Bitcoin is the most prominent cryptocurrency in the world. Transactions made with Bitcoins are anonymous, encrypted, require no bank and aren’t subject to any regulation of any country. They can be used to buy anything, they can be traded or be “mined”…if you dare.
What exactly is a Bitcoin?
Bitcoin is a cryptocurrency, created in 2009 by an unknown person or group of people nicknamed Satoshi Nakamoto. That means it is a digital representation of value that relies on strong cryptography. Cryptography is a practice that consists of building up security measures in order to defend and make private a communication or data exchange channel.
So, Bitcoin is anonymous (the person can be, not their address)
and can be used in a p2p (peer-to-peer) environment. The advantage of a cryptocurrency is that it is not linked to any bank, any country or any rule. In other words, it is a decentralized currency.
There isn’t a card number, so malicious actors can’t collect any data from you. Payments are tax-free, not subject to national borders or regulations of any kind and people can send each other bitcoins easily through smartphone apps or via their computers with all the aforementioned advantages.
How do Bitcoins work?
Once a Bitcoin address has been installed on a mobile phone or on a computer, it can be disclosed to other people so they can pay you Bitcoins or viceversa.
Transactions are made through a private key, or “seed” that is a mathematical proof of the procedure. This operation is used to uniquely “sign” the coin movement; the solving of this mathematical proof is called “mining” but it’s rarely done by payers. If you do so, you can earn BTC out of the solution which will confirm the transaction, help the network and this will pay the miner for it.
The signature system also allows the network to prevent third party agents to alter the payment in any way. Once the transaction is issued, there’s very little chance anyone can change anything about it.
How do you acquire Bitcoins?
The easy answer would be: buy them. But what if there was another way that didn’t need you to put down the money for them? This slow, difficult and only sporadically rewarding operation that gets you “free” bitcoins has a name: mining.
As we said before, BTC transactions are made through a private key that is represented by a block (block = verified transaction). These blocks hold the payment data in an encrypted form: miners can collect fees by solving the hash puzzles that contain that piece of data.
A hash puzzle involves a mathematical function, the “hash” function indeed, that converts an input of letters and/or numbers in an encrypted output of some fixed length. Working with this hash is what mining is about. Doing this will help the BTC Network and miners will receive rewards for helping.
Whoever solves these math puzzles first will earn the right to add a new block to the blockchain (blockchain=a public record of Bitcoin transactions) and make money out of it.
Powerful hardware is required to perform mining competitively.
Image sources: https://search.creativecommons.org/photos/c4785391-9688-49f1-8164-20f198a53266. by 张楠赓
Bitcoin investments. Are they worth it?
Bitcoin is a high-risk investment as the price of cryptocurrencies is mercurial and unpredictable.
Bitcoin is a cryptocurrency, it could go mainstream and gain value or vanish out of the blue. Investments in BTC are very similar to many others and require the investors to spread their money in order to spread the risk too.
Being too hopeful about just one company, one cryptocurrency or in general one field makes the investment very high-rewarding, but also very risky.