UPSC Prelims 2016 Q66: Science & Technology – Computer & Information Technology
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 a 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.
- (a) 1 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (b) 2 and 3 only
Explanation
Bitcoins
Bitcoin is a decentralised digital currency started in 2009 by the unknown Satoshi Nakamoto.
It runs on a public ledger called the blockchain.
| Statement | Verdict | Fact |
|---|---|---|
| 1. Bitcoins are tracked by the Central Banks of the countries | Incorrect | No central bank issues or tracks them |
| 2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address | Correct | Transfers are peer to peer |
| 3. Online payments can be sent without either side knowing the identity of the other | Correct | Users are known only by their addresses |
Key facts:
| Feature | Detail |
|---|---|
| Created by | Mining: computers solving puzzles to add blocks |
| Supply cap | 21 million bitcoins |
| In India | Not legal tender; gains taxed at 30 percent since 2022 |
Answer: (b) 2 and 3 only.
Why each option is right or wrong
- (a) Incorrect. Central Banks do not track Bitcoins; the system is decentralised.
- (b) CORRECT. Bitcoins move between addresses without revealing identity.
- (c) Incorrect. Statement 1 is false, and statement 2 on Bitcoin addresses is true.
- (d) Incorrect. Statement 1 is false; no Central Bank is involved.
Key point
Bitcoin (2009): decentralised, peer-to-peer digital currency on a blockchain; no central bank; pseudonymous addresses; capped at 21 million.
Remember
Bitcoin = no central bank, address to address.
Common mistakes
- Assuming every currency must be tracked by a central bank.
- Confusing Bitcoin with a Central Bank Digital Currency such as the e-rupee.
- Thinking the blockchain is private; the ledger is public, the identities are hidden.
Exam tip
Decentralised means no central bank. That one word settles statement 1.
Sources
- Satoshi Nakamoto — Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
- Reserve Bank of India — Press release cautioning users of virtual currencies (24 December 2013)