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Updated on: 16 Jan, 2024 05:49 PM
Bitcoin, the pioneer of this digital revolution, introduced us to the concept of decentralized, peer-to-peer currency. However, as the crypto landscape expanded, it became crucial to understand the crucial distinction between Bitcoin and the broader category of cryptocurrencies. In this guide, we clear the widespread misconception by presenting the difference between cryptocurrencies and bitcoins.
Contents
- What is Cryptocurrency?
- What is Bitcoin?
- What are the Benefits of Bitcoins and Cryptocurrencies?
- What is Cryptocurrency and Bitcoin Difference?
What is Cryptocurrency?
A cryptocurrency refers to a digital currency that makes use of blockchain technology in which transactions are secured using encryption techniques. Cryptocurrencies help exchange goods and services on a computer network within a safe and secure environment without having to rely on a Central Authority like the bank or government. It uses a decentralized system to record the transactions and complete the issuing of new units of the cryptocurrency.
- It performs a process called mining that uses the computer system to create new coins by solving complex mathematical problems.
- There are various types of cryptocurrencies available, like Ethereum, dogecoin, bitcoin, etc.
- Cryptocurrencies are volatile in nature and involve risk.
What is Bitcoin?
Bitcoin is a type of cryptocurrency that is a first-of-its-kind digital currency founded by Satoshi Nakamoto in 2008. In the beginning, it was open-source software that could be used to transfer money. It is used to speed up the process of cross-border transactions, reduce governmental control over trade, and make the process easy without third-party intermediaries, thereby, reducing transaction costs.
Even though bitcoin is not a formally accepted payment method across the globe, but people use it for different types of transactions. It is not present physically and therefore is very safe and secure. Blockchain technology provides a safe and secure environment for peer-to-peer transactions. It also provides the public with information that is easily accessible and can be viewed.
What are the Benefits of Bitcoins and Cryptocurrencies?
- Decentralization - Bitcoins and cryptocurrencies are not owned by any regulatory authority. This removes the monopoly of money and ensures that any bank or authority does not dictate its value.
- Low Transaction Fees - The cryptocurrency transaction fees are nominal or zero. This happens because it eliminates the intermediaries and third parties.
- Protection from Inflation - Due to limited supply, cryptocurrency can help beat inflation. 21 million is the highest number of bitcoins that can be minted.
- Potential for High Returns - Bitcoins and cryptocurrencies are highly volatile. Despite the risk factors involved, cryptocurrencies come with the potential to earn high returns. The cryptocurrency market is expected to grow at @12.5% between 2023-2030.
- Transparency and Accessibility - Cryptocurrencies are based on decentralized networks and, therefore, are easily accessible. The data recorded on a public blockchain ledger is available for the public to view, thus making the system transparent.
What is Cryptocurrency and Bitcoin Difference?
Many people have this misconception that cryptocurrency and Bitcoin are the same. But this is not true. There are various differences between cryptocurrency and bitcoin. Given below are the points of difference between cryptocurrency and bitcoin.
| Bitcoin | Cryptocurrency |
|---|---|
| Bitcoin is a digital currency that makes use of cryptocurrency. | It is a digital currency that does not depend on Bitcoin. It is a self-dependent currency that does not need any Central authority to manage it. |
| Bitcoin is the first and one of its kind cryptocurrency. | It includes all other types of digital currencies, including bitcoins. |
| Bitcoins are primarily used for storing value and making payments. | Cryptocurrencies can be used for different purposes like supply chain management, smart contracts, payment systems, etc. |
| Bitcoin makes use of a decentralized ledger, known as blockchain, to maintain the security and transparency of the record of transactions. | Cryptocurrency also makes use of the blockchain ledger or other centralized/decentralized ledgers to maintain a transparent and secure transaction record. |
| Bitcoin increases the speed of transactions as it is not regulated by any central authority and has no restrictions. | It is very secure and provides a low-cost opportunity for exchanging goods and services. |
| Bitcoin primarily focuses on reducing the time taken for transactions and influencer costs. | Cryptocurrencies help exchange goods and services in a safe environment where there is little to no intervention from a Central authority. |
| Bitcoins are anonymous. Despite being able to see their transactions in the ledger, these numbers do not have any particular order. | Many of the newly listed cryptocurrencies focus on the transparency of transactions, making them flexible to work for different industries. |
| The use of Bitcoin is limited to only trading as a currency. The supply of Bitcoins is 21 million. | Cryptocurrencies are nowadays being used for purposes other than just trading. Their supply varies depending on the type of cryptocurrency under consideration. |
With the recent introduction of schedule VDA in the Indian Income Tax Act, it has become imperative for individuals to report their digital assets. Understanding the cryptocurrency landscape is now not only a financial strategy but also a legal requirement for tax compliance. Understanding this can be complex. Therefore, you can consider seeking expert guidance from Chartered Accountants who can ensure both maximum returns and adherence to tax laws.
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CA Abhishek Soni
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.
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