Bitcoin - An opportunity to invest?


What is bitcoin?
It's a form of currency.

We have physical and digital currency. Why do we need bitcoin? 
  • Physical cash transfer from a person to another doesn't need any third party. But making distant transfers like this is very difficult.
  • For other digital currency transfer, you need some third party financial entity to authorize it- like our banks.
  • Bitcoin is a virtual digital currency that provides peer-peer transfer without any third party.

Using cryptography. That's why bitcoin is a cryptocurrency.

Bitcoin pretty much works like your email.
A asks B to send a PDF file to his email by giving B his email address.
  • B sends PDF file to A's email address from his email address.This email address is the public key which is..public(duh)
  • Now only A has access to his mail through his password.That password is the private key and you are not supposed to share it with anyone. If you lose private key, your bitcoins are gone.
  • To access mail, let's say gmail, A should first open gmail app.This gmail app/portal is the Bitcoin wallet

Yeah, big deal. Who cares if transfer is done by third party or cryptography?
  • Credit cards charge two percent as transaction fee. But bitcoin transaction fee is very less comparatively.
  • Quick transfer.
  • That third party system which authorized your transaction knows that you made the transaction to someone. But in bitcoin, people would know that transaction happened, but they don't know who are involved in the transaction. Because Bitcoin keeps track of bitcoin addresses, but not user identities. 
  • Most of the wallets can generate multiple addresses(public and private key together) so that you can use a different address for each transaction. This ensures even more anonymity.
  • Also bitcoin is like stocks, which means that you can buy bitcoin for less and sell them for high pretty much like you do in share market.

How do I get a confirmation for my transaction?
  • By checking something called blockchain. Blockchain is a public ledger that shows transactions. A blockchain has blocks(duh). For every ten minutes on average, a block is released. 
  • What is a block?Periodical transaction logs.

When there's no third party who releases these blocks?
You can also become one,if you can compete with professional miners who invest a lot in hardware. There are mining pools too where miners share their resources. This is why it's open source. 
Using several such distributed network nodes, blockchain is kept intact and in sync with all other nodes.Challenges here are to avoid double-spending(spending same bitcoins twice) and updating the blockchain.

What do miners get by mining?
They will be rewarded with bitcoins. They may even charge transaction fee.
Right now, reward per block is 12.5 bitcoins(8.52 Lakhs INR). The reward points decrease by half for every four years-21K blocks.

How do i buy some bitcoins?
You can buy them from bitcoin exchanges.
India :

Is it safe?
It's seven times more volatile than gold. What does that mean? It has seven times more fluctuation rate than gold.
Invest at your own risk.
You can check bitcoin rate since it's beginning here.

Is it legal?
In India, RBI or the government hasn't made it illegal. In some countries, it's banned.
Edit: Just after posting this article, Indian government has announced that "bitcoin is not authorized and could result in anti money laundering provisions". My life :(

How many bitcoins are in circulation?
~16 million, 21 million is supposed to be the upper limit till which more bitcoins can be issued(by 2140 year)

Who adds new bitcoins?
Remember the rewards earned by miners? That's the new bitcoins.

But if the limit is 21 million, what will happen to miner rewards after that limit?
They will only earn transaction fee as reward.

Who invented Bitcoin?
Satoshi Nakamoto

When did Bitcoin come into picture?
After Satoshi published this white paper in 2009.

Who is Satoshi Nakamoto?
We don't know for sure. We don't even know if it's just a single programmer or a group of programmers.
Satoshi stepped back in 2010 and asked Gavin Andresen to lead development of Bitcoin Core.

Final fun fact:
FBI seized huge amounts of bitcoins from accounts on Silkroad, an online black market that sells illegal drugs. Seized bitcoins were later auctioned.

Hope you will take some calculated risk :)


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