UPSC Prelims 2016 Question:

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.

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