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How do Bitcoin wallets function? 5 effective uses for Indian users

bitcoin

By Roshan Aslam

The world’s first crypto wallet initiative, Bitcoin, was launched in 2009 by Satoshi Nakamoto, after his experimental run with friend and close confidante Hal Finney. Little did the Bitcoin founder know the lasting impact Bitcoin as a wallet and a cryptocurrency would have globally. One and half decades later, BTC has established itself as the world’s largest cryptocurrency and the buzz around it has proved its worth.

A Bitcoin wallet enables users to transfer, receive and gather digital currencies. It mimics the use of a real-world wallet but does not store physical currencies. A Bitcoin wallet stores the cryptographic information required to access the BTC addresses and complete transactions. In the last decade, significant efforts have gone into making Bitcoin wallets more advanced, and the ones that are being used right now, have extended provisions to store different cryptocurrencies, enhanced safety, accessibility and others. Along with the development, Bitcoin prices have skyrocketed to reach all-time high levels of more than $70,000, so it’s only understandable that investors want to understand the technicalities behind its functionality and effective usage.

How do Bitcoin wallets function?

Bitcoin is based on the Blockchain technology. These digital currencies are stored inside its blockchain network and wallets are used to archive its cryptographic keys that are used to interact with the network. To send Bitcoins to a different user, the private keys are needed. These keys are comparable to pins of conventional wallets of India’s UPI system, or the T Pins used in demat accounts. Meanwhile, receiving BTC from a different user will need the service of public keys, which can be compared to a user’s Bank A/C no or UPI IDs. A UTXO model is used by Bitcoin, the Unspent Transaction Output model, to complete transactions. The primary reason behind its use is that, unlike other digital payment methods, Bitcoins cannot be transferred in specific amounts. It’s like when we go out and make up the due amount of 13 rupees, but have to provide a 20 rupee bill and the shopkeeper gives us 7 rupees back as change.

5 effective uses for Indians

The price of the world’s largest cryptocurrency has grown significantly in the last few years and many Indians now quote its upward revision to be the reason behind its unsuitability for the national context. The vast majority of Indians still do not earn as much, but smaller denominations enable them to trade and invest in BTC like others. A single Bitcoin is equivalent to 100 million satoshis, like Paise to Rupee, assisting Indians to invest in the cryptocurrency domain sustainably. With that out of mind, let’s find out 5 effective uses for Indians to avail the services of Bitcoin wallets.

Fast and secure transfers

Since Bitcoins are stored on the blockchain network, it naturally bypasses the traditional banking system. Since there are no intermediaries, transferring wealth quickly and safely becomes much easier in the Indian context, and globally. This process is much swifter than that of the traditional banking system, like NEFT or RTGS, which often takes considerable time to complete significant fund transfers. Bitcoin wallets enhance this security in a hassle-free way.

Investment prospects

Bitcoin’s price fluctuations are often considered as its biggest downside. While some of it cannot be overlooked, it’s also true that Bitcoin’s price action history suggests that it has only appreciated for long-term investors and offers a unique avenue for added valuation. Historical data suggests Indians have always been cautious concerning investments, but our general inclination towards long-term investment options is aligned well with BTC. Wallets enable Indians to do just that, investing in a potential multibagger asset once again.

Remittances

India recently came out on top of remittances received, with more than $111bn in 2022. For working Indians overseas, sending back money to home has been an expensive affair, as considerable charges are levied on the transfers. Bitcoin wallets offer an alternative way for these working professionals to transfer wealth back to their loved ones with little or no charges.

Hedging inflation

Inflation has been plaguing the entire world and according to many experts, Bitcoin can be the ideal financial tool to hedge against it. The limited supply of BTC and halving events are believed to be the two reasons behind its hedging abilities. According to the National Statistics Office, India’s retail inflation stood at 5.09% in February 2024, and Indians looking to hedge against inflation can invest their capital in Bitcoin to avoid asset devaluation.

Diversification

As many of us know, the first rule of investment is diversification. Bitcoin has established itself as a new asset class, thus offering a new investment option for users to diversify their portfolios. While appropriate due diligence and market understanding are crucial, Bitcoin wallets can empower Indian users to diversify their strategies and lead to financial growth.

 

(The author is Co-founder & CEO of GoSats, and the views expressed in this article are his own)