Couple of years back I became member of a website which advertised that after registration, every time one opens it around up to $25 would get deposited in my account. I was surprised at this liberal payment only for visiting a site and reading a few notifications. After some days I found that I had amassed more than $400. I started wondering at this deposition of dollars. I felt it was a hoax and stopped visiting. However I would receive emails requesting me to continue visiting the site. I did so on and off and accumulated more than $800.

I then was informed that they are changing the name of their site. The new named site would soon be launching buying and selling of digital items and invited users to upload their digital contents. This was first time t gave an idea of hat they intended to do on the site. Soon I was informed that all the dollars in my account would be treated as virtual money and these could be used to buy digital products to be made available from the site.  In due course of time they started advertising various digital products like music, games, how to do manuals, poems and books etc. 

It was an interesting idea. I got some digital products at the rates mentioned against there listing. These were delivered into my email inbox and amount deducted from my accumulated dollars. Vow what a concept. First they give me virtual dollars and then I can use them to buy digital products and I have not paid in reality but still have received items. I was truly in a virtual world.

Here were a group of persons who had created a business portal where real money was not required for transacting business Yes, the limitation was that only digital products were available. Today there digital product list is large and the number of buyers per item is also regularly updated. One still gets virtual dollars deposited every visit to the site. A virtual business portal run on virtual money.

I started wondering would it be possible to have business transacted on the web outside the established monetary systems of countries and that too in a legal manner. Though I was member of a virtual business portal still I could not imagine that it would emerge in the form of Bitcoins.

What is a bitcoin and Bitcoin?

There is a different definition of bitcoin and Bitcoin.

bitcoin is a digital currency or electronic money. It was developed in 2009 in response to the 2008 US monetary crisis in  by someone who is known by the false name of Satoshi Nakamoto. 

Bitcoin is the protocol and transaction network which operates on a peer to peer payment network basis on an open source basis. This means that all transactions are carried out by inter-acting with all bitcoin holders and there is no centralized control and the program is not proprietary in nature. This is possible because of internet mode of operation.

Operation of bitcoins :

The digital currency bitcoin enables the holder to buy goods without exchanging money in physical form to the seller. The bitcoins can be used only in its electronic form. Thus all transactions involving bitcoins are through the Bitcoin peer to peer network. What is noteworthy is that every time there is a transaction  it is immediately logged on a transaction log that notes the time of purchase and the number of bitcoins with the various owners. This trail of every  transaction is called a 'blockchain'. The blockchain carries information of every transaction till date and also records the ownership of all the bitcoins in circulation.

There are persons who are constantly verifying the blockchain to ensure that correct information is entered every time there is a transaction. They are known as 'miners' and they are paid fees by sellers including physical minted bitcoins.

Bitcoins are now being increasingly accepted by both online and offline companies including for international transactions. It is estimated that the worth of bitcoins in circulation is nearly $1.5 billion. Like existing foreign exchange currencies bitcoins are also used for speculative purposes ie buy low and sell high to make profits.

Pricing of bitcoins:

There is no centralized contoller / regulator of bitcoins. Every time a transaction takes place it is entered in the transaction log and this is how supply and demand is self monitored by all the bitcoin holders. However bitcoin has a value expressed in other currencies and it also keeps fluctuating. The seller and buyer have to settle for an acceptable value of the bitcoin in the currency of their choice.

Use of bitcoin does not involve payment of exchange commissions like in cash or credit/debit card transactions. The transactions can be over in a few minutes without any hassle and any paperwork etc. Only when  buyer and seller agree to a transaction it is processed. The control is with both the parties and transactions are transparent.

Bitcoin Wallet :

One has to get a 'bitcoin wallet' before getting to deal in bitcoins. The wallet is like any other wallet which holds money or bitcoins net of transactions. A wallet can be got in a very simple manner by registering on any of the numerous online sites dealing in bitcoins. One can go into the world of bitcoins upon establishing the web based bitcoin wallet.

Obtaining bitcoins:

There are three ways one can obtain bitcoins. The first is by selling in exchange of bitcoins. The second is to exchange currencies for bitcoins. The third is to buy and sell on online bitcoin exchanges.

The easy way is to go to an online bitcoin exchange, get registered, give bank details and request the conversion of required amount of local currency into bitcoins. 

Bitcoin address:

Every bitcoin owner has a public address and private address. Every time a transaction takes place the public address of the user is made known to all in the network.  The miners verify both the transacting parties and after they clear it the bitcoins are exchanged for goods/services. A user can make a new public address for every new transaction. This way he can conceal his identity. However the private identity is known only to the user.

The Global Scene:

It has been decided to limit the total  bitcoins  in circulation to 21 million BTC. Every ten minutes 25 BTC  are released and it will be reduced to 12.5 BTC by 2017 till the figure of 21million BTC is reached.

In 2011 the value of one bitcoin rose from $0.32 to $32 before settling for $2. However in Novenmber,2013, the bitcoin reached the astounding value of $1100 per coin after China and US showed favorable official attitude towards itsacceptance. The estimated 12 million bitcoins in circulation touched a combined value of over $7.2 billion. However in early December, 2013 the People's Bank of China banned the use of bitcoins by Chinese financial institutions bringing their value down to around $800 per coin.

The European Union has issued a statement warning that its use lacks consumer protection. Germany has classified bitcoin as 'private money' and its use is allowed. It is illegal to trade in bitcoins in Thailand. Israel is favourable to its use. Many countries are ready to tax it.

Indian Scenario :

The RBI has recently issued a warning citing money laundering and cyber security issues in bitcoin use. Also as the Indian currency is not freely convertible it acts as a great hindrance in rupee exchange for bitcoins. What is important is that RBI has not banned its use but issued an advisory not to buy any virtual currencies including bitcoins. Due to this bitcoin operators have suspended their operations.

The future of Bitcoin;

Bitcoins are virtual money not controlled by the governments. The transactions are fast, transparent and their value is decided in a peer to peer controlled network taking into account the supply and demand position at each transaction time. With the increasing spread of internet and rapid expansion of e-commerce throughout the world the need for a virtual currency has arisen. These transactions have to be quick and not subject to the controls of governments. The virtual world has no governments and countries.  It is one world and thus in need of a single currency and controlled by buyers and sellers. What shape it will take is difficult to predict but one thing is sure the  time for virtual currency has come. Now it is to be decided how governments will allow it and extract their taxes from it. That is the challenge of which virtual currencies like bitcoins have to overcome if they have to gain wider acceptance. A continued hindrance are the use of bitcoins for financing of smuggling and terrorist activities due to the anonymity it guarantees.

Bitcoins are a concept that is bound to grow in future in its present or another form. It perhaps is the single world currency of the future.

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