Bitcoin is a cryptocurrency or cyber currency is digital money. Cryptography is the science of encrypting information. Digital currencies (Like Bitcoin) are based on their principle. All data on owners and movements are stored in encrypted form. And not just on one server, but on several thousand at the same time. Each transaction is stored in a network. That is why it is almost impossible to fake transactions. This system is called Blockchain.
Proponents see cryptocurrencies as an answer to traditional finance. Because digital money no longer needs banks, the owners themselves become financial institutions. A central body that controls the flow of money and currency is missing. The buyers are always in control, but at the same time, they are responsible for the security of the assets.
How long have cryptocurrencies been around and who invented them?
In the early 1990s, a group of programmers and cryptographers discussed ways to protect privacy in the digital space via email. Based on the term “Cyberpunk” they called themselves Cyberpunks. A well-known representative is the Brit Adam Back. He developed the first proof-of-work method on which cryptocurrencies are based. To put it simply, the sending computer proves that it required a certain amount of computing effort for the outgoing message. The proof-of-work method was originally intended to avoid spam.
The anonymous inventor of Bitcoin is also an active member of the Cyberpunk movement: Satoshi Nakamoto. However, the name is a pseudonym and the identity is still unknown today. Because of the proof-of-work method, it is suspected that Adam Back is hiding behind a pseudonym. Others are convinced that there is not a single person but a group behind Satoshi Nakamoto.
On November 1, 2008, Satoshi introduced the idea of a cryptocurrency in The Cryptography Mailing List. He called them Bitcoin. The first Bitcoin transaction was made just two months later, on January 12, 2009. Since 2011, the inventor has withdrawn more and more and left the further development of his idea to others.
What cyber currencies are there?
There are now over 3000 cryptocurrencies. But only around 100 achieve a daily trading turnover of more than 1000 US dollars. While Bitcoin is the best known as the first cryptocurrency, Ether, Ripple, and Etherium are also fighting for their place. Curious currencies like. This is about breeding the most special, virtual cats possible and then selling them for a profit.
How does Bitcoin technically work?
The most important technical basis of cryptocurrencies is the blockchain. This “blockchain” is based on three concepts. The first is the open cash book. Every transaction within the blockchain is publicly visible to every network participant. Invalid transactions are rejected as such within a short time thanks to this principle of multiple eyes. For example, if someone wants to transfer more bitcoins than they own, the transaction will not be carried out.
To prevent this open cash book from being manipulated, it is decentralized with the second concept. The information is stored not only on one computer but on a whole network of devices. Each person can keep a copy of the open cash book. This complete copy of the blockchain is called a full node.
But how do you ensure that every participant in the network has an identical copy of the cash book? This is where the miners come into play. They keep the network up to date and monitor it. To confirm a transaction, it must first be verified that it is valid; i.e. whether the sender has enough money.
Second, the miner has to calculate a key code that allows him to enter the transaction in his ledger. This is where the proof-of-work method comes into play. Because the solution requires a certain amount of computing power. Once the code is found, the transfer is entered into the miner’s cash book.
The code also called a hash value, is then sent to all full nodes of the network. In this way, each copy of the blockchain remains identical. The first miner to verify the transaction in such a way
What are the advantages of Bitcoin?
The most important advantage of Bitcoin is its independence from financial institutions. Transactions are carried out directly between buyer and seller. If you want to make an international transfer with the help of a bank today, you need patience.
There are also exchange and bank fees. A bank account can also have a limit. Bitcoin has no such limitation: anyone who wants to sell all their cryptocurrency can do so in a matter of minutes.
The creation of new bitcoins is based on a complicated algorithm. This is designed in such a way that there will never be more than 21 million bitcoins. Proponents of the cyber currency see this as an advantage over classic currencies.
After all, central banks can decide how much money is printed. According to the proponents, the price of Bitcoin should stabilize as soon as all 21 million Bitcoins are in circulation.
Thanks to the public blockchain, Bitcoin is transparent. This publicity makes the cryptocurrency very secure at the same time. Nobody will be able to manipulate all full nodes at the same time. Despite this open accounting, the owners of bitcoins remain pseudonymous. Because the assets are not managed with your name, but with an identification code. Bitcoin can also be used worldwide, it does not have to be exchanged for other currencies.
And what are the disadvantages of Bitcoin?
Even the biggest fans of cryptocurrency know: that Bitcoin is still in its infancy. Much is still unclear, clearer rules are needed and, above all, time. In the early years, Bitcoin was misused for the illegal trade in drugs and weapons. Cryptocurrencies are also a thorn in the side of the tax authorities because clear laws are still missing.
At the moment, bitcoin is not necessarily suitable as a means of payment, the price fluctuations are too great for that. That may be the reason why Bitcoin is hardly ever accepted as a means of payment outside the digital world. Anyone who pays with it anyway cannot avoid the fees. These are used to pay miners.
With the loss of a financial institution, the owner also assumes the responsibility: anyone who loses the code for their bitcoins has no way of getting them back. The case of a Brit who threw away a hard drive with 7,500 bitcoins in 2013 became famous. Today (as of December 29, 2017) this hard drive would be worth over 100 million Swiss francs.
The enormous power consumption of the cryptocurrency is also criticized: Every year, the blockchain and mining consume the same amount of electricity as the whole of Denmark. However, this enormous consumption also serves as protection. Hackers will hardly be able to muster that much energy.
Should you invest in cryptocurrencies?
In mid-December 2017, the EU Commission warned of the risks of cryptocurrencies. Investors should be aware that the price can go down as fast as it goes up. Precisely because the price has risen so sharply in recent months, experts are warning of a bubble.
Despite this criticism, many investors have already made considerable profits with Bitcoin. Because cryptocurrencies are no longer just a playground for computer fans and monetary policy revolutionaries, the value of Bitcoin multiplied in 2017. The same applies to other investments: Only invest as much as you are willing to lose.
Where can you buy bitcoins?
The easiest way is to go to a digital exchange. There are national and international exchanges for every cryptocurrency. There you define how many francs you want to buy Bitcoins for, for example, and pay with your credit card. But not every exchange is reputable, which is why you should inform yourself well before buying.
The most famous exchange is coinbase, Binance. It comes from the USA and is supported by 32 countries. Here you can trade Bitcoin,
How do I keep bitcoins safe?
After you have purchased cryptocurrencies on an exchange, your balance will be managed by that exchange. The bitcoins are yours, but they are in the exchange’s account, the so-called wallet. In the past, exchange wallets in particular have been the victims of attacks. It is therefore advisable to transfer the bitcoins to a personal wallet.
You get the unique code of your coins. Save it on multiple devices. These devices should ideally be offline. But please note: If you lose the code, your money is gone too.
As bitcoin prices continue to rise, hackers are becoming increasingly interested. While the blockchain itself is secure, the personal computer is not always secure. Here’s a comparison: The Swiss franc as a whole currency is very difficult to manipulate. But that doesn’t stop pickpockets from stealing a note from your wallet. Your Bitcoins are only as secure as your virtual wallet.
That is why there are now insurance policies for cryptocurrencies. Your crypto money is also insured within the insurance. So if someone misuses your data, gains access to your wallet, and transfers your crypto money, Basler will reimburse you for this financial loss of up to CHF 20,000.
Sell Bitcoins and pay with Bitcoins
Bitcoins are also sold on the stock exchanges. This is very easy to do with Coinbase, for example. Here you only register with your e-mail address. The exchange even offers Coin-ATM at various locations.
As mentioned, bitcoins are not a stable means of payment at the moment. Nevertheless, you can also pay with the cyber currency in certain shops. A transaction directly between two wallets is made possible via QR code and the crypto wallet app. After the transaction is confirmed by miners, the buyer’s and seller’s wallets are adjusted. This check takes about ten minutes.