Bitcoin: Future of mobile banking?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, they’re produced by people, and increasingly businesses, running computers all around the world, use software that solves mathematical problems.

Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls bitcoin and everyone can take part. Through many of its unique properties, bitcoin allows exciting uses that could not be covered by any previous payment system. It’s the first example of a growing category of money known as crypto currency.

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional currency which can be traded digitally. However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralised. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who prints it? None. This currency isn’t physically printed, is unaccountable to the population, and makes its own rules. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network. So, you can’t churn out unlimited bitcoins? The bitcoin protocol says that the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

Around the world, people are using software programmes that follow a mathematical formula to produce bitcoins. The formula is freely available so that anyone can check it. The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to. As a new user, you can get started with bitcoin without understanding the technical details. Once you have installed a bitcoin wallet on your computer or mobile phone, it will generate your first bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that bitcoin addresses should only be used once.

Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.

Bitcoin on mobiles
Bitcoin on mobiles allows you to pay with a simple two step scan-and-pay. No need to sign up, swipe your card, type a PIN, or sign anything. All you need to receive bitcoin payments is to display the QR code in your bitcoin wallet app and let your friend scan your mobile, or touch the two phones together.

In India, Singapore-based tech firm Zebpay announced launch of its 'bitcoin' mobile wallet. It is in the form of a mobile application, will help its user buy, sell and transact in bitcoins which is presently valued at around $280 per unit. The app is available on Android platform. At Zebpay people can buy, sell and transact in bitcoins. The six-year-old currency is the money built for the Internet and is the world’s most widely-used alternative currency.

The mobile application wallet intends to make bitcoins accessible to everybody. Mobile wallet is a service that is often confused with mobile banking, but is a much broader concept which includes using a mobile phone as a mode of payment, instead of relying on cards or hard cash. The app enables users to easily buy, store, send and spend bitcoins through mobile numbers by eliminating the need for understanding the complex process involved in obtaining and using the alternative currency. “We realised the potential that bitcoin technology has to bring financial freedom to billions of people in the world. With this vision, we are proud to announce the launch of Zebpay app in India,” said Saurabh Agrawal, co-founder of Zebpay.

(The writer is Professorr, Department of Commerce, Christ University, Bengaluru).