most transfers happen through NEFT. Due to these hindrances, the liquidity of bitcoins is relatively scarce in India but is picking up.
The RBI has taken notice of Bitcoin but has not outlawed it. As Mark Twain popularly said, “The more things are forbidden, the more popular they become.”
That not being the end of the story, we can only expect Bitcoin’s meteoric rise in popularity to continue.
Hope this information got you excited enough for your next BTC transaction. Thank you!