Many people wonder what Bitcoin is, and some say that it is the future of currency, and some say that they are the end of digital wallets. Have you ever heard of Bitcoins? Who did not, right? Lately, Bitcoins have been the center of attention for many investors and businesspeople. There is plenty of information on the Internet, and you can get anything you want. Here we are going to explain to you the basics and how does this new coin work. Cryptocurrencies might be the future of money. Imagine a world without any bills and coins.
Nowadays, we have many payment methods, such as PayPal, Venmo, or credit/ debit cards. Cash is probably the most common form of payment, but that is changing, and in a couple of years, they might disappear.
In this article, we will go over the bitcoin, and we will examine more information for you to be sure about it and whether you would invest or buy some.
What is Bitcoin?
First of all, the definition of Bitcoin will give you a good idea of what we are talking about, and from there, we can get more specific and get to understand the crypto world even better. Investopedia defines Bitcoin like this “Bitcoin is a digital currency created in January 2009…Bitcoin is a type of cryptocurrency. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to. A massive amount of computing power verifies all bitcoin transactions. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.”
To make it as simple as it can, Bitcoin is virtual money! Think of it like virtual cash. You can use it to buy either house, cars, or whatever you want; if the place or person you are buying it from accepts Bitcoins. This might be an issue since the price of one Bitcoin is not the same every day so that the seller might lose money because of it. And also, there are some places in the world where Bitcoin has been banned.
Some companies like PayPal support Bitcoin, and they allowed their users to buy and sell them on their platform. However, Bitcoin has some issues that led people and companies to root against it to avoid problems.
Essentially, Bitcoin was created to send money on the Internet. Bitcoin was offered as an alternative payment method and, most importantly, free of any bank or government control.
History of Bitcoin
In 2008 the Bitcoin was created as a currency free of control from governments and other entities. The creator of this currency, Satoshi Nakamoto, wanted a currency that was not based on the trust needed to make it work. In 2009 the bitcoin was released and made public on 9 January. Nakamoto worked on the project for a year and then retired and left it to their own system to continue developing it.
What is interesting about the creator is that his or her identity has never been revealed, and we do not know even if it is a man or a woman. Nowadays, other entities, like MIT, for example, contribute to the development of the system because it is open source. This means that anyone can contribute.
How Does Bitcoin Work?
To understand how Bitcoins work, it is essential to understand their definition truly. As I explained before, Bitcoin is a virtual currency. Each one of the Bitcoins is a computer file that can be stored in a virtual wallet. You can store them in a Laptop or even your smartphone. You can send and receive bitcoins as a payment method, and these transactions are recorded in a blockchain. A blockchain is a collection of transactions, and this collection is running by computers with the same lists of transactions to avoid cheating.
There is a mathematical encryption algorithm which are the keys to the bitcoin tokens! These algorithms are the ones that were used to create these very bitcoins. This key that the owner has should be kept secret since they are used to authorize its transactions. The bitcoin keys are not like the bitcoin wallets, and they should not be confused since their objective is different. The bitcoin wallet is either a physical or digital system or device that helps you with the transactions and track ownership of these currency coins.
Many people are wondering if Bitcoins can be converted into cash. The answer is yes! You can do it as with any other asset. There are many online platforms where you can exchange some money for cryptocurrencies and the other way around. However, there is no such thing as an official mechanism to do it.
Why is Bitcoins Valuable?
The reason why Bitcoins are valuable is pretty simple; you can buy/trade products with this currency. I think you get it; it should not be more complicated than that. But the question people are asking is this, Should I buy a digital code? Many people do not understand why these things have value, and it is understandable; they might prefer to have cash or gold instead of a digital key. The problem with the Bitcoin value is that it generates uncertainty for many people. It is not the same to have gold, mainly because it is tangible.
Also, another problem this virtual currency has is energy consumption. This is considered to be the risk factor of Bitcoin since this could potentially destroy Bitcoin. Many of the supporters of Bitcoin are modern companies in some way, for example, Tesla. These modern companies are constantly looking to make the world a cleaner place, and cryptocurrencies initially looked pretty good.
However, these cryptocurrencies are consuming a significant amount of energy which is hurting the environment. That is the main reason why these companies have to decide whether they support it or not Bitcoin.
One of the factors that people consider when giving Bitcoin an advantage is that it is not regulated. This means that no one controls it, not government, not entities, no one. This might sound good for someone who does not trust the people behind the money business. Also, all bitcoin transactions are made anonymously, meaning nobody will know which one is your account unless you let them know. However, all transactions are recorded.
Something that may sound crazy, and it should, is that the value of Bitcoin is influenced by some wealthy businessman such as Elon Musk. He commented about Bitcoin, saying that he supported it, and its importance went up. This might have been a good thing for the owners because they gain a lot, but it also means that the price is volatile.
Many people would argue that it is almost like gambling or to have money on Wall Street, and they have a fair point. Recently, the price of Bitcoin varied significantly, both ways. These people arguing about the uncertainty and instability of the price makes it a worthless and stupid gamble since it is a very high risk. Some people invested a significant amount and ended up doubling his or her assets, but some lost almost everything.
Bitcoin Mining
The mining process is the reason why Bitcoins can exist. This process keeps the network alive and brings new Bitcoins. The method of how this works is not easy to explain, but here is an explanation that might help you with that.
“All transactions are publicly broadcast on the network, and miners bundle large collections of transactions together into blocks by completing a cryptographic calculation that’s extremely hard to generate but very easy to verify. The first miner to solve the next block broadcasts it to the network and, if proven correct, is added to the blockchain. That miner is then rewarded with an amount of newly created bitcoin.”
It is believed that the maximum number of existing Bitcoins can get up to 21 million, and it is also thought that we will get to that number around the year 2140. There is an estimate that every four years, the software develops, so it is twice as hard to find these cryptocurrencies, and the rewards are even smaller. This makes Bitcoins a limited resource, and so rise the value up. If we were looking for an endless amount, the value would be much lower.
For you to understand how hard it will be to mine Bitcoins, listen to this. When Bitcoins first started, it was so easy to find bitcoins that you could do it on a simple computer (That was around 2010). Now, ten years later, you need a room full of specialized equipment, which can be even more expensive than the actual Bitcoin. So, is it worth it? We do not know, but the future is still uncertain.
Mining Bitcoin is a complex process that requires a lot of time and especially a lot of money. Even though the reward is pretty significant, maybe looking for gold or other precious stones is easier.
Also, as I explained before, mining bitcoin consumes so much energy that it is dangerous for the environment. The computers that work for mining are guessing numbers all the time, and you would not believe how many times per second.
They handle around 176 quintillions every second! The University of Cambridge estimated the yearly amount of energy consumed to be 149.6 terawatts per hour. For you to understand, that is more than what Sweden, Pakistan, and Malaysia consume. The bitcoin mining process also is responsible for 51 megatons of CO2 emission every year.
Is it Secure?
Any of the transactions made in the Bitcoin network is recorded. These records are held publicly, so the copy of Bitcoins is almost impossible, meaning that your Bitcoins will not be copied by someone else and use them. In that aspect, bitcoins are probably the safest method. Fake ones are almost impossible to make.
However, you can lose your wallet with your Bitcoins in it or even delete them; in such a case, you will lose them forever. Additionally, there have been some robberies where thieves hack into some systems to take some bitcoins, but those are super unusual.
Another insecurity for Bitcoin’s owners is the price. As I explained before, it is very volatile, meaning that the price varies significantly over short periods. So, this means that people might not feel safe turning real money into Bitcoins, and they lose just like that. It almost appears like a gamble, which many are not willing to take the risk.
There are many banks concerned about this issue. For example, Andrew Bailey, the head of the Bank of England, claimed to be very nervous about paying with Bitcoins since investors could potentially lose a significant amount of money. Many people will stick with cash and cards, and I believe it is understandable and, in a way, intelligent, at least until we understand better the Bitcoin and the price is more stable.
Conclusion
Bitcoins are a cryptocurrency that is believed to be the future of payment methods. However, there are issues with it, and with issues comes uncertainty. In the end, would you buy Bitcoins? It is a great question, and for many people, that might be an easy answer, but it might be more complex than you might think it is for others.
There is a lot of information going on the Internet, and you have to be sure that you do the right thing if you are going to buy. For many people, it was their best gamble ever, but for others, not so much. So, if you are planning on buying Bitcoins, be ready for anything unexpected.
Ten years ago, Bitcoin was unknown and easy to find; today, it is the most well-known cryptocurrency out there; who knows what will happen ten years from now.
Be careful and make an informed decision. These cryptocurrencies could potentially lose all of their value if not enough people trust them so that they might go back to nothing in a couple of years. However, they might be the future as well. The decision is yours.
