Bitcoin: what it is and how it works
The way of doing business, like everything in this era, has also evolved. Until recently, we were only used to handling our local currency and other currencies such as the dollar, the yuan, among others, either in modalities such as cash or transfers and even the obsolete check. However, in recent years a very different currency has been introduced to the financial market.
It is about cryptocurrencies, an alternative whose mode of use is completely incomparable to what was used. Therefore, although it was innovative, it also caused a lot of discord.
The name cryptocurrency comes from the system that supports it: cryptography. A series of millions of procedures in extreme security keys make this currency reliable for investors and recipients.
Today there are many cryptocurrencies, but the most popular is still Bitcoin, perhaps because it was the first to arrive. It drew attention from the first moment for two of its key characteristics: its users manage it, and no government behind it acts as an arbitrator.
What is Bitcoin?
Bitcoin is a virtual and intangible currency. This means that you will not see a Bitcoin-like seeing a five euro bill. And as already mentioned, another interesting fact about this currency is that any Central Bank does not manage it; that is, it does not belong to any state. In other words, it is a decentralized currency whose sole responsibility for its management and use is its owner.
This cryptocurrency was born in 2008. It was an idea of Satoshi Nakamoto, who until now turns out to be the identity of the person or group of technology-savvy individuals who designed both the cryptocurrency and its digital system.
Regarding the control of this currency, there are several things to understand. While users of local currencies trust their respective financial institutions always to have their money available and prevent fraudulent activities, in the world of Bitcoin, everything is different.
How does Bitcoin work?
Cryptocurrency users rely on the codes that its system offers to shield any fraud operation. And this support is offered by the blockchain, a cryptographic system in which any asset expressed in this currency is stored and transferred between the people involved in the transaction. In this encrypted system, everything is stored online.
In simple words, Bitcoin can be just another payment system, a very simple one in digital money. However, behind it lies a much deeper structure. As mentioned, the blockchain is the platform created to carry out transactions. One of its functions is to prevent the double-spending of a Bitcoin unit, which is completely prohibited within this system. And since everything is online, it serves as a kind of public accounting where anyone can see that there are funds and that the transactions were executed satisfactorily.
For those who are not very used to this financial market, payment is very simple. To use the cryptocurrency, it is necessary to register in a Bitcoin wallet, which can be downloaded on a mobile device or a computer at no cost.
Through them, transactions are carried out whose commission is negligible, which may vary depending on some scenarios such as network congestion, the amount of the transaction, and the urgency of the user. The transactions can be executed between 6 or 10 minutes, time in which those involved take time to confirm the operations.
How much is a Bitcoin worth?
A common question among those who enter the world and seek to invest in cryptocurrencies is knowing the price of Bitcoin. You should know that the price of this currency has a lot of volatility and has always had a high value compared to other monetary exchanges.
For this reason, it is not possible to speak of a fixed price. However, those interested in knowing its price in real-time can go to Internet search engines where they will surely find many calculators with updated rates.
Learn how to withdraw bitcoin quickly and cheaply
Find out more
What are cryptocurrencies, and how do they work
Find out more
Evolution of Bitcoin
While it is true that Satoshi Nakamoto was not the creator per se of this cryptocurrency, this character did manage to create a digital system in which it could be handled. Behind the result of what we know today, like Bitcoin, was a lot of work and effort and ideas that did not come to fruition. Here are some interesting facts about the evolution of Bitcoin.
In 1982, David Chaum and Stefan Brands created a technology in which people could handle cash under eCash standards, but the protocols to be followed were governed by a specific entity. Then later, the co-founder Chum launched Digicash, a system similar to eCash, but that didn’t work either.
In 1998, the engineer Wei Dai presented the b-money project, a digital money system that relied heavily on the Bitcoin system. Unfortunately, this was never carried out. In the same year, Nick Szabo designed a decentralized currency which he called Bit Gold. This project did not progress either, but it can be said that the engineering of what is now Bitcoin has its roots in Bit Gold.
In 2010, Hal Finney was the first person to install the Bitcoin software on its release. In addition, he was the first to receive the cryptocurrency; that is, he made the first transaction with the creator Satoshi, where he received 10BTC.
Initially, Bitcoin was not very popular, so it did not enjoy a large number of users. However, the community of crypto experts was the one that supported and promoted the use of this pioneering cryptocurrency. The first users used the currency merely for fun, but it took on both value and seriousness over time. During the first days after its creation, Satoshi managed to mine a few million BTC. It was said that the creator’s fortune managed to reach the grand sum of 3,500 million dollars.
Gavin Andresen, a collaborator of Satoshi, created what would be called Faucet Bitcoin, whose ultimate goal was to promote the cryptocurrency and its digital system, so he devised giving away 5BTC daily. Before 2011, Bitcoin was trading below the dollar, but in that same year, it also boomed, and some companies began to accept it as an exchange currency.
In 2012 Coinbase was born, the first legally recognized Bitcoin exchange house, and for that same year, its price rose and stood at $ 13 per Bitcoin. In 2013, said exchange house reported that they had already reached one million Bitcoins per month.
Some Asian countries such as China and Thailand banned the use of BTC, but in turn, Canada opened the first ATM with the cryptocurrency, and by 2016 there were already 771 ATMs around the world. It should be noted that, although China prohibited the use of this cryptocurrency, in 2018, it created its own, and that same year, Japan created a law that accepted and regulated digital currency.
How do you get Bitcoins?
We have already talked about transactions, users, the value of the cryptocurrency, and its evolution, but how do you get Bitcoins? Who creates them and launches them on the financial markets? Well, the process of creating the cryptocurrency is known as mining.
Bitcoins mining is carried out through decentralized networks run by individuals – who can work in groups or individually – which are known as “nodes” within the digital cryptocurrency system. Mining serves two purposes: to create currencies and as a sort of regulatory agency that confirms the integrity of the transactions in this type of digital currency circulating.
In the case of Bitcoins, miners proceed to group transactions made into blocks. The miners observe these blocks from time to time. This activity is not free, and given the complexity of the matter, in which powerful computers perform very complex equations from time to time, the miners receive an incentive.