There are thousands of cryptocurrencies in the world, like altcoins, but the largest of all is bitcoin, its defenders assure that it is digital gold, which will put an end to the supremacy of the dollar and that it will change the world financial system, while its supporters its critics speak of a bubble that will burst at any moment because it does not have any type of endorsement.
But we are going to analyze the most essential about bitcoin, answering these three simple questions: What is Bitcoin? How does it work? And what are its risks?
What is Bitcoin?
Bitcoin is a type of cryptocurrency, that is, a digital currency that serves as a means of exchange in the purchase or sale of products or as an investment, it is an independent and decentralized currency, which is not issued by any financial entity or controlled no country or company.
It was created in 2009, by an anonymous programmer or a group of programmers under the pseudonym SATOSHI NAKAMOTO, who has become a faithful defender of cryptocurrencies, at that time the system, was programmed to mine 21 million bitcoins and it was He expects the last of them to be mined in the year 2140.
This cryptocurrency arises before the financial crisis of 2008 as a strategy that would counteract the effect of financial markets dependent on banking entities.
As currently, a bitcoin has a value of thousands of tens of dollars, people buy bits of bitcoin known as SATOSHIS or SATS and they do so through the Exchange or digital exchange platforms, which are accessed from cell phones, managing to send money from Central America to Japan in a matter of seconds and without having to use a bank.
How does it work?
It works like any other fiat currency like the dollar or euro. They do not have a serial number or mechanism to be able to be traced to who uses this currency. Although it should be noted that the blockchain contains all that information within the large accounting book where, if required, the transaction can be tracked. It is in the sense that they do not request data to be able to operate with them.
Being a decentralized currency, it does not require the trust of a central bank. This is supported by the community itself, which through the consensus of “Proof of Work” confirms each transaction and adds it to the blocks of the blockchain. It should be clarified that once confirmed, it cannot be deleted or made any type of return.
What are your risks?
The risks of trading cryptocurrencies are mainly related to the volatility of the cryptocurrency market. As they represent a high risk, you must understand the risks before beginning investment in cryptocurrencies. All financial assets carry high risk, whether through the use of leverage, unethical trading techniques, or market volatility.
After having answered these three basic questions, we are going to list the 10 keys to understanding bitcoin and these are:
- It is a virtual currency. It has no physical format and its value, which is calculated using an algorithm based on the number of transactions in real-time, fluctuates according to supply and demand.
- It operates on blockchain technology or a chain of blocks. This technology is stored in a decentralized network, that is, it is not found in a single server but a multitude of them.
- The blockchain system is thus one of the greatest advantages of cryptocurrency: it allows transactions to be carried out without intermediaries through these linked and encrypted data records. Of course, it also means that a cryptocurrency transaction is irreversible.
- Counterfeiting or duplication of these currencies is impossible thanks to the data encryption system used by blockchain technology.
- To buy with cryptocurrencies it is not necessary to reveal the identity, which protects the privacy of the user but also leaves room for speculation.
- As it is not backed by institutions or governments, such as current currencies, they cannot intervene in its value, but neither can they act in cases of price crisis.
- The money does not depend on any bank, only on the person who bought those currencies.
- Cryptocurrencies work like any other currency in terms of purchase and currency exchange, that is, they can be purchased with euros, dollars, or other currencies, and vice versa.
- To carry out transactions with bitcoin, as well as to acquire them, it is necessary to have installed one of the applications that exist on the network; it consists of a “WALLET” or encrypted virtual wallet.
- The value of cryptocurrencies fluctuates wildly in a matter of seconds and in real-time.