Bitcoin is a buzzing word. Every one is talking about Bitcoin and its recent surging in value. The recent appreciation in the value of Bitcoin has motivated many of new investors especially younger generation in countries like India.

Before Investing in Bitcoin, let’s have some ideas about crypto-currency

Bitcoin is a legal tender in some countries like Japan where it is consider as a legal tender, while on the other, JP Morgan Chase calls it “Fraud”. Recent times many of the stock exchanges related to bitcoin decided to close it down after surging in value for example Shanghai-based BTCChina, a major Chinese bitcoin exchange, YoBTC and Yunbi.

Read : What is P2P Lending ?

What is Bitcoin ?

If go through the book definition or wikipedia – Bitcoin is a cryptocurrency or one may say first decentralized digital currency. The system of ceyptocurrency i.e. Bitcoin works without a central bank or single administrator.

Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks!

Why is investment in Bitcoin dangerous ?

Bitcoin is treated as Virtual Currencies (VC). This is being traded in digital form and are stored in digital/electronic media  or electronic wallets. Due to this they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. 

Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is unclear. Hence, the traders of virtual currencies on such platforms are exposed to legal as well as financial risks.

The absence of information of counter-parties in such peer-to-peer anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

Bitcoin is virtual currencies where payment takes place on a peer-to-peer basis without an authorized central agency like banks or RBI or IRDA etc which regulates such payments.Hence, there is no established framework for recourse to customer problems related to guarantee,disputes,charge backs etc.

Read – China Launches Digital Currency eRMB

Why is bitcoin’s price so high ?

The major concern with Bitcoin is that there is no underlying or backing of any asset. The value of Bitcoin decided on speculation due to which there is huge volatility in the value of Bitcoin. This uneven volatility exposes Bitcoin investor to potential losses on account of such volatility in value.

How Bitcoin works?

Bitcoins are completely virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money. Once you own bitcoins, they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years. Bitcoins are traded from one personal ‘wallet’ to another.

A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud.

India’s Reserve Bank is mentioning Bitcoin as “non-fiat” cryptocurrencies and not given licence for trading it under any ways. The major guidelines issued by Reserve Bank of India related to Bitcoin are :

1. RBI has clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any other virtual currency.
2. India’s finance minister Arun Jaitley too had also clarified that the government has not granted any legitimacy to cryptocurrencies like Bitcoin.