Bitcoin is a form of virtual currency or rather a parallel currency started in 2009. Its basic aim is to make the transaction process simpler, uniform across the globe. An open source software system, it uses cryptography to process the transaction and is decentralized (One organisation or person does not control its state).
Cryptography
Bitcoin refers to the system, whereas bitcoin (note the lowercase b) denotes the currency. Mainly consisting of a private address, public address and a wallet for every user, a transaction is verified by Miners in a matter of minutes. These people acquire a select number of bitcoins for every transaction they verify. When a user has to purchase goods or services, a request is sent to the seller with the buyer’s public address. The seller then accepts the request and a Bitcoin client is instructed to transfer the select number of bitcoins to the seller. The job of the Bitcoin client is to electronically sign the transaction using the buyer’s private address, hence increasing the security and anonymity of the buyer. Each transaction is recorded in a log known as Block chain.
To earn bitcoins, the user can exchange currency, goods or services for a number of bitcoins. Chosen over credit cards for negligible or zero transaction fee, and a similar transparent and secure transaction without a need to disclose ones identity, but a mere agreement from both parties for the transaction increases the users’ tendency to opt for it.
Although, the downside of it is that illicit transactions take place, the Silk Road is a classic example. These online black markets have invaded the world, making this a global issue. While some countries give the green signal for a parallel digital currency, countries like China, other few European countries restrict the use of any alternative currency using laws. Even the Indian government has subtly warned the public against the use of bitcoins citing money laundering (illegal transactional activity) as a reason. At present RBI is only keeping a watch over the developments of Bitcoin in India and is not regulating it.
“Virtual currencies pose challenges in the form of regulatory, legal and operational risks.”
-RBI
Meaning there is still doubt about the security of users apart from volatility of the bitcoin value. The difference in the choice of choosing for/against bitcoins on a global level is also a reason for bitcoins prevailing in the market.
Apart from the global issue, bitcoin is volatile; meaning huge fluctuations is its price relative to other currencies, makes it comparatively less stable. The ease and speed of use of bitcoins with minimal transaction fee tends to attract customers. Companies like Reddit, WordPress, OverStock accept bitcoins, with new members constantly being added to the list.
Source: Wikipedia.
