How the cryptocurrency works
Bitcoin is becoming popular by the day. It has captured the imagination of many young investors and millennials. But keeping aside its meteoric rise, what is Bitcoin really? And why is the Reserve Bank of India worried? MoneyCentral’s two-part series demystifies Bitcoin, cryptocurrencies and how they work.
From $121.34 a unit in October 2013 to $32,000 in January 2021, the Bitcoin’s price has skyrocketed. And no wonder investors of all hues have been intrigued by the cryptocurrency’s massive rally. What is this instrument, if it is one at all, and what explains its incredible upward journey? And should you consider the Bitcoin for your portfolio?
A cryptocurrency is a virtual currency. It is a generic name – Bitcoin is like a brand. Think of cryptocurrency as Cola and Bitcoin as, say, Pepsi. The Bitcoin is the most popular cryptocurrency in the world today. A single unit of a cryptocurrency is actually a complex computerized code that cannot be duplicated.
Why do I need a Bitcoin in the first place, when there is regular currency?
Our usual currencies are subject to a lot of rules and regulations. Central banks of various nations govern their currencies. They control the exchange rates, decide how much money to print and intervene regularly in forex markets.
In 2008, after the global credit crisis, a need was felt to democratize how currencies are held, exchanged and regulated. That year, an anonymous person, under the pseudonym ‘Satoshi Nakamoto,’ invented Bitcoin. Nobody yet knows who and where Nakamoto is. That was the birth of cryptocurrencies. Ever since, many other cryptocurrencies were invented, but Bitcoin remains the most popular.
Cryptocurrencies are more democratic. You can use them in any part of the world, buy as much as you want and use them anywhere. There is a network of people and their computers that maintains a ledger. Any exchange of the cryptocurrency must be validated by all those who are present in the network. The ledger then gets updated to reflect the transaction. This technology is called blockchain.