An Introduction to Cryptocurrency

Before diving into the details of Bitcoin, it is crucial to comprehend the concept of cryptocurrency. A cryptocurrency is a digital or virtual form of currency that uses cryptography for security. The ownership records of these currencies are stored in a digital ledger or a computerized database.

Unlike centralized banking systems, cryptocurrencies usually use a decentralized control mechanism.

You can find detailed UPSC notes on Cryptocurrency that can be useful for the upcoming Civil Services Exam.

Understanding Bitcoin

• Bitcoin was the first to implement the concept of "cryptocurrency". This idea was first proposed by Wei Dai in 1998 on a cypherpunks mailing list. He suggested the creation of a new form of money that uses cryptography to control its transactions, instead of a central authority.
• Satoshi Nakamoto, a mysterious figure about whom little is known, was the first to provide Bitcoin specifications and proof of concept in 2009. He shared these in a cryptography mailing list. By 2010, Satoshi had left the project, and since then, the community has grown, with many developers now working on Bitcoin.

Who is in control of Bitcoin?

• Much like the technology behind emails, no single entity owns the Bitcoin network.
• Bitcoin is controlled by all its users around the world. Although developers can improve the software, they cannot force a change in the protocol. All users have the freedom to choose the software and version they want to use.
• To maintain compatibility with each other, all users must use software that adheres to the same rules.
• Given that Bitcoin can only function correctly with complete consensus among all its users, there is a strong motivation among users to protect this consensus.

To learn more about the History of Banking in India , visit the linked article.

Making Payments with Bitcoin

• Payments through Bitcoin are easier to make compared to credit or debit card transactions and can be received without a merchant account.
• Payments can be made from a wallet application on a smartphone or computer by entering the recipient's address, the payment amount, and pressing send.
• To simplify the entry of a recipient's address, many wallets can obtain the address by scanning a QR code or by using NFC technology to touch two phones together.
• Bitcoin can be used like any other form of money, whether online or in physical stores.

The Status of Bitcoin in India

In March 2021, the Government of India announced that it would introduce legislation to penalize anyone found in possession of Bitcoin.

This legislation, among the world's strictest policies against cryptocurrencies, would criminalize possession, issuance, mining, trading, and transferring crypto-assets.

This move aligns with a January government agenda that called for banning private virtual currencies like Bitcoin while establishing a framework for an official digital currency.

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