Bitcoin, Ethereum, Solana, Cardano or Shiba Inu! These are some of the biggest buzzwords among millennials. What exactly is Bitcoin? And is it a good time to invest? How do they work? Let's learn all in this article!
In recent times, Bitcoin is one of the most discussed topics among millennial investors who are looking to exponentially raise their worth. And according to Google, Bitcoin was searched more times than any other investment asset in 2021. So, let's see what this thing that is fascinating so many people really is?
What is Bitcoin?
Before explaining Bitcoin, let me start with what a currency or money is! I can define currency as that asset which carries some value and can be exchanged with some other asset such as wheat, rice, gold, land or some other form of currency. It is something that is purely driven by the trust that we can get something else in return for that currency.
Traditional currencies like the Indian Rupee or the US Dollar or the Japanese Yen have some problems in the way they work. Firstly, these are centralised that implies you don't have any control over them. You don't have any control over what happens to them like certain denominations of Indian Rupee were demonetised in 2016 by the Government of India. Suddenly, they lost all the value they had and you cannot do a thing about it. Secondly, the banks play a huge role in the transfer of these currencies. They also maintain all the ledger details, accounting system and other similar things which give them a lot of unnecessary authority over these currencies. And that's the reason why in recent times we are hearing a lot of scams regarding loans given by banks are popping up.
Remember the Vijay Mallya scam of 2016 or the Nirav Modi scam of 2018?
Q: Who gives them those huge loans?
Q: Where did the banks get those sums of money to lend to these people?
A: The banks lend the money that you deposit in your bank accounts!
That's what I meant when I said banks have a lot of unnecessary authority over our currencies! You have no power to decide where your deposited money goes.
And this is where Bitcoin comes in! It is a currency that is not owned by anyone nor is it centralised like other traditional currencies and most importantly, it is completely transparent. What do I mean by it being transparent? It simply means that you are completely in control of the Bitcoin you possess. A government cannot demonetise the bitcoin you own nor can any bank lend your bitcoin to some person without your prior approval. You have sole authority over who you want to give it to or how you want to give and everything that comes with it.
How does Bitcoin work?
In 2008, a research paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was published by Satoshi Nakamoto. This document was the first to document how the entire thing works and probably the most comprehensive explanation that I can find on the internet. To go through the entire document, click here.
If you are not interested in the tits and bits of the research paper, let me summarize it for you. The document mentions that every person who possesses some Bitcoin has a unique Bitcoin address and a passcode which is pretty similar to the UPI address which is being extensively used in India to transfer cash digitally and one can send and receive bitcoins through that Bitcoin address.
It is pretty similar to how UPI works but just that there is no bank in between. Whenever you make any transactions with Bitcoin, it gets stored in thousands of computers scattered across the globe. That means the records of your transactions are stored in multiple personal computers and not a single bank server. This implies that nobody has central authority over Bitcoins. Interestingly, you can volunteer to store data of transactions of Bitcoin on your personal computer. Will discuss more on that in a future article. The details of these transactions can be accessed by anyone but there is no technical way to hack or edit the details of these transactions. This is what I meant when I mentioned Bitcoin is completely transparent. Anyone trying to do any scam can be easily caught. Remember Harshad Mehta scamming multiple Indian banks in 1992? That is not possible with Bitcoin.
So what exactly is a Bitcoin?
I will define Bitcoin as a currency. The same as the Indian Rupee or the US Dollar but it is completely digital, it does not exist physically like notes or coins, and it is decentralized, nobody has authority over it, completely transparent and limited in number, unlike the traditional currencies. Let me explain the last point.
There are only 21 million Bitcoins available in this world unlike the traditional currencies which can be printed or issued as much as the Governing body wishes to do so. But you cannot have ₹0.0001 or $0.0001 but you can possess 0.0001 bitcoins. Yes, possessing fractional values of Bitcoin is possible. Not just possess, you can transfer them to someone else in any fractional number.
Should you invest in Bitcoin?
In 2010, 1 BTC or Bitcoin was worth ₹14. It went on to reach ₹7,00,000 in 2017, plunged to ₹3,75,000 in 2019 and at the time of drafting this article, it is worth more than ₹35,00,000. It has seen its ups and downs very similar to NIFTY and over the long term have reached exponential heights. If you have no idea of what NIFTY is, I recommend you to go through my article on NIFTY and Index Funds where I have also explained the concept of long term investing by clicking on the link below.
If you are investing or planning to invest in Bitcoin or any other cryptocurrency like Ethereum or Solana or anything to get rich in a span of months, it might be the biggest financial mistake of your life. And it is definitely much risker than any other form of investment out there. And as per my opinion, nothing more than 10% of the capital that you plan to invest should go towards Bitcoin or any other crypto. Always remember, Bitcoin is a highly volatile currency.
How can you invest in Bitcoins?
There are a lot of platforms available through which you can invest or convert your INR or USD into BTC. I personally use a platform known as CoinDCX to invest in Bitcoins and other cryptos. There are a lot of cryptocurrencies listed in CoinDCX. But this is not a paid promotion. You can use any platform of your choice.
If you are planning to invest in Bitcoins through the CoinDCX app, you can use my referral link through which you can earn up Ethereum worth up to ₹300 for free. But to be eligible for the reward, you need to do the KYC in the app and make your first investment in any of the available cryptocurrencies. If you are wondering what Ethereum is, it is the second most circulated cryptocurrency after Bitcoin. And you can make as low as ₹100 investments through CoinDCX.
Is Bitcoin getting banned?
A couple of months ago, there were a lot of discussions on speculations that the Government of India is going to ban Bitcoin and other cryptocurrencies but seems like it is not what they are trying to do in reality. The reality maybe they are trying to keep a watch on how people are making transactions using Bitcoins to detect fraud and scams.
Moreover, as per Blockchain experts, it is technically not possible for any government to ban any cryptocurrency because they are centralized like our traditional currencies. In 2020, the Government of Turkey tried to ban all cryptocurrencies in their country but they failed completely. The same thing has happened in Nigeria and South Korea. China had some limited success trying to ban cryptos but as Bitcoin is decentralized, people have found easy ways to bypass Government regulations in China as well.
So, with that, we have reached the end of the article. I hope you have discovered some new things in this article. Consider giving a like and share it among your peers. To get notified of new articles, sign up to the NerdyTree.
Let me know if you have any queries regarding cryptocurrencies in the comments.