Everybody has heard about bitcoin and how they have soared in price over the last 2 years. But what exactly is it? Not many people seem to know what it really means or what is the underlying technology because of which is valued at $141 billion. We attempt to answer that for you:
What is Bitcoin?
Bitcoin is a cryptocurrency. It is not the only cryptocurrency around. As of January end of 2018, there are 1384 cryptocurrencies in existence being traded or transacted with around the world. But what is it?
To explain clearly, Bitcoin should be thought of in two components:
- A piece of code that represents your ownership of a digital value.
- An accounting system of maintaining a distributed ledger of transactions.
Both are referred to as bitcoin, per se.
What’s the Use of Bitcoin?
The bitcoin system enables transfer of money between users without passing through any authority. Let’s take a real world situation to help understand this.
In the above figure, A from USA wants to send money to B in India. For A to do that, he would have deposit money in his bank account and instruct the bank to transfer to B’s bank account from where B will withdraw the money from his bank account. This transaction entails:
- Dollar to Rupee conversion
- Fee charged by A’s bank to A for transfer
- Fee charged by B’s bank to B for receiving foreign currency
With the Bitcoin mechanism, A and B do not need a bank to do this transaction for them. They both can save money in fees and charges by transferring bitcoins to one another and that too in a fraction of the time it takes to go through multiple banks.
Anyone with an internet connection can own it and doesn’t have to depend on a bank to send and receive money.
How to Use Bitcoin?
Bitcoin is sent and received electronically. To store it, you use an electronic wallet. Every Bitcoin wallet can have one or more “wallet address”. This is a unique internet address to ensure the anonymity of transactions which helps keep you safe. You can use a unique wallet address for every transaction you make.
A bitcoin wallet can be installed on a mobile phone or a computer. The wallet will generate an address which you can use to receive bitcoins from all around the world from anyone.
How does Bitcoin work?
The methodology of Bitcoin is called blockchain. Blockchain is a shared public ledger which records very single transaction. So if you send a bitcoin to another person, it is recorded on the blockchain and is unalterable. Here’s a simple video explaining what blockchain is:
Just like you check your bank statements to make sure you have received money, you can check the public blockchain ledger to see that your transaction has gone through.
Who Owns Bitcoin? Who Made It?
No one owns bitcoin. That is the beauty of it. It cannot be controlled by banks or governments but only through the market forces of supply and demand.
Bitcoin was created by a software developer under a pseudonym called Satoshi Nakamoto. He/She/They introduced bitcoin as an electronic payment system based on mathematical proof in this paper.
How is Bitcoin different from other currencies?
- Decentralization – This means that no single institution controls the bitcoin network. It is maintained by a group of volunteers, and run by a network of computers spread around the world.
- Limited Supply – Fiat currencies (dollars, euros, rupees, etc.) have an unlimited supply – central banks can issue as many as they want, and can attempt to manipulate a currency’s value relative to others. Holders of the currency bear the cost. On the other hand, there are only 21 million bitcoins in the world. The supply is controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached.
- Immutability – Bitcoin transactions cannot be reversed, unlike electronic fiat transactions. If a transaction is recorded on the network, and if more than an hour has passed, it is impossible to modify.
- Divisibility – The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Now, to the main part:
How to Buy Bitcoin in India?
Bitcoin can be bought in two ways:
- From a cryptocurrency exchange
- From someone who has bitcoin
To buy a cryptocurrency in India from an exchange, you have to register with the exchange by verifying yourselves with identification documents and deposit rupees in the exchange’s bank account which will be on their website. You can then buy and sell cryptos through the exchange.
Best Cryptocurrency Exchanges in India
Cryptocurrency in India is not as widespread in India as it is more developed countries. Since the volume is so thin, crytocurrencies are usually traded at a premium of 5-10% than the global exchanges. This premium will shrink with increased volume and awareness but at the moment, Indian users do not have much choice that 3 or 4 of cryptoexchanges. The best ones are:
- Zebapy – It is India’s biggest cryptocurrency exchange. Zebpay currently allows trading of Bitcoin, Bitcoin Cash and Litecoin. It has a very simple user interface with a mobile app for both Android and iOS users.
- Unocoin – Founded in 2013, Unocoin is a bitcoin only exchange. It charges a fee of 0.7% of the transaction value on each buy or sell transaction. It is regarded as one of the best places to trade bitcoin.
- Coindelta – My preferred destination for trading cryptocurrencies in India. There are currently 6 cryptos to trade – Bitcoin, Bitcoin Cash, Litecoin, XRP (Ripple), OMG, Quantum and Ethereum. A Rs. 20 fee is charged on deposit and different fee schedules for each crypto.
Best Global Cryptocurrency Exchanges for Indian Users
Due to the recent surge
- Binance – Binance is the second-most popular pure crytp-to-crypto exchange in the world. You can only trade cryptos with other cryptos. Hence, you need to buy a cryptocurrency first from someone or through an exchange.
- Coinmama – Coinmama is an international exchange which allows users to purchase with their debit and credit cards.
Are Cryptocurrencies legal? Will the Govt. come after me if I buy one?
This is a grey area. To be clear, legislators over the world are debating how to treat cryptocurrencies. The recent Senate hearing in the US has been very positive regarding developing cryptocurrencies and for the continuation of the blockchain.
The Indian Govt. has declared numerous times it does not recognize cryptocurrencies as legal tender and they might ban it. But the maximum they can do is that they can stop cryptocurrency exchanges from transacting by seizing their bank accounts. They cannot really stop trading cryptocurrencies as that would be equivalent to banning barter trade. It remains to be seen what would happen in the future.
Cryptocurrencies are very risky and volatile in nature. They fluctuate overnight from -30 to +30% frequently. So do your own homework and assess the risk associated with this new technology.
And lastly if you are looking to buy and hold any cryptos, it is better to transfer it to your private wallet on your computer and keep it there since that would safeguard you from the danger of the exchange shutting and freezing you out of your cryptos.