In the 1990s a group of computer programmers and cryptographers generally called cyberpunks was working on the alternative digital currency. They were very few and working individually. Some of them came up with their model of digital currency accounting system like bit-gold was one of those projects which were infants and infamous.
Why do we need Bitcoin or alike?
Have you ever thought of transacting digitally without involving any third party like visas or MasterCard which are ultimately connected by banks in which you have your account? Your bank knows when and how much money you are transferring to whom.
These third parties also charge us for their services like maintaining an accounting system or money in general as they try hard to record the transaction of every penny without considering the breach of our privacy.
So after the global recession, these third parties lost their trust and those cyberpunks started working on the digital currency with more enthusiasm.
What is Bitcoin?
One of those cyberpunks who named himself Satoshi Nakamoto contacted others to work on a project named bitcoin and they formed a website titled bitcoin foundation. Bitcoin is nothing but a digital numerical code that you have to mine through fast processing computers and software in a so-called cube of those codes like searching for gold while mining of coal in the mine.
We can break the bitcoin into smaller currency or bitcoin with less value. The interesting and underlying principle of bitcoin which do away with the involvement of any third party is the block-chain technology.
It is a decentralized distributed public ledger that records the transaction of every bitcoin with the sender and recipient with their names being encrypted such that everybody would be able to track every bitcoin from its origin. There will be no need to have any centralized authorities like banks to manage the accounting system.
Once the entry of bitcoin is recorded in the ledger it cannot be deleted. As the ledger will be distributed to each computer in the network which makes it more secure than having a centralized repository.
We have seen many examples of malware being injected in the repositories of many renowned banking companies in the recent past. They couldn’t do anything but to compromise with the security of details they had.
Need for regulations?
People started using bitcoins to buy drugs and other illegal goods from one of the online platforms named silk road as bitcoin doesn’t recognize the geographical boundaries. Take an example that if you want to do remittances globally then there will be a third party like western union charging us for their services but the bitcoin accounting system using blockchain technology is a peer-to-peer transaction.
RBI issued its apprehensions and directives regarding the use of bitcoin in India as it is not backed by any currency or institution or material like gold. It’s not a legal tender currency in India and you would be doing money laundering unintentionally while transacting in it.
In 2013 the value of bitcoin reduced drastically and now in 2017 it is at is peak vis a vis US dollar. So many economists referred to it as a bubble accounting system based on speculations not backed by any legal authority.
We cannot neglect the fact that regulatory bodies will always choose the scope of money laundering over innovation and will not be considering the scale of money laundering in the current scenario. It is still at the infant stage so extra tight policies will kill the scope of or delay the innovation itself.
If we are exchanging the bitcoins with dollars for transactions complying with regulations that means we are dragging it to the same old accounting system for which bitcoin was never designed.