Bitcoin: 6 questions to understand the biggest cryptocurrency, how it works, and why it's dangerous

Bitcoin: 6 questions to understand the biggest cryptocurrency, how it works, and why it's dangerous


When Tesla CEO Elon Musk announced in a February tweet that he had bought US$1.5 billion in bitcoin and planned to accept it as a form of payment, the price of the cryptocurrency skyrocketed.

And when Musk himself said in a tweet this Wednesday that he will not accept bitcoins from those who want to buy his cars, its price plummeted as much as 15%.

If a single tweet can make its price rise or fall suddenly, it is undoubtedly a volatile asset that its detractors compare to a large poPonzicheme and consider a bubble about to burst.

But bitcoin has historically done nothing but escalate, according to its proponents, in four-year cycles. The last such cycle peaked in December 2017, when it hit US$19,600. A year later it bottomed out at US$3,000.

This 2021, marks the fourth year of the next cycle and that explains, according to its followers, the spectacular rise that, not without strong jolts, has made it the most profitable investment: it reached US$64,800 in April.

And disproven though's tweet gave it a strong downward push, its defenders are betting that this year it will pass US$100,000; the most optimistic are talking about US$250,000 or more.

In addition, there many say these years, unlike previous years, will be a "super supercycle will not bring a slump as big as the previous ones. The difference: institutional investment.

Mastercard, Bank of New York Mellon, andoutt, her companies decided to facilitate their customers' transactions in cryptocurrencies. In addition, large funds have invested in digital currencies.

The electronic payments company PayPal joined the wave by announcing in March a new service that would allow customers to buy products from millions of merchants around the world using cryptocurrencies such as bitcoin, litecoin, ethereum, or bitc, in cash.

1. What it is

Bitcoin is a type of cryptocurrency, i.e. a digital currency that can function as a medium of exchange and is used as a store of value by its promoters.

It does not physically exist, nor is it controlled by any country. It is virtual money whose price varies constantly, just like other currencies such as the dollar or the euro.

The big difference is that the price of cryptocurrencies is much more volatile, as there is nobody who controls and falls in relation aboutket moves.

Bitcoin can be used to buy products or as an investment instrument, although it is not available in all countries.

Like all cryptocurrencies, bitcoin is used to make quick payments and avoid transaction fees.

2. How it works

Each bitcoin contains a code that is stored in a "digital wallet" or digital wallet, on a cell phone or computer, with "private keys".

People can send or receive bitcoins (or parts of a bitcoin) from other individuals or companies.

In general, cryptocurrencies are based on a decentralized network of computers with nodes spread around the world with copies of all transactions that have been made.

This network is called "blockchain". These blocks or nodes are linked and secured using cryptography.

When you make a transaction, the transaction data is recorded in a block, and is automatically replicated in the rest.

The bitcoin and each of the digital currencies work with their own algorithm, which was managing the amount of new units number issued each year.

3. How to get a bitcoin

There are three main ways:

  • You can buy a bitcoin (or a portion of the currency) using money. Many people download apps on their phones that allow them to buy bitcoin using funds from their bank account.
  • You can sell things and allow people to pay you with bitcoins.
  • Or you can create them through a process known as bitcoin mining. Those who engage in this activity are called miners.

The miners work with very powerful computers that operate through an automatic reward system that rewards people who confirm the transactions of the users that make up the network.

4. What is the origin

In early 2009, an anonymous programmer or group of programmers under the pseudonym Satoshi Nakamoto published an article in which he referred to bitcoin as a new decentralized transaction system.

After developing the necessary technology to make bitcoin transactions possible, in 2011 the cryptocurrency code and website domains were distributed among several members of the new community created around the digital currency.

In any case, there is little information about the events that led to the development of the currency and the information that is the available informational sources.

Bitcoin is recognized as the first digital currency on the market and the one with the highest market price.

5. Why there is a boom

The growing interest of large investors and individuals in buying bitcoin has accelerated in the last couple of years.

Previously, cryptocurrencies were considered platforms used exclusively by organizations linked to international crime to make their illegal transactions anonymously.

Governments, central banks, economists and a good part of inv, testers have opposed a network that is not under the control and oversight of any kind of authority.

However, as large companies have opened their doors, as well as venture capital funds are investing in the currency, the rest of the investors and ordinary people have begun to lose their distrust.

And with the development of applications that allow buying and selling bitcoin in a couple of minutes from the cell phone, the adoption of the cryptocurrency has intensified.

So far in 2021, the price of bitcoin has followed an upward curve, despite constant warnings from authorities that the currency is a bubble that will burst at any moment.

6. What is the risk

The main risk is that it is a financial bubble that will end up ruining all those who deposited their "real money" in a virtual currency that has no backing from any institution.

In the same way that no one "owns the bitcoin", no one is responsible.

That is why constantly the presidents of the central banks of the major powers often tell people not to invest their funds in cryptocurrencies because they will end up "losing all their money".

Its detractors say that it has no intrinsic value, but those who defend its claim that its value ISI determined by a social consensus, just as with paper banknotes.

One of its staunchest critics is the renowned economist Nouriel Roubini, who refers to bitcoin as "shitcoin".

There are also reports of fraudsters who prefer to carry out their operations using bitcoin or other cryptocurrencies because the payments are irreversible.

And if the company storing bitcoin terminates its operations or suffers a computer attack, the money will most likely disappear like smoke.

There are no guarantees. That's why, experts say, whoever invests in bitcoin has to be prepared to lose their money in case things go wrong.


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