- October 7, 2021
There’s no doubt that you have heard plenty about Bitcoin in the past year. However, not everybody understands everything that they should about it.
Not only does this prevent them from learning more on their own, but it can also stop them from taking advantage of a long-term investment opportunity. Before you get started, though, we’ve outlined key information that you should keep in mind.
Bitcoins what are they? Let’s take a look.
So… Bitcoins What Are They?
Don’t worry if you find yourself asking this question — there are plenty of others who are doing the same. Although this type of technology might seem overly complicated, it’s not as difficult to understand as you might think.
Bitcoin is a form of digital currency (known as cryptocurrency) that allows people to make conventional purchases in an unconventional way. The entire purpose of this type of money is to make it nearly impossible to counterfeit, thus making use of this type of currency safer.
Additionally, this type of money is not managed by a central authority. So, it has significant protection from interference or manipulation by government entities.
Although there are many types of cryptocurrency, Bitcoin is one of the most popular. In early 2009, a man named Satoshi Nakamoto published a white paper that outlines the framework of Bitcoin technology.
After the publication of this document, an unknown party set out to bring these ideas to life. Interestingly, it is still unknown today who exactly was responsible for the initial creation of Bitcoin.
Of course, this hasn’t stopped numerous people from claiming to be this mysterious individual.
Regardless of who its actual creator was, Bitcoin has entered the spotlight in mainstream investing. Whether or not people choose to utilize Bitcoin for transactions, they still leverage it as an investment opportunity.
Let’s take a closer look at how this type of Bitcoin functions.
How Do They Work?
Bitcoin leverages technology known as the blockchain. For those who are unfamiliar with this term, it involves using a public ledger in order to establish a comprehensive archive of payment activity.
Every confirmed transaction has relevant information stored within the blockchain. To help facilitate these transfers, Bitcoin is stored in something known as a digital wallet.
Blockchain technology allows Bitcoin wallets to calculate the total overall balance. It also allows those with Bitcoin to establish objective ownership over this currency.
Put simply, Bitcoin would have no value and would be impractical or impossible to use without the existence of the blockchain.
After a transaction has been completed, information with details about the transfer is stored within the Bitcoin wallet. This data is known as a private key and is also sometimes called a seed.
These provide a significant form of protection, as it prevents another party from altering the transaction after it has been issued. This is one of the hallmark reasons why people choose to use this type of currency.
This process utilizes a distributed consensus system that blockchain technology makes use of in order to include transactions within itself. More specifically, it forces the blockchain to maintain a chronological order for its transactions.
It also allows different computers to determine the overall state of the blockchain, something that preserves its neutrality. As you might guess, having only a single entity decide whether or not the blockchain is functioning appropriately could lead to unsafe levels of manipulation.
How Are They Created?
Bitcoin is created through a process known as “mining.” Although this may sound like a strange way to generate a digital currency, the concept is similar to conventional forms of mining, albeit a bit more abstract.
Miners use high-powered machines solve complex mathematical issues as quickly as possible. Although you might have an idea of what this entails, these math problems are something that far surpasses even the most difficult algebra course.
In fact, these problems are impossible to solve by hand. Their difficulty is so great that they are also notorious for being significantly taxing on high-powered machines.
By solving these complex problems they produce new Bitcoin. This is where the term mining comes into play, as it is essentially like mining for gold in a digital landscape.
A byproduct of resolving these math problems is that it is easier to establish a significant level of security within the Bitcoin network by leveraging the math problem solutions to verify transaction info.
It’s worth noting that mining Bitcoin can be a highly lucrative process. Currently, the value of a single Bitcoin is worth tens of thousands of dollars.
In theory, those who are able to mine multiple Bitcoins within a relatively short period of time have the potential to make a significant amount of money.
However, this process is impractical for most people. Not only does it require a large number of high-powered machines, but it’s also in your best interest to use an entire facility dedicated to this operation — something that is impossible for the average person.
What Are Some of Bitcoin’s Most Significant Uses?
There wouldn’t be so much talk around this type of currency if there weren’t plenty of uses for it. Although its primary use is to complete transactions, there are secondary benefits that are important to keep in mind.
Let’s explore some of the most notable.
It’s Entirely Digital
It’s quite the benefit that Bitcoin transactions are entirely digital. Although cashless transactions have existed for a while in the form of credit card usage, Bitcoin adds an additional level of convenience.
Completing a transaction with cryptocurrency is possible as long as you have an Internet connection. Additionally, when making a purchase, you aren’t required to input personal information
This means that you can complete online transactions almost entirely anonymously.
Unfortunately, there are plenty of people out there who do not have access to conventional banking. This means that they are actively missing out on the numerous benefits that come with doing so, such as payment protection and online transfers.
Bitcoin, however, provides these individuals with much-needed accessibility. For those who don’t have access to either traditional banking or credit cards, this factor becomes even more important.
International Purchases and Transfers
It’s no secret that international purchases and transfers are expensive. In fact, even a conventional wire transfer to an international party can involve numerous different costs and fees.
As we’ve already established, the government cannot function as an intermediary with Bitcoin transactions, allowing you to circumvent many of the common expenses. Those who travel for extended periods of time frequently take advantage of this.
It’s also fairly common for those who have friends or family and other countries to utilize Bitcoin when sending them money. A secondary benefit of doing so is that Bitcoin transfers occur at a notable pace, minimizing wait times.
Should I Invest In This Technology?
Although this technology has been around for over a decade, it has not yet become a standard form of payment across the world. This means that there is still a significant amount of skepticism regarding its integrity and usefulness.
Some countries have even decided to outlaw Bitcoin usage entirely.
Those who decided to invest 10 years ago have seen an exponential return on the money they initially allocated. Investing today, though, is a different story.
It’s a fact that Bitcoin has a large number of applications unique to cryptocurrency. In time, more and more people across the globe will begin to take its utility seriously.
Until then, however, the value of that coin will be fairly volatile. This means that you could easily lose a significant portion of the money that you invest within a day or two.
It may also take you years to get your money back. When investing, remember that it is a significantly risky addition to your portfolio.
As long as you only invest what you are willing to lose, however, you may find it entertaining to see where your money goes.
Investing In Bitcoin Could Be Life-Changing
Like any other investment, it’s essential that you only allocate what you are willing to lose. However, you should no longer be asking yourself “Bitcoins what are they?”
The above information will help ensure that you make the decision that is best for you.
Want to learn more about what we have to offer? Feel free to get in touch with us today and see how we can help.