Bitcoin and The Virtual Currency

What is Bitcoin?

  • Bitcoin is a digital asset and currency.
  • It was designed by Satoshi Nakamoto, a pseudonym, in January 2009.
  • It is an open source software. This means, that no person, company or country owns this network just like no one owns the Internet.
  • The system is peer-to-peer, that is, users can transact directly without an intermediary like a bank, a credit card company or a clearing house.
  • Satoshi is the smallest unit of Bitcoin; 1 Bitcoin contains 100 million Satoshi
  • By design, the supply of Bitcoins cannot exceed 21 million Bitcoins (2,100 trillion Satoshi).
  • Transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain.

The topic requires you to analyze implications, if any, of Bitcoins, and reflect on it acceptability. Here are some pointers that might help you in framing a logical argument:

Exchanges allow the conversion between real-world fiat currencies and Bitcoin. These exchanges requires consumers to transfer Bitcoins from a personal account to a third-party’s account, which is a credit risk, similar to entrusting real-life cash to depository institutions. It is just like any other investment option, where you need to give it time and put effort before you actually start making profits. One needs to understand cryptocurrency and the technology behind it, which is blockchain. As per existing laws in India, Bitcoin is not illegal. However, neither Reserve Bank of India and the Government of India has come out to its support and said that cryptocurrency is legal.


  • Bitcoin is an attractive medium of exchange, as it offers low transaction costs by eliminating the need for a central clearing house or financial institution to act as a third party for financial transactions.
  • It provides an alternative payment method to users who may not have access to credit or debit cards, or, other forms of electronic payments.
  • It resides in an encrypted format on the owner’s computer, making it difficult for hackers to access and steal electronically.
  • Bitcoin offers the benefit of being easier to track than cash given that each coin contains an electronic record of each transaction that coin has gone through since it was created.
  • There is a finite supply of Bitcoins. The design of Bitcoin seeks to mimic the supply of gold in that the system will create a finite supply of the currency.


  • Bitcoin’s role as an asset is compromised by its elevated price volatility.
  • High volatility also undermines Bitcoin’s role as a medium of exchange, as large retailers are much less likely to accept it as a form of payment with prices so volatile.
  • Despite its efficiency and the transparency relative to cash, regulators could try to impose controls that would increase the transaction costs for using Bitcoin.
  • A wait of 10 minutes - 1 hour, before payment receipt confirmation is received will prohibit wider use.
  • Bitcoin’s use as an international currency will likely be hindered by the fact that it is not a legal tender.

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