Cryptocurrency

Cryptocurrency is a digital currency that uses cryptography to secure its transactions. It is difficult to make counterfeit cryptocurrency because of this security feature. A remarkable feature of any cryptocurrency is the fact that it is not issued by any central bank or government authority, making it immune to any government manipulation.

There are over 17 million bitcoins in circulation as of May 2018, with a total market capitalization of over $140 billion. Bitcoin’s success has given rise to a number of similar cryptocurrencies called altcoins: Namecoin, Litecoin, PPCoin, etc.

Pros and Cons of Cryptocurrencies

Cryptocurrencies make it possible to transfer funds between parties and these transfers are effected through the use of public and private keys as a means of security. These fund transfers are carried out with nominal or zero processing fees, allowing users to avoid the exorbitant fees charged by most banks and other financial intermediaries for the transfers.

Apart from the fact that prices of cryptocurrencies are based on supply and demand, it has been found that the exchange rates of cryptocurrency fluctuate widely due to a host of reasons.

The anonymous feature of cryptocurrency transactions renders them vulnerable to illegal transactions, such as money laundering, drug, and weapons dealing, terror funding, and tax evasion by criminals. However, the anonymity of transactions has its own host of plus points. Cryptocurrencies are also considered by some economists to be a passing phenomenon or a speculative bubble that can burst any moment because of their virtual or digital nature. Bitcoin has indeed seen some exponential surges and sudden collapses in value.

Cryptocurrencies are also not totally secure from hacking. In Bitcoin’s short life-span, the currency has been subject to over 40 hackings, including few that topped $1 million in value. Still, many see cryptocurrencies with hope as a medium of exchange that preserves value, facilitates easy exchange, is more liquid and portable than bullion, and is outside the purview of central banks and governments.

Through many of their unique properties, cryptocurrencies allow exciting applications that could not be provided by any traditional payment systems.

There is no physical cryptocurrency, but balances are secured with public and private keys. These balances are maintained on public ledgers, along with all transactions, that are verified by a huge amount of computing power.

In early 2014, the Inland Revenue Service of the US declared that all cryptocurrencies, including Bitcoin, would be taxed as property rather than currency. It was stated that all gains or losses from such currencies held as capital will be treated as capital gains or losses, while those held as inventory will attract ordinary gains or losses.

Bitcoin – Features

We have seen that bitcoins are becoming more and more popular and their usage is increasing at an accelerated pace geographically. We will understand this process if we study different useful features of bitcoin that make them what they are.

Features of bitcoins

One of the most direct benefits of Bitcoins is that they are out of the purview of governments, banks, and other intermediaries who cannot interrupt user transactions or freeze Bitcoin accounts. The users experience greater freedom vis-à-vis dealing in national currencies. There cannot be inflation in the case of bitcoins by printing more money as in the case of fiat currencies. By design, the number of bitcoins that can be mined is limited.

Since there is no way to identify, track, or intercept bitcoin transactions, one of the major advantages of bitcoin usage is that taxes are not added onto any purchases.

Bitcoin transactions are relatively faster as compared to bank transfers in traditional currencies. Bitcoin transactions are done with nominal or sometimes zero transaction charges. These transactions are anonymous with no names involved. Every transaction is a public record that anyone can see. Your private key is the only link between you and your bitcoins. As long as the private key is secure, your money is safe. It is very easy to send and receive bitcoins because of the ease of operation of bitcoin accounts.

Small amounts of bitcoin that are used as alternative units are millibitcoin (1 mBTC = 0.001 BTC), and satoshi (1 sat =0.000001 BTC) which is a millionth of a bitcoin in value.

You can use different wallets and tools for transacting in bitcoins.

Bitcoin – How do they work?

The process of creating or minting bitcoins is difficult to hack and this gives security to bitcoins. Another layer of security is the provision that every transaction has to be verified before being validated. This verification is effected through “mining”. Mining is a process where some high-level computing like SHA256 decoding is done to verify transfers of bitcoins.

Bitcoins are stored in a “digital wallet”, which exists either on a user’s computer or on the cloud. The wallet is a type of virtual bank account that facilitates users to send or receive bitcoins, pay for goods and services, or save their money.

How do bitcoin transactions work?

Every bitcoin account consists of a public key that works like a bitcoin address and a private key. Anyone can send you bitcoins if he/she knows your public key. To spend bitcoins, you have to use your private key for authentication. Every bitcoin transaction appears on the bitcoin network. The miners confirm the transactions after verification to validate them.

Addresses

An example of a bitcoin address is as follows −

73nRKoXJAUqKYYbzw6Nrqh9gW2p26zerpZ

There are 2¹⁶⁰ or about 10⁴⁸possible addresses.

The corresponding private key is as given below −

5HuEupY3DNF87UypjFtXDTm4BVuAwZtAgYf94sMALPyakgafVnU

Private keys are of 256-bit length. There are about 10⁷⁷ possible private keys.

How to send bitcoins?

In the previous section, we have seen how a bitcoin transaction works. Now, we shall discuss how to send bitcoins.

To buy some merchandise or pay for some services, you will have to send bitcoins to the address of the vendor. To receive bitcoins, you will have to share your address with the vendor.

Following is the process of sending bitcoins to someone −

• Copy the vendor’s address and open your bitcoin wallet.
• Click on the “Send coins” tab and enter the address in the ‘Pay to’ field to which you want to send bitcoins.
• If you have to send bitcoins to the same person or a group several times, you can create a label so as to find them in the address book.

Enter the amount in the next field and click send to complete the operation. Exchanging bitcoins is straightforward as bitcoin is worldwide cash and simple to send anyplace. Bitcoin has almost no obstruction to the section. By and large, even confirmation isn’t needed for exchanging bitcoins. Due to soaking increment in bitcoin costs, financial specialists and examiners are pulled in to exchanging to make benefits.

There are no official bitcoin trades or authority bitcoin cost. This makes exchange exchanging conceivable. In contrast to other stock exchanging, bitcoin exchanging works day in and day out.

Bitcoin exchanging is energizing a direct result of Bitcoin’s wild value developments, its worldwide nature, and all day, every day exchanging. It is significant, in any case, to comprehend and recall the dangers that accompany exchanging Bitcoins.

 

Bitcoin – Applications

Coming up next is a rundown of uses of bitcoins

• Bitcoins are being utilized to purchase merchandise and enterprises as an ever-increasing number of stores over the world are tolerating bitcoin installments.
• Bitcoin exchanges give a tweaked degree of secrecy and it is moderately hard to follow their path. So bitcoins are being utilized to execute secretly.
• International installments can be made effectively and efficiently as bitcoins are not identified with any nation or subject to any administration guideline.
• There is the opportunity of the way that there is no need for consent from an expert for your exchanges.
• Bitcoins give an approach to execute safely online as they utilize extremely solid cryptographic calculations.
• Users and organizations like bitcoin installments on the grounds that there are no charge card expenses to pay.
• Bitcoins can be as a venture, expecting that their worth will acknowledge fundamentally in future
• • Bitcoins can be utilized to bet on online locales like SatoshiDice, RoyalBitcoin, Bitzino, Peerbet, and so forth.