What is Bitcoin?

—TechRound does not endorse or recommend any financial investments or opportunities. All article and website content is purely informational—

Most people know about Bitcoin and usually, it is the only cryptocurrency that they know about. The name, as well as the founder, is mysterious and we are not sure how and why the currency is made. However, the whoop of the value and popularity of this currency owes to the lower transaction fees and traditional online payments mechanisms, and most likely, it is a decentralised currency.

The currency uses cryptography to keep it secure. Since there are no physical Bitcoins, the currency is balanced on a public ledger to which everybody has transparent access. Each record is encrypted, but all transactions are verified by a massive of computing power in a process called “mining”.

How Does Bitcoin Work?

You cannot buy Bitcoin in a bank, and it is not controlled by the government, and no individual Bitcoin is valuable as a commodity. It is a very popular currency, but still not allowed in most parts of the world. It is the first cryptocurrency in the world that caused the launching of hundreds of other cryptocurrencies collectively called altcoins.

The Bitcoin system is a collection of computers that all run Bitcoin’s code and store its blockchain. This collection is called “nodes”, and a blockchain is a collection of blocks, which are a collection of transactions. All computers in nodes run the blockchain and have the same list of blocks and transactions so they can transparently see these new blocks with new Bitcoins. In that way, nobody can cheat the system.

These transactions can everybody see, no matter if are included in the node or not, and in real-time. In November 2021 there were around 13,768 nodes but this number is growing. Bitcoin keep balances using public and private “keys” which are long strings of numbers and letters linked through the mathematical encryption algorithm that creates them.

The public key is like a bank account number and it serves as the address published to attract people to send Bitcoin to the key owner. The private key is like ATM PIN, meaning guarded secret and only could authorise Bitcoin transmissions. Both private and public keys are different from wallets, which is a physical or digital device where you can trade with Bitcoin, track ownership, and hold coins. The term “wallet” is not used properly, because Bitcoin is a decentralised currency, meaning it is never stored in a wallet, but rather distributed on a blockchain.

What is Bitcoin Mining?

It would be best if we visit the best places to buy Bitcoin UK for beginners and purchase the number of coins that are most applicable for us. On the other hand, it is for sure that those who know about Bitcoin, also know that you can get it by the process called “mining”. It is a process when Bitcoin is released into circulation and works by solving computationally difficult puzzles to discover a new block, and then add it to the blockchain. You can buy it, thus, but for the price that rises every day.

Mining adds and verifies transaction records across the network. People who mine Bitcoin are rewarded with some Bitcoin, and the reward is halved every 210,000 blocks. In 2009 the block reward was 50 new Bitcoins, while in May 2020 each block had a reward of 6.25 Bitcoins.

What Are the Risks When Buying Bitcoin?

It is completely justified for beginners to ask if investing money in Bitcoin is safe. There are a few important questions that you must answer before buying your first coins.

Regulatory Risks

Since Bitcoin is a rival to government currency and you can use it for underground market transactions, money laundering, tax evasion, and other illegal activities, it could be under special regulations, restrictions, or even a ban by the government. It happened before, though, in 2015 when the New York State Department of Financial Services has ordered that each transaction worth $10,000 or more must be recorded and reported.

Security Risks

Many people have bought their Bitcoins and not gotten through mining operations. However, it is digital and virtual money, so there is an obvious risk from hackers, malware, and operational glitches. If somebody can have access to your computer, he can steal your private encryption key and transfer your Bitcoin to another account.

Insurance Risks

Neither Bitcoin exchanges and Bitcoin accounts are not insured by any type of federal or government program. Although there is a dealer and trading platform SFOX that announced providing insurance for Bitcoin investors, it applies only to the portion of transactions involving cash.

Fraud Risks

Although you have private key encryption and only you can verify transactions, fraudsters and scammers can attempt to sell false Bitcoin. It happened in July 2013, when SEC stopped a kind of a Bitcoin-related Ponzi scheme.

Market Risks

There is always a possibility that Bitcoin values fluctuate. Since it has no investments, it does not have the support of a stable source. Experts are claiming that Bitcoin’s value will drop in the future. Something like that happened in 2013, when Bitcoin fell by 61% in a single day, while the one-day price fell by 80% in 2014. Now, where there are a lot of cryptocurrencies on the market, Bitcoin is at high risk of losing its value.

Who is Satoshi Nakamoto?

It is a mysterious name of the person who invented Bitcoin, but nobody knows who is hidden behind this name. Some experts think that it is not a person, but more a group of people who released the original Bitcoin white paper in 2008. The same group of developers supposedly worked on the original Bitcoin software that was released in 2009. There were a lot of attempts to discover the real-life person or people that are behind the pseudonym, thus, that never happened.

Although it sounds attractive to believe in a media’s spin that Bitcoin is a product of a secret person, hidden by a pseudonym, it not likely that one person has made it. These innovations never happen in a vacuum, by one person. Even when one person made something, there is long research behind it in the past.

We know those who have previous research about Bitcoin. Those are Adam Back’s (his cryptocurrency was Hashcash), Wei Dai’s (B-Money), Nick Szabo’s (Bit Gold), and Hal Finney’s (Reusable Proof of Work). There are no proofs for the claim that they or some of them have been included in the process of creating Bitcoin. Whatever the real person or persons behind the pseudonym, there is a reason why he or they wanted to remain unknown.

Bitcoin is very popular, it could disrupt the current banking and monetary systems, and if becomes widely adopted could affect nations’ sovereign fiat currencies. All above could provoke legal action against Bitcoin’s creator by governments.

—TechRound does not endorse or recommend any financial investments or opportunities. All article and website content is purely informational—