Recently during December-January, the world saw greatest rise in the value of Bitcoin. One bitcoin had hit its highest i.e., ₹32,58,664 on 8th January 2021. Sometime back in 2008, its value was almost zero. It reached $1 in 2011. You can imagine, if a person would have deposited around Rs ₹100 sometime in 2011 then he would have more than ₹32,58,664 on the 8th of January 2021.
This completely sounds bizarre for a mature mind because it never accepts a surge in money without any hard work. But wait, why does the value of the US dollar rises against the rupees, why some currencies have higher value and others have a lower value. Well, it is all about complex economics for the common mind which we are not going to explore. Neither we are going to talk about complex computer science-related kinds of stuff for understanding any cryptocurrency like bitcoin.
For, now let’s explore what is this bitcoin, is it genuine or fake, why it had created a buzz around the market.
Bitcoin, A Digital Asset.
The bitcoin is a digital asset in the form of some long code which is valued as a digital form of currency. This code is calculated by complex calculations in the network of connected computers. This process is called mining. So whenever, the calculation is complete, the system generates a long code that is equivalent to one single value of a coin.
Bitcoin was founded by a ghostly person named Satoshi Nakamoto. The world still doesn’t know who this guy is and how he looks like. However, what he created can be understood with a simple question.
Can we buy Pepsi or Pizza or Burger through Bitcoin?
To solve it, there is a need for comparison with the paper currency which is also known as FIAT. The paper currency is just paper, right? Again, why does the shopkeeper accept the paper and gives us the Pepsi or Pizza or Burger in return?
It is because this paper has the value of your trust and faith. You trust the paper as money because it is signed by the governor of the Reserve bank of India. The promise is given by the apex bank of the nation that they will bear to pay that amount which equals the value of goods brought by you. In the same way, people are giving their trust to the bitcoin and other cryptocurrencies. The creation and validation of the bitcoins are done by the network of the computers joined using a technology called ‘blockchain’ which we will not explore in detail.
Bitcoins are mined by people around the world trying and solve the mathematical puzzle using computers to create that code. In about every few minutes someone solves that calculation and gets some fraction of bitcoins. Again new calculation is generated, and the whole process starts over again. There is a high cost to mine bitcoin in terms of technology and power. The bitcoin network in 2020 consumes 120 gigawatts (GW) per second, which is equivalent to the power of 156 million horses per second.
The requirement for technology is always high, the performing network of computers needs to be connected using a power source to create and validate all the transactions.
Yes, it is not Environment Friendly idea.
You can get the created code from the person who has mined that digital asset. You can also pay it further to the shopkeeper to buy the Pepsi, pizza, or burger. And, you can get that asset if you have an internet connection and wallet associated with the cryptocurrency. Now, the person who has mined the currency is like an RBI Governor who promises to bear that amount for you.
The increasing value of cryptocurrency.
It is estimated that the total amount of bitcoin that can be mined is only around 21 million. So, it’s all about the demand and supply thing. People willing to buy bitcoin is increasing day-day so the demand is high, supply is less, result: the price increases. Also, the majority of bitcoins are with the big market players who hold them for a long time.
How to get a bitcoin?
You can get the bitcoin through exchanges just like what we have in Airports to buy the currency of the country which we are visiting. In India, people use WazirX, CoinDCX, and CoinSwitch, etc. to buy bitcoins. I personally have tested CoinSwitch with a very small fraction of money. You can start by investing Rs.100 to understand the market and risks. You can download the CoinSwitch app here. You will get bitcoin worth Rs. 50 after successful verification of documents, the physical copies of Aadhar Card/Voter ID and PAN Card should be present for the verification of identity online (KYC).
It is advised that you should understand all the risks of an unregulated market while investing. It is suggested that you should invest a lesser amount of money in the beginning. If you understand the market properly, “25 Din Mai Paisa Double” scheme of the famous movie of Akshay Kumar will be deciphered.
Is the bitcoin only the player in market?
There are various cryptocurrencies in the market. The famous being DOGECOIN backed by Elon Musk. He keeps on boosting this coin through his tweets and suggest people invest in it. There are many other crypto players like Ethereum, Cardano, NEM, Algorand, etc. You can see the list in the CoinSwitch app or any exchange app, you can invest in them by buying any crypto asset. To earn more you can hold the asset for some time and sell it when the price becomes high. You can also withdraw the money to your bank account.
India and the Regulation of the CryptoCurrency.
Cryptocurrency is sometimes a headache to the Government because the places where transactions happened cannot be traced. So, this can be used for illegal activities also. There are cases where Ransom was asked in terms of bitcoin. Due to all such problems, the Reserve Bank of India had banned the cryptocurrency in 2018. The decision had hampered Article 19(1)(g) of the Indian constitution. However, the Supreme Court of India nullified the decision to ban and legalized the cryptocurrency in India.
However, in January 2021, the Govt. of India had laid down some regulations in the name of the law. “Cryptocurrency and Regulation of Official Digital Currency Bill 2021” was officially laid in the Parliament. This bill has not been made public yet. The main aim of this bill is to introduce India’s own Digital Currency and to regulate Private players. This has created concern for the people who invest in the crypto market.