Which of the following statements about the virtual crypto currency Bitcoin are correct? Select the correct answer using the code given below.

Introduction / Context:
Bitcoin is one of the earliest and most widely known crypto currencies. Examinations often test basic factual knowledge about its nature and legal status. This question lists three statements and asks you to identify the correct combination. To answer it, you must know whether Bitcoin is decentralised, how it is generated and whether the Reserve Bank of India has recognised it as legal tender.

Given Data / Assumptions:
- Statement 1 says that Bitcoin is a decentralised virtual currency.
- Statement 2 says that it is generated through complex computer software systems.
- Statement 3 says that the Reserve Bank of India recognised Bitcoin as legal tender in January 2016.
- You must decide which statements are factually correct.

Concept / Approach:
Bitcoin operates on a decentralised peer to peer network using blockchain technology. It is not issued by any central bank or government, so calling it a decentralised virtual currency is correct. New bitcoins are created through a process called mining, which involves complex computations performed by specialised software and hardware to validate transactions and secure the network. Therefore statement 2 is also correct. However, the Reserve Bank of India has repeatedly warned users about risks associated with virtual currencies and has not recognised Bitcoin as legal tender. Legal tender status is reserved for currency issued by the central bank, such as rupee notes and coins.

Step-by-Step Solution:
Step 1: Evaluate statement 1. Bitcoin is not controlled by a single central authority and runs on a distributed ledger. This fits the description of a decentralised virtual currency, so statement 1 is correct.Step 2: Evaluate statement 2. New bitcoins are created when miners use computing power to solve cryptographic puzzles, as defined by the Bitcoin protocol. This clearly matches the idea of generation through complex software systems, so statement 2 is also correct.Step 3: Evaluate statement 3. The Reserve Bank of India has not granted Bitcoin the status of legal tender. Instead, it has issued cautionary circulars. Therefore statement 3 is factually incorrect.Step 4: Combine the results. Statements 1 and 2 are correct, while statement 3 is not. The option that matches this combination is 1 and 2 only.

Verification / Alternative check:
You can verify by recalling that legal tender means currency that must be accepted in settlement of debts within a country. In India this includes bank notes and coins denominated in rupees. Crypto currencies such as Bitcoin are not issued by RBI, so they cannot be legal tender. At the same time, global discussions and many articles describe Bitcoin as a decentralised digital currency secured by cryptography and created through mining processes. These facts confirm your evaluation of the three statements.

Why Other Options Are Wrong:
Option A is wrong because it includes only statement 1 and ignores statement 2, which is also correct. Option C is wrong because it includes statement 3, which is incorrect about legal tender status. Option D is wrong because it treats all three statements as correct, which conflicts with RBI's actual position on Bitcoin.

Common Pitfalls:
Some candidates confuse recognition of digital assets for trading with recognition as legal tender. A government or regulator may allow trading or holding of crypto assets under certain rules without treating them as official currency. Another error is to assume that because Bitcoin is widely used internationally, every central bank must have endorsed it as legal tender, which is not the case.

Final Answer:
The correct set of statements about Bitcoin is 1 and 2 only.