Bitcoins: All you need to know about them

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Bitcoins have been much hyped about in the current scenario is a form of digital or virtual currency wide wide contrast in comparison to physical currency that is issued by the central bank in a country. Here are listed a few key differences between a bitcoin and regular physical currency:

Bitcoins: All you need to know about them

1. While, creation of regular physical currency is generally in the hands of the central bank of a country, bitcoin on the other hand can be created by an individual for the purpose of trading as well as for executing and affecting purchases that remain untraced.

2. As such transactions done using a bitcoin are left untraced, there is no tax implication. However, in case the transaction is done by paying physical currency, individual in compliance with the tax-provisions of a country is automatically brought into the tax net and is held accountable for tax payment on his/her financial transactions.

3. Being a virtual or a digital currency, bitcoin can be maintained in one's digital device in any quantity with no threat of theft. As an unauthorized access to an individual's bitcoin is only possible in case the perpetrator gains access to the device. While physical currency can be easily stolen and to avoid its occurrence plastic cards have taken its place in recent time.

4. Bitcoins is specifically used for online transactions either for making purchases or trading. Nonetheless, physical currency can be used for all offline as well as online transactions.

5. Bitcoin pose a threat of volatility and there is high order variation. The value of bitcoin is determined against the dollar. And as no central financial institution traces market forces of demand and supply in its respect at any given time it offers low liquidity. Liquidity of the physical currency is well looked and regulated by the central bank of a country.

On the similarity that the virtual currency shares with the physical currency there are two facets; one like physical currency, bitcoins can be accessed by all irrespective of age and country of the individual. Also, like the physical currency is used for illicit transactions, bitcoin also pose a threat of money laundering and other illegal online transaction that are hardly traced.

Though, bitcoins are predominantly made use of as well as accepted in Western countries, its acceptance by retailers in India is still not known. In the Indian context, Raghuram Rajan, RBI Governor raised a red flag for users and investors in bitcoin and asked them to be cautious in using bitcoin as a means of consistent exchange. Also, Rajan expressed concerns on the regulation of the value of the bitcoin as it is a virtual currency.

Story first published: Thursday, February 13, 2014, 12:57 [IST]
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