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Bitcoin was invented by Satoshi Nakamoto in the year 2009. It is a new online currency that has been developed, it is like actual currency except you cannot see it, hold it or spend it on anything. Though it sounds like a type of coin, but it is neither a coin nor note only a virtual currency. Bitcoin has a fixed value means only a fixed number of Bitcoin comes into  market. This is to be done so that , in future the value of a Bitcoin increase constantly . In fact , only 21 Million Bitcoin can be exist in market . It means after 120 years i.e. near about year of 2140 no new Bitcoin comes into market .

DEFINITION OF CRYPTOCURRENCY : To understand the word Bitcoin better , first we need to know what is Cryptocurrency . Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography mechanism :

  • to secure its transactions
  • to control the creation of additional unit
  • to verify the transfer of asset

Some other popular cryptocurrencies are Ripple , Digibyte , Etherium , Litecoin , Dash , MIOTA , Bitconnect  etc. There are almost 1000 type of cryptocurrencies in the market .

UNDERSTANDING OF BITCOIN TECHNOLOGY : Bitcoin is type of Cryptocurrency & worldwide payment system which is a decentralised digital currency , as the system works without any centralised controlling authority like Central Bank (RBI) .

Though the idea of Bitcoin was first introduced in 3rd Jan 2009, but the concept of Bitcoin means the idea of cryptocurrency started in the year of 1989 by a company called Digicash inc.. In 1998, Digicash Inc. declared bankruptcy and the main reason behind it, is the Security. In 2008, when the International market struggle with recession, there is a demand created for independent secure & fully decentralized currency.

Later in jan’09, Satoshi Nakamoto created document or Open Source Software related to Bitcoin which has the ability to create Bitcoin and published it to internet which has been noticed by Mr. Hal Finney. The first transaction of 10 Bitcoin happened between Mr.Satoshi Nakamoto & Mr.  Hal Finney.  Bitcoin is not a stable currency that is the reason why the value of a bitcoin fluctuates heavily in the market.

In 2012 , 10000 BTC = $ 1        In 2017 , 1 BTC = $ 19000


As per Technical Experts , at the end of year 2018 , exchange ratio of   1 BTC will cross the value of $ 40000.

Like , ₹ 1 = 100 paisa , $ 1 = 100 cents, 1 BTC = 1000 milli BTC, 1 mBTC = 100000 Satoshi    1 BTC = 10 crore Satoshi

PROCESS OF INVESTING IN BITCOIN : To invest in Bitcoin , first and foremost you have to make a Bitcoin wallet . In India , most popular Bitcoin wallet providers or Bitcoin exchanges are ZEBPAY , UNOCOIN  , BUYUCOIN , COINSECURE etc. . Every bitcoin wallet has its own address it is like your Bank Account number . For eg. Mr.X wants to send some Bitcoin to Mr.Y . Then Mr.X send that bitcoin to the bitcoin address of Mr.Y . Every Bitcoin wallet has its own public key  and private key . Every time when transaction occurs between parties a digital signature generate . Nodes(computer) connected in the network verify this transaction through the help of digital signature . This is type of verification process .

CONCEPT OF BLOCKCHAIN TECHNOLOGY : Bitcoin uses Blockchain technology . Blockchain means public ledger in simple language like every businessman , maintain books of accounts for his transaction occurred in his business , every transaction of Bitcoin stored in blockchain . Miners are responsible for recording of new transactions of bitcoin. Miners are also responsible for maintaining public ledger in exchange of that they get rewards in terms of Bitcoin . Like,  we are maintaining documents in the file , in the same way bitcoin transactions are maintained in block . Size of every block is 1 MB . When block is full , new transactions stored in new block . Every block has reference of their previous block . In this way a chain has created and that is why it is called Blockchain technology . After putting the transactions in the block , miner has the responsibility to seal the block so that no one can manipulate the transaction in that block .

Blockchain technology , cryptography mechanism and unique digital signature for every transaction helps to secure bitcoin system . The price of a bitcoin depends upon only demand and supply and belief system . If demand is high and supply is low then price of a bitcoin rises and vice versa .

PROCESS OF EARNING BITCOIN : You do not have to spend  one bitcoin as a whole every time , it means you can spend any number of fraction of bitcoin .  There are many ways by following you can earn Bitcoin . We are discussing most popular two methods to earn bitcoins:

  1. First , and most easy way to earn bitcoin go and buy bitcoin directly for example now one bitcoin is near about ₹5 lacs . you paid that amount directly and it will stored in your account electronically .
  2. Second , most popular and interesting way to earn bitcoin through mining of bitcoin like mining of gold . This is the main reason new bitcoin comes into market . Suppose , Mr. A has 4 BTC & he wants to transfer 1 BTC to Mr. B . To complete the transfer process / transaction there is a need of some controlling body . But bitcoin has no controlling authority . That is why , every transaction is attached with some Mathematical problem . There are many miners in the world who has powerful computers , GPUs and using that tool they try to solve the math problem and verify the process . If they done that correctly , the transaction between A & B are complete and as a reward some bitcoin give to miners . In this process new bitcoin comes into market .

TAX SYSTEM OF BITCOIN IN INDIA : Because of heavy increase in value of bitcoin IT Dept. believe that there is a possibility of tax evasion . That is IT Dept. Survey bitcoin agency in India . This survey is being done u/s 133 A of the IT Act 1961 . Through this survey , IT Dept. is engaged in identifying figures investing in bitcoin and gathering data related to their investment . Apart from this , how much transaction has been done in the bitcoin from the investors side so far . Information is also being raised about the investment made on their behalf .The purpose of this survey , is to make the people who try to hide the black money . For payment of tax for bitcoin IT Dept. create 3 category :

  1. BITCOIN MINERS : For example Mr.A is a bitcoin miner and by mining he earned 2 bitcoin . Suppose 1 bitcoin is equal to Rs.20 lac . Therefore total earning of Mr.A is Rs. 40 lac .At the time of payment of income tax Mr.A needs to show his full details to IT Dept. Suppose investment for mining set up is Rs.10 lac & electricity bill Rs.5 lac . Total investment 15 lac . Therefore , net profit 40-15 = Rs. 25 lac . Mr.A will be taxed on this income . This income will fall under the head of Salary .
  2. BITCOIN TRADERS : Income of bitcoin traders will fall under the head of PGBP .

FY 2017-18   Rs.2.5 – 5 lac = 5 % slab

Rs. 5 – 10 lac = 20 % Slab

Above 10 lac = 30 % Slab

  1. BITCOIN INVESTOR : Income of bitcoin investor will fall under the head of Capita gain . If you sale bitcoin before 36 months you have to pay 30 % tax as STCG . If you sale bitcoin after 36 months you have to pay 20 % tax as LTCG .

RBI WARNING : If anyone hide his /her income then 50-200% tax will be paid . You may also have to pay 12 % interest annually on your misinformation .

But in the USA , the IRS (Internal Revenue Service) treat bitcoin like a stock or property . So, Americans will be taxed for any income gained at the time of the transaction based on the US Dollar of that transaction .


  1. No Transaction Fees/ Charges involved as there is no controlling body .
  2. Every transactions include Clean Account Sheet in which every Bitcoin has its full history .
  3. Bitcoin Account cannot be
  4. The transaction of a Bitcoin can be one to one . Suppose , A has one bitcoin , wants to send to Mr. He can send that Bitcoin without having passing any Authority or Banks .


  1. HIGH VOLATILITY :e. high risk . Triple in 9 month from ₹ 41 K to ₹ 1 lac plus . As per one report of Wall Street Journal Bitcoin is 7.5 times more volatile than Gold and 8 times more volatile than US Stock market Index S&P 500.
  2. RBI WARNING : Many times RBI warn Indian investor through press release not to buy any virtual currency which include bitcoin because it is not regulated by RBI . It is dealing through private servers.
  3. TECHNOLOGICAL RISK & VIRUS ATTTACK : Hacking of e-wallet [ there is a difference between mobile wallet & e-wallet (or digital wallet) , mobile wallet is regulated by RBI but e-wallet is not] or lost of bitcoin wallet key /private key by any reason or delete of back up file of bitcoin or any kind of ransomware or virus attack in your device , there is no chance of getting back of lost bitcoin .
  4. Bitcoin has NO UNDERLYING ASSET or backing of any asset . As per Warren Buffett “ you can’t value Bitcoin because it is not a value producing asset . It is a real Bubble “ .
  5. NO INSURANCE : Unlike bank accounts , Bitcoins are not insured and there is no way of retrieving them .
  6. NO FIR : If any Bitcoin is stolen/hacked from your wallet , you can not do any FIR complaint against it .
  7. ILLEGAL ACTIVITIES : Money used for purchasing the bitcoin may be used for illegal activities . There is a chance of money laundering also .
  8. BONDS HAVE AN INTEREST COUPON , stocks have earnings and dividend , gold has nothing . There is nothing to support Bitcoin , except the hope that you will sell it to someone for more than you paid for it .

In the conclusion of the article , I would like to share a very famous & funny but true story associated with the Bitcoin which is known as “ Bitcoin Pizza Day “ . In 2010 , a Florida based programmer Laszlo Hanyecz made the first purchase of a good with Bitcoin , when he bought two Papa John’s Pizzas for 10000 BTC . Back then , when the technology was just over a year old that equated to roughly $25 but $20.5 Million by today’s exchange rate . No one knows what will become of Bitcoin . Some Countries like South Korea , Vietnam , China banned Bitcoin exchanges in their country but in Japan Bitcoin is legal. Finance Minister Arun Jaitley, in his budget speech (01.02.2018) said that The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system.It dose not mean Bitcoin is now illegal, you can invest in Bitcoin as an investor but cannot use it as a medium of exchange.

What do you think?

Written by Anirban Lahiri


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