What is BitCoin and How to invest in BitCoin? Know in Simple Language

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Bitcoin just boomed to $15000 and if you are still not aware of it, you have come to the right place! I will make it as simple as possible for you to understand.

What is Bitcoin?

It is one of the most popular cryptocurrency. Other famous cryptocurrencies are: Ethereum, LiteCoin, ZCash etc.

What is a cryptocurrency?

Cryptocurrency is just like any other currency like: Dollar, Rupee, Pound etc… However it differs in the following manner:

  • It has no legal backing by any government or authority
  • Its supply is not controlled by any central bank like RBI or Federal Bank.
  • It does not exist in physical form like notes or coins. It is stored in Electronic Wallets.
  • It does not have any underlying asset which derives its value like gold.

Is BitCoin legal?

Bitcoin is not legal in India but it is not even illegal. So, as per the current scenario you may deal in BitCoin without facing any legal repercussions. However you cannot make any complaint to any authority if your BitCoins are hijacked, stolen, lost or if you are cheated by anyone in a BitCoin transaction. In fact RBI has warned people against putting money in cryptocurrency.

However, the acceptability of BitCoin has been increasing rapidly. Recently, Japan’s Financial Services Agency officially recognized 11 companies as registered cryptocurrency exchange operators.

Why government is not backing cryptocurrencies?

Cryptocurrencies were invented to avoid government regulation over money (you will learn in next three questions how.) and no government can tolerate that because of the following reasons:

  • it becomes an open market for making payments for even illegal activities like terrorism, match fixing etc.. when government can not trace people making the transaction
  • government cannot levy tax
  • banks cannot levy transaction charges

How did BitCoin originate?

This is the most important question. It was created in 2008-2009 after the collapse of Lehman Brothers. Idea behind its creation was that collapse of any bank or government system would cause loss to common men, so there shall be no one to govern money. Value of money shall be determined by pure market factors i.e. demand and supply. No one should regulate it no government, no central bank, no merchant bank, no law, no regulation. Another idea was to reduce the cost of transactions. Right now any payment made overseas through a bank will be chargeable with 1% to 5% service charges. But when you make this payment using BitCoin, no such charges are applicable, hence reducing cost of transaction.

Who created BitCoin?

Satoshi Nakamoto, an Australian entrepreneur says he invented bitcoin. Australian entrepreneur Craig Wright says he’s the inventor of the digital currency bitcoin. Wright told the BBC that he is Satoshi Nakamoto, the shadowy creator of the cryptocurrency, in a move that could end the years-long search for the inventor. In simple words,, we don’t have any proof of who created it.

What is the technology behind BitCoin? What is Blockchain?

Technology behind BitCoin is called Blockchain. To understand what is blockchain we should first understand the benefit of blockchain. The biggest problem with any currency is that it can be duplicated and faked in the market, like printing fake notes. Therefore when the idea of Bitcoin was cultivated, there must have been a thought that how can BitCoin be prevented from the perils of duplication and being faked. The answer to this was using the Blockchain technology.

Blockchain is a distributed leadger of BitCoins, meaning that every transaction in BitCoin that takes place on the earth is recorded in this ledger and this ledger can be seen by everyone at www.blockchain.info. But the catch here is that if every one can see the ledger, no one can really identify the people between whom the transaction was made. This is because this ledger does not show the name of the people transacting but their unique id which is developed by a mathematical algorithm. This algorithm ensures that id remains unique and no bitcoin is duplicated. The blockchain technology has given following features to the cryptocurrencies:

  • transactions are completely transparent yet the identity of people transacting remains hidden
  • no government can track the person buying and selling the Bitcoin
  • duplication or faking is eliminated as the mathematical algorithm does not allow that to happen
  • trading remains secured

How to invest in BitCoin?

There are several websites available for trading in BitCoin

Step 1: Make an account on ZepPay, CoinSecure or UnoCoin.

Step 2: Verify your KYC by providing PAN and other details.

Step 3: Add money using NEFT or IMPS through your bank account.

Step 4: Now you can start buying and selling.

Step 5: If you want to withdraw amount, sell your bitcoins and transfer the money back to your bank account.

Should I invest in BitCoin?

There is no one-fit-for-all answer to this. It is absolutely your choice but for making a smart choice, one should evaluate his/her financial position and determine whether they can take a huge risk in hope of a huge return. One may invest only if he/she is very strong in financial terms and even in that case only limited investment should be made. Remember one thing, that RBI has already warned twice about putting money in BitCoins or other cryptocurrencies, it may be possible that these are banned in future. However it is also possible that BitCoin, which traded at $15000 a few hours back might hit $40,000 before the government can think of anything….. But guess what! While I was writing this blog, the Bitcoin crashed 30%-40% within minutes to $10000 levels. That’s how volatile this is!

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Author:

Sahil Goel | LinkedIn

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