An Introduction to Bitcoin: The Open Source Cryptographic Currency

Bitcoin

The modern world is flying high on the wings of technology. In the last two decades, we have witnessed several inventions, which have brought a sea change in the way things get executed. In a developing country like India, people are always looking for better alternatives and are willing to adapt new technologies. From barter system to digital age the transformation was palpable and radical. Innovation of unique nature always has the potential to win hearts and Bitcoin is one among such innovations. While analyzing the growth of Bitcoin value in the past (Till 2014), it was clear that it would become one of the dominant faces like Dollar, Euro, etc. in the near future.

Bitcoin came into picture in the late 2009 as the first ever fully implemented open-source decentralized crypto currency. In simple words, it provides a digital wallet for every user, through which they can send and receive virtual money. All the Bitcoin transactions are recorded in a public ledger called Block Chain, which keeps track of the Bitcoins. This process undergoes billions of calculations before it gets recorded to the ledger. Certain software gets integrated with specialized hardware, to generate the necessary computing power to perform these tasks. The entire process is divided into several smaller tasks, and hence manpower is allocated to each task. Anybody can undertake these tasks and upon successful completion, they will be rewarded with Bitcoins itself as payment, and hence this process is called Bitcoin Mining.

Bitcoin does not have a specific monitoring authority. The Bitcoin users worldwide are the ones who control it. It can perform the tasks of payment for goods and services, mining, exchanging with others, or can even be purchased from a Bitcoin Exchange. The payments can be done easier than using debit cards or credit cards, and it can be done without having a merchant account. The interface will be a wallet application in either a smart phone or a computer. The user just needs to enter the cryptographic address of the recipient and payment amount, and click send to execute the transaction. There are options to request or send bitcoins in the wallet application. It is possible to send and receive any amount of money instantly to anywhere in the world, at extremely low fees. This technology is free of any usual problems we encounter like transaction delays, bank holidays etc. The transactions are made anonymously and personal data of the users are well protected.

However, despite all these advantages, Bitcoin has some disadvantages. Lack of control from government or centralised authorities makes it an easy target of innovative hackers and is vulnerable to new fraudulent practices. Even though cryptographic mode of transaction is secured, it has some inherent vulnerability. The transaction through Bitcoin cannot be refunded unless the recipient decides otherwise. A private key is required for the authentication of every Bitcoin transaction. If this private key is decrypted by hackers, then they can transfer all the bitcoins in the account of the actual user to any of the accounts they prefer. Moreover, the details cannot be tracked and further transactions cannot even be blocked. Several high profile fraudulent practices have been witnessed across the globe and in countries like China, buying Bitcoins with national currency is subject to strong restrictions, and the Bitcoin exchanges are not allowed to hold back accounts.

Japan based “Mt Gox”, which was one of the top Bitcoin exchanges, was the latest example that upholds the vulnerability of Bitcoin transactions. The security of the entire Bitcoin network was put to test by some hackers. The hackers managed to temporarily decrypt the private keys, which ended up in huge money loss to the customers. A sum total of about 7.5 lakh Bitcoins (Approximately 3,000 Crore Rupees) was deducted from the customers of the exchange, which resulted in their total bankruptcy. The story of Indian Bitcoin exchanges was not different. Indian investors suffered huge losses and hence Reserve Bank of India put forward an advisory panel to make aware about potential risks in Bitcoin. Later, the Bitcoin business suffered a steep fall. The value of 1 bitcoin, as per today’s (15 October 2014) exchange rate is Rs 24,265.14 , which was once so close to Rs 75,000 per Bitcoin.

There have been several measures to ensure the security of Bitcoin network against the advanced methods of hackers. Hackers now use methods like double spending, where they use same bitcoins for multiple transactions; tampering with the block chain, etc. Early adapters of technology still believe that if Bitcoin comes under the control of some centralized entity, it might ensure a bit more security. Considering the potential of Bitcoin, there are expectations that it may happen soon…

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