Posted on 08-12-2020 by Admin
Merely 12 years ago, on 31st October, 2008, a person named Satoshi Nakamoto published a paper on the Internet. A version of electronic cash that would allow payments sent directly from one party to another party without going through a financial institution.
If truth be told, in order to understand this, one needs to have knowledge of advanced mathematics and computer science- which I don't have But if you want to start investment or trading, then basic knowledge would suffice
There is one public account in digital form, of all the bitcoin transactions- this is called a 'ledger' A copy of this ledger exists on all the systems that are a part of the Bitcoin network Those that run this system are called 'Miners'
The job of the miners is to verify transactions
A has to transfer 2 Bitcoins to B's account. Miners will have to confirm whether A actually does have 2 Bitcoins in his account or not
To complete the transaction, miners will have to solve a complicated mathematical equation. You might have studied about variables back in school. Every Bitcoin transaction has a unique variable
It's not that they sit with a pen or paper to solve the equations. All these calculations are carried out on the computers automatically because they are extremely complicated and their combinations run in crores. which is why these miners require computers with very complex and high processing power
Once the equation is solved, the other computers within the network confirm it and this transaction is added to the chain. A block of transactions gets created. And hence, the technology is called 'block chain'
And what do miners get in exchange for this? They get the most valuable thing- Bitcoins!
This system is called 'Proof of work'. The miners have to prove the computation work they do in order to get awarded the Bitcoins in return
If all this explanation went straight above your head like a bouncer, then do not worry!
Because understanding the philosophy, vision and future of crpto technology is far more important than understanding the working of crpto technology
It is extremely important to understand that as well. Because on one hand, some people use Bitcoins as an investment. while on the other hand, some people use cryptocurrency as an alternate currency
A lot of people want to replace it with currency and use Bitcoins in place of rupees and dollars But the main use of crypto currency at present is like an investment
We invest money in cryptocurrency hoping for a higher return in the future and hence get more money in return
This, then becomes a "store of value", just like Gold.
Just like we don't use gold in our daily transactions but instead buy it and store it in the bank lockers like a guarantee. to get more returns in the future because the price of gold keeps rising gradually
But just like any other investment, this too, entails risks. And those who criticize this as a form of investment say that Bitcoin is a digital currency. It has no inherent value of its own
For example, you can physically touch the gold in your hands. If you buy a house as an investment, it will be physically available to you Bitcoins, on the other hand, are not physical. Everything is happening on the computer
It could still be referred to as a "niche product" that does not have a widespread acceptance in the society. Cryptocurrency is not yet a medium of exchange, that is, you cannot go to the nearby shops and buy bread and eggs with Bitcoins
But this trend might change in the future because
there are several restaurants and hotels in the Western countries that have begun to accept Bitcoins as an alternative form of payment.There is a technical challenge here that makes it difficult to use Bitcoins as a medium of in daily transactions
The Bitcoin transactions on the block chain take time to get confirmed. One block process takes around 10 minutes for the computers to calculate So, you can understand that it is not practical to wait for 10 minutes for a transaction to get completed in daily life
But at the same time, there are some present day usecases for Bitcoins where they work better than our traditional ways
When you have to transfer money from one country to another, the banks deduct a lump sum in the name of foreign transfer fees. They charge a lot of fees and take a lot of time to transfer money from one country to another
The Bitcoins are more economical in this case. Bitcoins do not charge any transfer fees and ten minutes is a much lesser time as compared to the 1 to 2 days that the banks take
A similar thing applies to the credit card fees. Cryptocurrency can be more economical than credit card fees
This is why banks, credit card companies and remittance companies have been against the Cryptocurrencies and are so even today
In the last few months, especially due to the Covid pandemic, situations have changed. While several industries and mutual funds have been struggling, the value of Cryptocurrencies like Bitcoins and Ethereum has been on the rise
From the 1st of March, until November 30, the value of Bitcoin has risen more than 120%, that is, it has more than doubled in value
J P Morgan Bank used to be the biggest foe of Bitcoins. When Bitcoin was on a bull run in 2017, that is, when its price was rising exponentially, the CEO of J P Morgan had said that it was a fraud
And now, just a few months ago, J P Morgan has opened corporate accounts for famous crypto exchanges like Coinbase and Gemini Trust
So you can see how the doors that had earlier been shut for cryptocurrency have now been opening up. An open mindedness is being observed with regard to cryptocurrency in the general public and the financial industry.
Talking about India, a change of attitude has been observed this year in India as well.
In April 2018, the RBI had frozen out the crypto industry from the banking system. The RBI had instructed the banks via a circular to desist from dealing in crypto related platforms or transactions
The mainstream media had claimed that RBI had placed a ban on cryptocurrency but it was technically inaccurate to say so.
The result of this was that the public could not deal in INR that is, in Indian Rupees on the crypto platforms
The banks treated the crypto platforms with lot of harshness. With the platform accounts frozen, they were not able to pay their employees or pay rent to their landlords
The reality is that cryptocurrency has some negative points as well that are mainly related with money laundering and security In the dark web on the internet, the people had started accepting payment in Bitcoins for buying weapons and drugs
It became very difficult for the law enforcement agencies to track transactions because they were outside the traditional financial system
Another reason is that any one can come up with their own cryptocurrency. This is why, a lot of bogus and fraud companies took money from the public with a promise that once trading started in that particular currency, the value of their money would double/triple
so they claimed that the money invested would double/triple A person named Amit Bhardwaj came up with a similar fraud crypto scheme by the name of "Gain Bitcoin"
There is an allegation of a fraud of 2,000 crore against Bhardwaj. Bhardwaj claimed that he had "mining farms" in China. That is, a place where several computer servers were solving equations and said that the bitcoins that were earned as a result of mining operations would be given to the investors as returns
But all his promises were hollow. He took money from a lot of people and fled India There were such allegations on him. Finally on April 2018, he was arrested
Crypto exchanges i.e., platforms where you can invest in cryptocurrency and convert rupees into Bitcoins had been operational in India since 2013
Some exchange founders decided to challenge the banking ban in courts. It was not only a matter of their livelihood, but also a matter of principles. They got a chance to explain how the crypto technology and blockchain works to the government and the RBI
They were of the opinion that the negative points pertaining to cryptocurrency are also valid on other asset classes as well
There can be money laundering over property, fake notes can be printed, there can be money laundering there as well.
In response to this, the reputed Indian platforms included a lot of safeguards. For example, KYC (know your customer) process was made mandatory during sign up
The case reached the Supreme Court. Several famous senior lawyers refused to fight the case because there was a lot of negative news regarding the cryptocurrency in the media
A lot of rumors were afloat as well
There were adjournments. Some exchanges were not able to survive during this time and consequently, they had to wind up
Finally, a three bench judge heard the case in January 2020
and the court accepted the stance of the exchanges and conceded that the ban of the RBI was "disproportionate"
because RBI was not able to prove in the court that the crypto investments and trading had negatively hampered the financial systems or banks
Under Article 19(1)(g) of the Indian Constitution, it is the Fundamental right of every citizen to indulge in any business/occupation or trade The court said that the banking ban imposed by the RBI was interfering with this fundamental right. This is a huge thing
because it is no ordinary thing to defeat the RBI in court . Therefore, it was a historic day on 4th March for the Indian crypto industry
The court clearly declared that there is no legal prohibition on cryptocurrency trading and investment
This business is legal and the RBI would have to repeal its banking ban
Overall, this is good news for all of us. We can freely invest in cryptocurrencies, if we wish to We have this opportunity to diversify our financial investment
You could invest some money in cryptocurrency as an experiment
After the decision of the Supreme Court, several exchanges have burgeoned and this process has become extremely straightforward and easy in India
One of these is Coinswitch Kuber, an app on which you can deal in more than 100 cryptocurrencies
It remains to be seen whether cryptocurrency can become a medium of exchange that will be subject to widespread use
or will it remain a store of value investment?