Bitcoin schemes are floating around on social media. They try to lure individuals with the promises of guaranteed returns.
In an interview with Money 9, Avinash Shekhar, CFO of ZebPay, explains what is Bitcoin and nitty-gritties about bitcoin mining.
Edited excerpts:
Q. What is Bitcoin and how is it generated?
Shekhar: Bitcoin is more than 10 years old now as it was created in 2009. Bitcoin is a digital currency that allows you to transfer value from peer to peer without an intermediary. So, it’s decentralized. There is no centralized institution running it. Simply put, it’s digital money which is not issued by any central bank.
Coming to Bitcoin generation – Every 10 minutes a Bitcoin block is generated. The purpose of this block is to record all transactions that have happened in last 10 minutes. So let’s say, Person A has sent one bitcoin to Person B and that transaction is recorded in the ledger. There are miners all over the world who verify these transactions. And whoever is able to verify the transaction first, that miner gets a certain number of bitcoins. So, currently, 6.25 new Bitcoins are generated every 10 minutes. Basically, the purpose of this is to maintain the Bitcoin infrastructure and to keep the ledger honest.
Q. Can you explain Bitcoin mining?
Shekhar: It is an immutable algorithm. When the Bitcoin system was invented, the number of Bitcoin generated was higher. For example, from 2016 to 2020, twelve and a half Bitcoins were mined every 10 minutes. Every 4 years, the number automatically goes down. So now, from 2020 to 2024, 6.25 Bitcoins are generated every 10 minutes. Then from 2024 to 2028, it will go down by 50%. That means 3.25 Bitcoins every 10 minutes. And so on, it will like keep on going down. So, there is a predictable new supply coming and it is controlled by the original software or algorithm.
Q. There are plenty of schemes doing rounds on social media. One scheme promised guaranteed return through Bitcoin mining. How genuine or fake are these messages?
Shekhar: As in traditional finance or new finance, if someone offers fixed returns, especially higher fixed returns, it is most probably a fraud. Bitcoin mining is like any other business where you have to invest capital and labour to generate returns. You can incur both profits and losses depending on the Bitcoin prices and other factors. It’s a business where you take some risk and you get some reward based on that risk. So, guaranteed return is obviously not possible.
Q. Guaranteed returns from bitcoin mining are impossible. What are these scammers and fraudsters trying to get from people?
Shekhar: Typically, these scammers approach an investor promising them 25% return. They ask investors to pay a certain amount of money and then run away with it because the kind of returns they promise are not possible. Most scammers are looking for a way to make easy money
Q. What should investors look while choosing an exchange to ensure their money will be protected?
Shekhar: First and the foremost, you obviously have to look at the reputation of the exchange and how long the exchange has been around for. Investors must also look at the people behind the exchange, whether they have spoken in public, answered public’s questions, what their customer service is like and, finally, what they are offering to the customers.
Another important aspect to research is an exchange’s security practices. In the past, exchanges have been hacked, leading to a loss of bitcoins. You can also have look at the kind of regulatory practices they follow and their KYC practices. Most Indian exchanges now require KYC to know who you are. They collect your address and ID proof. Investors must conduct that level of compliance check. And also, how compliant they are with the law. If you keep all these things in mind, you can select a reliable exchange.
