Question

UPSC Prelims 2016 Question:

With reference to ‘Bitcoins’, sometimes seen in the news, which of the following statements is/are correct?

Bitcoins are tracked by the Central Banks of the countries.

Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.

Online payments can be sent without either side knowing the identity of the other.

Select the correct answer using the code given below.

1. 1 and 2 only
2. 2 and 3 only
3. 3 only
4. 1, 2 and 3

Answer (Detailed Solution Below)

Option 2: 2 and 3 only

Detailed Solution

Explanation:

Bitcoin is a digital currency which operates free of any central control or the oversight of banks or governments. Instead, it relies on peer-to-peer software and cryptography. So, statement 1 is not correct.
A public ledger records all bitcoin transactions and copies are held on servers around the world. Anyone with a spare computer can set up one of these servers, known as a node. Consensus on who owns which coins is reached cryptographically across these nodes rather than relying on a central source of trust like a bank. Hence, anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address. So, statement 2 is correct.
Bitcoin was created as a way for people to send money over the internet without either side knowing the identity of the other. So, statement 3 is correct.

Therefore, option (2) is the correct answer.

Subject: Economics | Money and Banking

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