What is Bitcoin & How it Works | Easy Explanation For New Users? That this word is being searched so vastly. And what exactly is bitcoin? You can deposit your gold to the government and in return, you will get a receipt based on that receipt, you can make transactions and then later the same receipt will be converted into paper money. Then people trusted a government promise to represent money.
“I promise to pay this amount to the holder” Through this promise, the government told that if you go somewhere with this note, then you will get its value, but if it is so, then why not the government solve everyone’s problem by printing the notes? Suppose 1 kg of potatoes are left and all the people who want to purchase them have ₹ 1,00,000 then the potato will be given to the one who has more than ₹ 1,00,000. So automatically the price of potato exceeded one lakh. So even if the government prints the note, it won’t solve the problem.
it will only increase the prices The problem will be solved only when the resources are complete. Then gradually paper money started converting into digital money. But even in digital money, the biggest challenge was keeping track of transactions. If money is deducted from your account, then it should be transferred to another’s account. And it should not happen that money goes into another’s account but the money didn’t deduct from your account To keep track of all this, a centralized banking system was established. But this centralized banking system also has challenges. The money you save in the banks, that money is invested by the bank and if there is any loss in that investment, then your money will be at risk Like in the case of PMC Bank.
People were unable to withdraw their own money from the bank. In 2008, when Lehman Brothers were at the loss, which is a financial institution, there was a recession at the global level. If today people start withdrawing their money together, the bank will not be able to give the money. The balance that shows in your account is just a number which existing bank maintains by rotating it. In a way, you are giving control of your money to someone else. There is a problem with transparency in this. And because some selected institutions are controlling this money, then corruption is also involved in it. And if the government wants, it can also remove the legal status of your money.
As we saw in Demonetisation. In October 2008, a document was published and the person who published that document named himself Satoshi Nakamoto. And who is this Satoshi Nakamoto? It is not known to date. So this particular document suggested that How our current banking system can be replaced through bitcoin currency So what does it mean, it means that our bank is maintaining records of all the transactions through a Centralized system and making sure that the transaction is successful, Its alternate can also be seen through Bitcoin currency.
Although many cryptocurrencies have come into the market here we will take the example of bitcoin when you buy a product from Paytm, or made a transaction you get some reward points, generally, those reward points are used inside Paytm only if those points are used outside. If this happens and if everyone starts accepting it, then the value of these points will increase, the same thing happens in the case of bitcoin.
Bitcoin is a cryptocurrency, in the future, at what level its existence will be, depends on how its acceptance is, in which way people are accepting it and where are they accepting it. Bitcoin is a digital cryptocurrency, it has no physical value. When you buy a bitcoin, it means you buy a specific bitcoin address through which you do the transaction on another specific bitcoin address. Bitcoin is an automatic structure that does not require programming or coding.
Its algorithm runs on autorun, but to run the algorithm, a system and computer are required thousands of computers are required at such a huge level, And to maintain these thousands of computers a third party is required But if the third party is get involved, the whole thing will turn around and it will come back to the same bank structure. All control will go to the third party. To avoid this, the concept of bitcoin mining came, in which people run algorithms on their computers and When the transaction is successful, you get bitcoins as a reward.
As this whole system is in the form of distributed blockchain So the problem of power to any one institute or entity or getting hacked by someone is solved here. If bitcoin miners continue to generate bitcoins like this, then the whole thing will turn around and come back to what I explained in the potato example, the Inflation rate will increase. So to avoid this it is already confirmed that not more than 21 million bitcoins will be generated. As a bitcoin miner, how many bitcoins will get as a reward depending on how many people are mining bitcoins with computers?
In 2009, you could generate 200 bitcoins in 2 to 3 days, but today if you want to generate one bitcoin, that will take you more than 150 years. What is the Disadvantage of Bitcoin? The first thing is it is not accepted everywhere. Second, there is no involvement of the government in this, so a lot of illegal activities take place in it. The third thing is its very volatile nature, its value changes every 30 seconds. suppose you have bought a product and you have to return it, So its price would have changed in that time, now the shopkeeper will face the problem that is how much money he has to give in return. Because there is no mechanism for this thing. Because it is open-source, it may have some mechanism made in it later on.
Most importantly than this whether bitcoin is legal in India or not? So the answer is that bitcoin is legal in India, but the government does not recognize it, it means all the trading and purchasing you do, all the risk will be yours, the government is working to regulate it But none of its results has come yet. On 5 April 2018, RBI issued a notice to all the banks in which it was mentioned that you should not give your services to all the entities which are dealing in cryptocurrency,
Therefore you can not withdraw your money from your bank account from a cryptocurrency exchange. this was challenged by the Cryptocurrency Exchange in the Supreme Court this case run for 2 years and was won by the Crypto Currency Exchange. Then RBI had to remove its guidelines. You can use bitcoin in two ways, first, you can do transactions in it but in that, your will depend on the second person whether he is accepting bitcoin or not, second, you can invest, 2009 you can buy 1 bitcoin in 0.04 paise,
But today the price of a bitcoin is more than Rs 18,00,000, therefore the return of investment is very high because if the return of investment is high, So the risk is also high in it, If you invest in it and dream of becoming rich overnight, you will surely endure a loss and if you invest smartly in it, you can earn from it.