Bitcoins, the digital currency, was created by a developer or developers going by the name of Satoshi Nakamoto in 2009. Bitcoin is an open source product. It is a digital coin. It is a private currency. It can be mined. Massive computer resources are needed to auto-solve complex mathematical algorithms. Once the problem is successfully solved a bitcoin is generated.

Source Forge, an on line platform enables the download of the Bitcoin mining programme.

Bitcoins are purchased and sold against real currency at the prevailing exchange rate. ( $ 8.06 in India ). On purchase Bitcoin moves from the wallet of the seller to that of the buyer. Each wallet has its own unique 33 characters.

Trading is done in pseudonyms. The wallet stores the history of every transaction.

Many initial holders of bitcoins

•  either mined these coins
•  or received it as fees from overseas clients.

Linden dollars is the game currently for virtual world. it is called Secondlife. It can be exchanged for Bitcoins.

Bitcoin Exchange

MtGox.com is the bitcoin exchange. You can sell the bitcoins through this exchange. The money will flow into your bank account in India.

Trading

Step 1

Network with experts and learn the trends

Step 2

Open a Wallet

Bitcoin.org or coinbase.com offer free wallet setups.Each wallet has unique id code. It is required for bitcoin buy and sell.

Step 3

Find a reputed Bitcoin exchange.

MtGox.com is the largest.

Buysell bitco.in is India centric.

Step 4

After creating an account with exchange, you can place a buy order and make payment to the exchange via wire transfer or other permissible payment mechanisms.

When the transaction is settled, the Bitcoins are credited to your wallet.

Snowden announced that he is ready to accept the donations in Bitcoins since the US has put a blockade on Wikileaks. That drew the attention of the world to Bitcoins. This protocol of Bitcoin was started by Satoshi Nakamoto, a mysterious person, probably a pseudonym derived from brands Samsung and Toshiba.

The Bitcoin algorithm produces 12 Bitcoins every few hours. It is designed in such a way that the total number of Bitcoins will never exceed 21 million.This figure will be reached by 2020. Today, each Bitcoin is worth $ 600 but it had touched a high of $ 1200. As a digital currency, bitcoins reached a value of $1,130 in 2013. Since then, the value has plunged to $ 326, a fall of 56 per cent in 2014. In other words, it becomes the the world’s worst performing currency.

Bitcoins are a store of value to the Web bucaneers and is immune to the government confiscation or deliberate devaluation. It, therefore, is the currency of choice for the old-fashioned money launderers and new age exotic salesmen. At the current value of $326, bitcoin as currency is deeply wounded.

There are estimated 5000 Bitcoins in India, and the number is increasing.

Bitcoins in its current form are bad since they use a protocol called TOR: The Onion Router that allows the giver and receiver to remain anonymous. This is the danger.

The underlying technology behind bitcoin is known as blockchain. IBM wishes to adopt it to crate digital cash and payment system for major currencies of the world.Cash can be transferred and payments can be made instantly without a bank or clearing party getting involved. An open ledger for the specific country’s currency will be maintained. Bitcoin’s main technological innovation is blockchain or a ledger. It allows users to pay anonymously and instantly without government regulation.This ledger is open and accessible to all participants in the bitcoin network.It is not strored on a separate server and controlled by an individual company.The proposed digital currency system will work on similar lines.

Instead of bitcoins, the dollars can be transacted. IBM is in talk with a number of central banks about the expansion of the blockchain technology of open ledger which could be viewed by eveyone using the system.The issues of money laundering and criminal activities will have to be addressed.Bitcoin is a decentralised network which has no overseer. Digital currency system would be controlled by central banks. Digital currency could be linked to a regular bank account of a person, possibly using wallet software.This could be integrated to the ledger.

Indian investors are taking a closer look at the online payment system to understand its global potential.An alliance of all bitcoin companies in India has been formed in March, 2015. It is called The Bitcoin Alliance India.This body will represent the Indian bitcoin industry to governments and other organisations. It will spread awareness, enable adoption and aid entrepreneurship involving bitcoin.Angel investors and VCs finally warm up to the idea of bitcoin.

Usually, 10000 to 12000 bitcoin transactions happen every day. Because of the Greek crisis, the transactions rose to 120,000 transactions per day in June-July, 2015. The price of bitcoin on June 1 was $220, whih rose to $285 on July 24. It is a 29 per cent rise. In Euros, bitcoin rose from Euro 213 on June 1 to Euro 260 on July 24 . It is a rise of 22 per cent.

The process of generating new bitcoins is called mining. It is governed by mathematical algorithms. The supply is controlled and increases at decelerating rate. Each coin is a unique number. A person can quote the same number twice. It is a common problem to all digital currency transactions. The matters are further complicated by the fact that the coins are anonymous — they cannot be tied to an owner for validation.

Satoshi Nakamoto, the inventor has found a clever solution. Each bitcoin transaction is time-stamped and recorded in a virtual ledger — the blockchain. The blockchain confirms if a particular bitcoin is available for transaction. This blockchain is maintained by a peer-to-peer system of multiple computers. It can be downloaded by anyone. It can be cross-checked and so a fraud is difficullt. As Greek crisis increased the volume of transactions, blockchain processing slowed down, and a transaction which generally takes 15-20 minutes took over 5 hours.

A number of Chinese syndicates mine bitcoin, China contributes a huge number of transactions. The stock market melt down at Shanghai also increased bitcoin volumes.

City and Barclays propose to launch their own digital currencies.

Hackers seize files on millions of computers and then subject the victims whose files have been seized to ransom payment in terms of bitcoins — a virtual currency that can be held in a digital wallet. It has not to be registered with any government and can easily be exchanged for real money. It should be noted bitcoins have appealed to the criminal element. There was Silk Road dealing in narcotics online using bitcoins as currency, which was closed down by the authorities DD4BC is notorious for attacking the financial firms. Even prior to the emergence of bitcoins, online extortion was in vogue, but the payment modes were cumbersome, say through prepaid cards. Bitcoins have facilitated the transactions. Victims are directed to several websites where bitcoins could be purchased. There is an attempt to lock all the files on a computer, and a payment is asked to unlock it. The sooftware CryptoLocker has been traced to a Russian mastermind. It affected several lac computers. There are new versions of this malware — TorrentLocker and Dirty Decrypt.

With so much volatility seen in the real estate and equity markets, bitcoins have become a safer investment option. With Digital India initiative, money is bound to become virtual. It can be moved around easily.

Bitcoins can be bought and sold online and can be remitted abroad — all electronically. A customer can use a bitcoin wallet to transfer money. It is estimated that India has 30,000 users of bitcoins and there are transactions worth Rs 200 crore a year in bitcoins.

Bitcoin flounders in Australia as regulatory worries bite. There are concerns about the potential crime links of bitcoins. Businesses have stopped accepting it. There are 17 bitcoin exchanges in Australia of which 13 has  closed the accounts. It is the first coordinated shut down of bitcoin exchanges by a country’s banking system. It makes it harder for people to convert regular currencies in or out of bitcoin, threatening its long term value.

The very technology that makes Bitcoins appealing is also responsible for its weaknesses. Bitcoins today store up huge value, earning the name digital gold. So far there was concern about the volatility in the value of Bitcoin. The current concern is about its recovertability.

Block gain makes it decentralised and anonymous. As it is unregulated, it is attractive to many users. As we are aware, block chain carries a list of records or blocks which are tamper proof and revision proof. Each block contains a times-tamp — the encoded information of the time a transaction occured and a link to a previous block. The transaction takes place between two parties anonymously. The only identification is the digital signature. There is no mediator in the transaction.In financial transactions, a bank or a financial institution mediates. Block chain has open ledger design. It is cost effective as mediator attracts no fees. It is fast and transparent.

The drawbacks of this technology are

• the lost or forgotten password which cannot be retrieved. Thus Bitcoins stored in wallet becomes unrecoverable.
• Insecure password can render the Bitcoin stealable. Stolen Bitcoins can be diverted to another wallet due to hacking or dishonest trading partners. Such transactions cannot be reversed or recovered. As Bitcoin transactions are anonynous, there is scope for dishonest traders to scam.
• Hacking is common in the dark web or hidden web accessed by Tor.
• Drug transactions are made through Bitcoins.

There are suggestions to address the trust issue. Record of conventional currency swapped for bitcoin must be maintained. Reputation management programme should be implemented on the top of block chain. There should be tools to reveal the identity of one-use only bitcoin wallets. There should be tools to know the use of third parties to arbitrate. But such suggestion reduce Bitcoins to just digital hawala, and its attraction may fade .

The Union Finance Ministry has invited suggestions on whether digital currencies such as Bitcoin should be banned or allowed but regulated. If to be regulated, should it be self-regulation?

Bitcoin startups has jointly launched a Digital Asset and Blockchain Foundation of India (DABFI) as a self-regulatory body.

Over-regulation kills an industry. Had e-commerce forms be regulated from the start, the segment would not have the grown the way it has. The best way to regulate is to allow the crypto currency exchanges to operate.

These exchanges have KYC checks in place, anti-money laudering (AML) provision and suspicious transactions reporting  (STR) processes.

They can help build an identity layer on top of this technology. There is a trail of every transaction. It can be traced back to the identity of the person. There could be a long transaction chain that needs to be traced backwards before the culprit is identified. These digital traces can never be erased.

The self-regulatory body can co-ordinate with the government.

There are four major aorrencies globally–Bitcoin, Etherium, Litcoin and Ripple. Bitcoin’s biggest weakness is the system’s limited capacity which can handle only seven trancsactions per second, as compared to thousands of transactions in conventional payment systems.