Context:
An Article in The Hindu | What is Bitcoin Halving and what it means to the crypto community?
Bitcoin:
- A form of digital currency, created and held electronically
- They aren’t printed, like rupees or dollars
- Bitcoins are ‘mined’, using computing power in a distributed network
- 1st example of a growing category of money known as cryptocurrency
Bitcoin Halving:
- Refers to the 50% reduction in the reward paid to Bitcoin miners who successfully process other people’s cryptocurrency transactions so that they can be added to the public digital ledger known as the blockchain
- Bitcoin miners rely on advanced computer equipment to solve a complex mathematical puzzle through a process known as ‘Proof of work’ in order to “grow” Bitcoin’s blockchain and keep the ecosystem running
Bitcoin mining:
- Process of validating the information in a blockchain block by generating a cryptographic solution that matches specific criteria
Bitcoin mining increases the supply of bitcoins in circulation while the Bitcoin Halving reduces the rate at which these coins are released, making the asset more scarce
Proof of work (PoW):
- A decentralized mechanism used by Bitcoin and other cryptocurrencies to verify the accuracy of new transactions added to a blockchain.
- It is a lottery system where miners increase their likelihood of receiving the reward the more power they add.
- The consensus mechanism represents about 60% of the total crypto market capitalization.
Blockchain Technology:
- A digital ledger that records transactions across a network of systems.
- It’s a decentralized, cryptography-based data structure that’s distributed across a network.
- It allows the secure transfer of unique instances of value, such as money, property, contracts, and identity credentials, via the internet.
Read more about: Web3, End-to-End Encryption,
Source: The Hindu
Previous Year Question
With reference to ‘Bitcoins’, sometimes seen in the news, which of the following statements is/are correct?
1. Bitcoins are tracked by the Central Banks of the countries.
2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with Bitcoin address.
3. Online payments can be sent without either side knowing the identity of the other.
Select the correct answer using the code given below.
[UPSC Civil Services Exam – 2016 Prelims]
(a) 1 and 2 only
(b) 2 and 3 only
(c) 3 only
(d) 1, 2 and 3
Answer: (b)
Explanation:
Statement 1 is not correct:
The Bitcoin system is peer-to-peer and transactions take place between users directly and there is no involvement of any intermediary. Thus, it can’t be tracked by the Central bank or any intermediary.
