Bitcoin – The why and the what?
The Bitcoin and other cryptocurrencies are being hailed as another disruptive technology capable of influencing international trade, global and personal finance and government influence in the economy. Bitcoin is a cryptocurrency or a virtual decentralised currency. It is not issued by any government or any national bank. It can be safely and swiftly transferred between two users located anywhere in the world. It is akin to electronic cash which can be used to pay for products and services. Though the concept of cryptocurrency emerged sometime back, the idea received a fillip only after the financial crisis in 2008. The recession, tottering banks, the financial system, along with the US government bailouts causing increasing printouts of paper money, forced some wary investors to look for alternative avenues for investment. The advent of Bitcoin and other cryptocurrencies pose a great challenge to traditional currencies in their role as a currency and physical gold in its use as a store of value.
Bitcoin is a virtual currency which is defined as any type of digital currency that is used as a form of exchange or store of value based on an agreement between a community of users. It is neither a legal tender nor backed by any jurisdiction. The Bitcoin is not a mobile wallet like Paytm. Paytm is a mobile wallet and uses Indian rupees as the medium of exchange and can change the currency to Bitcoin or use both. While Bitcoin is a currency, Paytm is like a wallet. In Bitcoin, every user is given a pseudonym which acts as the address. In order to spend a bitcoin, a secret key broadcasts the transfer and a software validates the process and recognising the transfer of ownership to the payee. The investment in Bitcoin was increasing rapidly in India.
By Dr. Srikanth Parthasarathy
Associate Professor, Rajalakshmi School of Business, Chennai