What Are Bitcoins, And What Are They For?

What Are Bitcoins, And What Are They For?

Do you know what bitcoins are, what they are for, and how they work? Surely, in recent months you have heard of the term bitcoin on several occasions. The truth is that it elicits opinions for all tastes. Just over a week ago, Bill Gates himself praised the benefits that this new technology can bring to regions with limited banking resources. However, he also stated that the volatility of bitcoin makes the currency unviable for now.

What Are Bitcoins

Bitcoin is defined as the internet currency and particularly, as a virtual and intangible cryptocurrency or cryptocurrency that is supported by the protocol and the P2P network. This means that bitcoin transactions are done from person to person as torrent files are transferred. The term Bitcoin is also used to designate the protocol with which the new currency works.

There is a lot of controversy about the creator or creators of bitcoin. Satoshi Nakamoto is the pseudonym of the person or group of people who are considered to be the authors of the Bitcoin protocol and in 2011 announced his withdrawal from the project. Today it is speculated that Nakamoto treasures millions of bitcoins, and it should be borne in mind that 1 bitcoin is currently exchanged for approximately 5,000 euros.

How A Bitcoin Works

To start selling and buying through bitcoins, the first thing to do is download some of the applications that allow you to create a personal bitcoin wallet, with which a private key associated with a public key is assigned. There are many programs (Bitcoin Core, Electrum, Armory, Bitcoin Wallet, etc.) as well as web pages (Coinbase, MyWallet, etc.) with which to be able to trade with bitcoins.

Now, once you have your bitcoin wallet, you will have to add some bitcoins to it if you want to buy with them. There are three ways to get bitcoins:

  • Changing traditional currency. Through markets such as Bitcoin or MtGox, it is possible to exchange dollars or euros for bitcoins.
  • Purchase/sale of goods. Bitcoin can be acquired through the sale of any good and its payment in this cryptocurrency that is legal on any page that allows its use.
  • The “mining.” This technique consists of lending our computer to solve complex mathematical problems in exchange for bitcoins.

The Advantages And Disadvantages Of Virtual Currency

Now that we know how bitcoin works let’s talk about everything that is an advantage or disadvantage in this currency. What differentiates bitcoin from conventional money is decentralization, that is, the decoupling of institutions, governments, financial entities. In this way, bitcoin is exempt from a competent authority changing its value or causing inflation.

By cons, unlike what is said in many articles, bitcoin can include commissions in any of its transactions, although they are few and low-cost. What does cause confusion and concern is the volatility of the currency. Indeed, since its creation, bitcoin has been listed as the most unstable currency in the world. But this is due to the algorithm by which its value is calculated, which measures the number of movements and transactions with bitcoins in real-time.

However, many believe that volatility is not necessarily a negative aspect. It is true that if when a bitcoin equals $ 500, you take the opportunity to invest in the virtual currency, later or in a matter of a week, the value can drop considerably and cause losses. But if the opposite happens to you, you can earn a reasonable sum of money. So it happened to a young Norwegian who invested $ 27 in bitcoins, and four years later, after remembering the investment and consulting his account, he discovered that he could convert his bitcoins to $ 885,520, thanks to volatility.

We will have to wait to see how it evolves, but at the moment, there are already many companies and financial institutions that have invested in bitcoins, such as Bankinter and BBVA. Do you want to know how to invest in bitcoins?

Bitcoins Security

One of the main attractions of bitcoin has always been its security since it is a decentralized cryptocurrency, that is, any entity or organization does not control it. This is due to the technology it uses, the Blockchain.

However, there have already been some cases of crypto theft, and its security is beginning to be questioned.

We must bear in mind that, even though it does not need any intermediary to carry out the transaction, users who want to carry out this action, should resort to an exchange house, known as an exchanger, to exchange the cryptocurrency for euros or dollars, due to speculation.

And it is in these, where we can find a security breach of bitcoin or cryptocurrency, since an intermediary is already being put in the middle, and it is not being used in the way it was created.

Therefore, we can face two problems that we will discuss below.

When The End-User And The Exchange House Intervene

When passing a cryptocurrency to a currency that is legalized and in circulation such as the euro or dollar, intermediaries are needed, that is, people, and these can fail. In addition, there may also be a security hole in the exchange house, and that a hacker manages to obtain the access codes, or that the same house simulates a robbery to keep the cryptocurrencies.

When An Insecure Password Comes Into Play

Also, we can find the case that the owner of the cryptocurrency or bitcoin is hacked. This can happen when we have weak passwords.

There are still a few cases of cryptocurrency theft, but like everything, nothing is foolproof. However, we can assure that the correct use of Blockchain technology is one of the safest systems that currently exist. 

Have you understood how bitcoin works? For any concept that is not clear to you, do not hesitate to write us a comment, and if you have been interested in the article. 

Related Article : What Are The Pros And Cons Of Bitcoin?

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