What is Bitcoin and how does it work?


Bitcoin is a digital or cryptocurrency, which is based on mathematics and cryptography to provide security and control. Bitcoins do not exist physically but with it you can buy from internet stores, pay at your own street stores, or convert your Bitcoins into Dollars by accessing an ATM from your Bitcoin wallet.

We are talking about a decentralized currency that does not printed or belong to any country. In addition, there are only two parts (P2P payments) that enter the game in transactions, the person who sends the money and the one that receives it, no banks or other entities that control and make it more expensive with their commissions any transfer of money or economic transaction.

Bitcoin was made known in 2009 by a person who used the name Satoshi Nakamoto2, since 2010 the developer community has been in charge of its protocol. The name of Bitcoin refers to the currency, the P2P payment network itself and its operating protocol.

How does Bitcoin work?

It is not necessary to go into technical details to know how Bitcoin works in the United States or how you can buy in stores, sell or receive a transfer from anywhere in the world. So let’s look at the basics:

  • The first thing to do is to install an application on your mobile or computer (MultiBit, Electrum) to have a Bitcoin wallet where you will keep your money (also known as wallet or purse), something like a bank account. Once you install it you can start to pay or receive Bitcoins.
  • When it comes into operation it also generates a first Bitcoin address, something like an email, which works in a way that they can send you money, so send it to someone and you will receive the Bitcoins in your wallet. You can create as many addresses as you want, it is best to use them only once.

How Bitcoin works

Getting Bitcoins

You can buy them at a currency exchange with your credit card or bank account; you can sell something and charge in Bitcoins, buy them or exchange them with a friend, or get them through mining.

Spend Bitcoins

If you have wondered what a Bitcoin is good for, you should know that it will be handy for you to pay for multiple services or products, and every time more and more shops are letting you pay with this coin.

Security of the Bitcoins

The production and operations performed with these virtual currencies are controlled by mathematical problems and cryptography. The encryption ensures that the generation of new fractions of this currency and the operations carried out with them are safe and legitimate.

All transactions are carried out through a P2P network, in which only two people are involved. But while the so-called cryptocoins do not require a third party to supervise operations, the possibility of fraud does not exist, since any operation confirmed by the community it gets reflected in a public and chronologically ordered accounting record known as Block Chain.

Its security measures include the private and personal keyword with which operations are signed, which helps to confirm that a transaction has been made and prevents the amounts from being altered.

Also, like most cryptocurrencies it is open code. That means that anyone with knowledge can review the Bitcoin protocol and verify that nothing has been fraudulently added, but in addition, users can add new features or delete those already obsolete.

Bitcoin is an anonymous currency

Anonymity is a very important part in this currency, although every transaction you make in Bitcoins will be recorded in a public record. These transactions can be said to be practically anonymous, since both the name of the buyer and the name of the seller will never be published, nor will any other personal data, such as address or telephone. Only the portfolio identifiers can be consulted, without ever knowing who they belong to.

Precisely anonymity would be one of the main features that define the Bitcoin currency, since it gives you the freedom to buy and sell without having to expose your name. On the other hand, this has caused some people to use bitcoins to pay for illegal services or products (drugs, weapons, etc.).

Do they charge commissions for making a transaction?

Doing an international transaction, transferring or buying from a store usually has no cost in commissions, as there is no bank involved. But it has now come to the conclusion that it is good to establish a small voluntary commission, which on one hand compensates the work of the miners and on the other, establish faster confirmation times (less than 10 minutes).

In the case if mandatory commissions or fees exist, and as long as it is about transactions that can be called normal, these costs will be really small and will not exceed the equivalent of a few cents of dollar, nothing that can be compared to the ones that are charged in banking or trades traditional.

The commission system is something that is still under development, currently it is not linked to the amount of Bitcoins we send, so we can find cases where:

• When transferring 500 BTC, they charge us 0.0010 BTC.
• Or cases in which they want to charge us 0.0010 BTC for transferring 0.05 BTC.

At this time the way of calculating the commissions is established according to the data volume of the transaction and the number of operations performed. So if you receive a large number of small payments, you will spend more on commissions than if you received it in a single larger payment.

So if you receive a large number of small payments or you are the one paying with a large number of small fractions of your bitcoins, you will be paying more commissions than if it were a single larger operation.

In what business are bitcoins accepted?

Businesses accepting Bitcoins

At present, all types of companies, businesses and websites are accepting payments with Bitcoins, so you can pay for any service or buy virtually anything you can think of. But if we focus on the businesses we can find on the streets of our country:

The United States is one of the countries where payment with Bitcoins is more widespread. Although there are big cities like San Francisco, Los Angeles or New York City where we can find a lot of businesses that accept this digital currency, the truth is that in practically all the national territory we will find places where we can pay with Bitcoins, from bars to restaurants, Hotels and shops of all kinds.

What value does a bitcoin have?

Although in many countries of the world this currency becomes more stable than its own, the fact is that it is subject to fluctuations, and may fall or rise as other currencies do.

  • Currently 1 Bitcoin is worth 770 Dollars and is in clear rise since the beginning of the year, when it was worth $ 415.
  • This currency can be fractioned  into “satoshis”. 1 satoshi equals 0.00000001 Bitcoins.
  • Bitcoins are identified by the symbol ฿ or Ƀ.

There are people who speculate and invest in Bitcoins, although this is not the purpose of the currency, looking at the beginning and end of the year prices, it can be said that it is a very profitable investment.

What does Bitcoin support?

As I have already mentioned, Bitcoin is not a traditional currency. It is something new and independent, which is not supported by any country or organization, nor has it anything to do with the traditional financial system, which is based on the gold pattern. Therefore Bitcoin is an ecosystem supported by thousands of users, which is governed by cryptography and mathematics. Its code is open and anyone can audit it, no one unilaterally can change the system, all members must approve it and therefore any manipulation is prevented.

What is Bitcoin mining?

Bitcoin uses SHA-256 cryptographic functions, as its proof-of-work scheme to generate new transaction blocks, which will be added to the block chain.

The transactions that are included in that public register or blocks chain, always have to be confirmed by the network of users. This is where the so-called miners come into play; they use a powerful hardware capable of processing the transactions and therefore, get a payment in Bitcoins.

The best alternative to Bitcoin

The cryptocoins are not something new, the idea came up in 1988 from the hand of Wei Dai and since then several initiatives have arisen. Not all have had the same success, but there are some alternative currencies that are known as Altcoins and it is worth knowing:

Bitcoin Cash Logo

Bitcoin Community didn’t come to a universal consensus regarding the logic that rules the operations in the blockchain. That’s when Bitcoin Cash (BCH) was born, in August of 2017. Ever since its creation, BCH price has experienced a lot of volatility, becoming a potential opportunity for short positions. But on a long-term basis, Bitcoin Cash has been also moving upwards: at the present time, BCH price sits at US$1300, +136% from its opening price of $550 in August.

To find all the details on how to buy bitcoin cash and make smart investments in this cryptocurrency go to our Bitcoin Cash page.

Bitcoin Gold Logo

Bitcoin Gold (BTG) is another coin that is part of a hard fork in the Bitcoin blockchain, it is fresh in the market since it was launched in October and its blockchain started operating in mid-November. That being said, BTG network is finally stabilizing and this coin is being added to more exchanges as it evolves, which fuels its potential to become an important cryptocurrency in the near-future. Bitcoin Gold price has been fairly volatile as you can observe in the following figure:

Bitcoin Gold Price

Despite its volatility, investors are keeping an eye on BTG by placing short positions to get short-term profits. To find all the details and tips to buy this cryptocurrency, you can visit our Bitcoin Gold page.

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