What is Bitcoin? Everything you wanted to know about cryptocurrency.
Bitcoin, Cryptocurrency are currently trending buzzwords: But what is actually behind the cryptocurrency? How do Bitcoin work and what can you do with it?
A year ago, critics of the cryptocurrency would probably not have expected to crack the € 13,000 mark – but that’s exactly what Bitcoin did in December. Meanwhile, the price has dropped a bit but slowly recovering.
The Bitcoin seems to have generated more awareness among the people and also has created some interest in companies. But many are still relatively unfamiliar with the digital currency. So what exactly is Bitcoin and how does it work?
What exactly is Bitcoin?
As mentioned above, Bitcoin is not a physically-printed currency, but a digital form of payment that is created and stored electronically. This process is called in the jargon “mining” or “digging”. That is, computers create the currency with complicated mathematical formulas. On a normal PC and for the layman, however, this can hardly be accomplished. Due to this, several computers join together or powerful GPU’s are used to generate the bitcoins.
Anyone who owns Bitcoins can use them to purchase goods and services or even conduct financial market transactions, as with other means of payment. What sets Bitcoin apart from other currencies, such as the euro or the dollar, is its decentralization. No state institution such as the central bank can intervene in the system and manage money or set framework conditions. The network controls itself.
Who invented Bitcoin?
A software developer named Satoshi Nakamoto introduced the concept of digital currency 2008 on an internet message board and in January 2009 the first 50 bitcoin blocks were calculated. However, no-one knows who the person is, even today.
How does Bitcoin work?
Bitcoins are purely mathematical and can be generated using the software. This software is an open-source software, which means: Everyone can understand how exactly it works.
Behind the Bitcoin is a so-called blockchain technology, which created great interest in companies and governments. It is also often referred to as a digital account statement because in the concatenated blocks, all transactions that have ever been made are stored in encrypted form and can be viewed by anyone.
unlike other currencies, however, there are no institutions behind the digital currency that stand for value stability. Decisions are made in the Bitcoin network only with a consensus mechanism defined by a program code.
How do I buy bitcoins?
You can either buy Bitcoins in one of the numerous Bitcoin exchanges using a conventional currency or you can receive them as a means of payment for goods and services you provide.
If you buy bitcoins, you can either leave them on the exchanges and use them as a kind of online account or get a digital wallet, which can be installed on a computer or smartphone. The advantage is that you can open an account at any time without having to provide any evidence. Also, there are no names or residential addresses associated with the accounts, so you can make your transfers anonymously.
More and more Internet shops, but also restaurants, service providers or schools accept the cryptocurrency as a means of payment.
How much is the Bitcoin value?
The cryptocurrency has no fixed value, which means that its value is the ratio of supply and demand. In the early stages of Bitcoin he was only a few cents worth – currently, it is around 12,000 euros.
Critical financial experts or regulators, however, are constantly warning of a huge crash because Bitcoin is a “speculative object” or has only an exchange value that can only be expected to be accepted in the future. However, that does not stop many Bitcoin prospects from jumping on the train and cutting off a piece of the pie for themselves.
What are the advantages and disadvantages of bitcoins?
As mentioned earlier, bitcoins bring some advantages over traditional currencies. These include the following:
- Bitcoins are largely counterfeit-proof
- they protect the anonymity of the owners
- the value cannot be artificially distorted by the state or banks
- A Bitcoin account can be created without bureaucratic hurdles
- There are hardly any transaction costs
- Bitcoin payments are processed within minutes and do not need a middleman like a bank. The transfer takes place without detours and reaches the recipient directly.
But the freedoms that the Bitcoin allows unfortunately also make it unpredictable. The price of the digital currency is still rising, but it is difficult to predict how the cryptocurrency will last in the future. This inevitably results in disadvantages:
- no institution can stand for value stability
- Without a computer, the currency cannot be used
- the anonymity is taken advantage of by dodgy bitcoin exchange businesses
- Once a transaction has been made, it can not be undone