Bitcoin 101 – Understanding The Basics
Bitcoin [BTC] trading is one of the most trending things in today’s time. Everyone is trying their luck in Bitcoin trading and many are gaining profits too. Still, there are many people who are looking forward to trying their hands in this field of investment, but they don’t have enough knowledge about it. Bitcoin as a cryptocurrency is gaining popularity and is considered the king currency in the field of the crypto market. So, before jumping into the crypto market, it is important to learn about bitcoin in detail. Let’s start with the basics of Bitcoin. Here, we will be discussing what is Bitcoin, how does it work, its advantages and disadvantage and many more.
What is Bitcoin?
Bitcoin [BTC] is a decentralized virtual currency which is also called digital currency. It is a kind of cash for the internet. Satoshi Nakamoto founded it in 2008 and it went live in 2009 for the very first time. Well, Satoshi Nakamoto is still a great mystery for people as it is still not clear who was satoshi Nakamoto or even if she exist or not. However, no one has ever claimed the foundership of bitcoin officially. Bitcoins are exchanged just like securities. Its extreme price vitality makes it a more attractive investment option. In 2012, 1 Bitcoin held the value of US$10 while in 2013 it reached to US$1000 approximately.
Its very low transaction cost made it convenient for foreign nationals to transfer money to their homes, especially in those countries where leaving with local money is prohibited. As things gain popularity, the fraud also starts in their name. There are many fake bitcoin available on market in the physical form showcasing a ‘B’ on them and people think the ‘B’ is for Bitcoin. You must be aware of such scams. Bitcoins can be stored in digital wallets like a computer, laptops, etc. Its software is downloaded the same as any other app and each digital wallet comes with a unique address and key. Canada launched the first bitcoin ATM using it customers can get cash in exchange for Bitcoin. Bitcoin can either be received using QR codes to their digital wallets or by a temporary paper wallet printed by ATM.
Working of Bitcoin Transactions
People know that Bitcoin is not a tangible currency and it is a digital currency and there also there is physical bitcoin, only the record of bitcoin transaction exists. The transaction you make using Bitcoin is saved in a publically available general ledger – Blockchain.
If you want to send or receive Bitcoins, you require an address and a private key, these are the random number sequences along with letters and these are unique for all Bitcoin customers. When you send the bitcoins from one wallet to another, the transaction is stored into ‘Block’ for Miners to solve. The waiting time for Bitcoin transaction processing is Max. 10 minutes. The transaction fees are optional. However, the miners get the incentives to solve the blockchain fastly and fees go to the one who successfully verifies it.
Types of Wallets for Bitcoin transactions
The types of wallets used in Bitcoin Transaction are:
- Desktop: These are installed on desktops and used for controlling the funds they sell or buy. The desktop wallets can be both thin and thick.
- Mobile: This enables the user’s fund to always stay handy. It can be used conveniently for making payments or transactions and also it doesn’t require a full Bitcoin node.
- Online: It is the web-based wallet where the user’s key is stored online which is controlled by someone else. It is convenient to use but risky as it can be hacked easily.
- Hardware: these are portable devices holding keys offline. There are many kinds of hardware wallets.
- Paper: Paper wallet contains the 2 information as to characters and QR codes. One is the wallet address and the second is the private key.
Mining is the way to discover Bitcoins. People think that Bitcoins are limited to 21 million. Since 2012, around 12 million Bitcoins are already discovered through mining. All the transactions are stored in a BlockChain and they are padlocked.
Miner applies some mathematical formulas to find the padlock key and verify the transactions. The successful miner gets 25 new Bitcoins as a reward. This process creates a new sequence of letters and numbers called Hash. This Hash is added to the end of the block as a digital signature to confirm the legitimacy of the transaction.
Advantage of Bitcoin
There are some main Advantages of Bitcoin:
- Bitcoin enables its traders to carry out transactions or trade anytime, anywhere instantly.
- There are no fees associated with the bitcoin transaction outside the trading platform. Fees remain optional and endure that the transaction is confirmed by the miners on time.
- There is no risk of identity theft as the transaction does not contain personal information. It’s unlike credit cards or debit cards which involve personal information and a high risk of fraud.
Disadvantages of Bitcoin
Just as everything, Bitcoin also has some disadvantages:
- As there is no information provided about the sender or receiver of Bitcoins, it is more prone to finance criminal activities like money laundering, human trafficking, etc. Like the case of Silk Road Drug Bust where the illegal drug emporium used Bitcoin as a currency exchange medium.
- As Bitcoin is an unregulated form of currency, it can be more murky than transparent. It can be hacked easily as there is no IT security.
- The Bitcoin transactions can shut down anytime as there is no protection like trustee relationship or scheme guarantee.
- If the private key of the wallet is lost, you can’t get back access to the wallet as there is no information stored by any central authority and you will not any reimbursement.
Taxes on Bitcoin
Tax is the most confusing and highly discussed topic surrounding Bitcoin regulation. New Zealand has not yet received any guidance from Inland Revenue about the account of Bitcoin transactions. However, Singapore has released tax guidance and soon Australia will also release the tax guidance for Bitcoin transactions.
As per tax basics, The Bitcoin tax will be based on whether it is an asset or currency. If Bitcoin is taken like currency, Companies using it will be liable for Income tax. Also, the Bitcoin sale to investors in exchange for money will be taxable and GST will also be applicable.
If Bitcoins are taken as assets, for the investment of capital appreciation purposes, the capital gain tax will be applicable. If Bitcoins are accepted as the payment mode in exchange for goods or services, GST will be applicable on the individual supplies carried out if the parties are registered with GST.
Is Bitcoin legal?
Bitcoin is legal in the US and many other countries around the world. In many countries, central banks have warned the citizens that Bitcoin is illegal and the government is not accountable for any matter of Cryptocurrency. The transactions can be done at the person’s own risk.
There are many countries that have prohibited Bitcoin Transactions completely like:
Some Bitcoin Restrictions
In many other countries, Bitcoin transaction is not banned but has some restrictions. For example, in Qatar, bitcoin is prohibited locally but transactions can be done outside the borders. Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia have banned the Bitcoin transaction on financial institutions indirectly.
Bitcoin is a virtual currency that can be stored in a computer or mobile wallet but did not come under any bank or financial institution. The CTC takes bitcoin as the future commodity. The value of Bitcoin is highly fluctuating, since late 2017, it has fluctuated from $3000 USD to $65000 USD.