The digital currency Bitcoin (BTC) was ridiculed at the beginning and only a few invested their money in this cryptocurrency. But after the big run on Bitcoin came, suddenly numerous users were interested in the digital currency and hoped to get rich quickly. Despite the fact that bitcoin has been pronounced dead several times, it is holding up amazingly well. Still many people invest in Bitcoin and if you also want to invest your money in this cryptocurrency, this report will tell you everything you need to know about how Bitcoin works.
What is bitcoin?
Bitcoin was founded by Satoshi Nakamoto. However, to this day, no one knows without a doubt who this person is or if there are several people. The digital currency was introduced on 3. January 2008 for the first time prospected. In the beginning, only a few users were interested in the cryptocurrency. This changed in 2016. At the beginning, BTC was still trading around $450, and by the end of the year it had risen to 1.000 US dollars to. More and more users invested their money in the cryptocurrency and especially before the launch of bitcoin futures in mid-December, the price skyrocketed. On 17. December 2017, bitcoin reached just under 20.000 US dollars and at the latest the world became aware of it.
Bitcoin is the flagship cryptocurrency. In this regard, bitcoin is a censorship-resistant, decentralized currency that works on the basis of blockchain technology. Bitcoin in particular is thus not regulated by any government or central bank and is supposed to be inflation-proof. Another advantage is that you can buy services or goods with bitcoin and you can use it as a store of value. In addition, the volume is limited to 21 million. These many reasons are of course in favor of bitcoin, especially since it somewhat resembles gold, which is why bitcoin is often called digital gold.
Yet the blockchain forms the basis of the BTC. The term blockchain comes from English and means blockchain. These blocks then represent individual records. They are practically stored one after the other and a kind of record chain is created. They contain transaction data and are not subject to government control. In addition, no central bank can control the money supply or even set framework conditions for BTC. At the same time, this means that the digital currency is self-directing and protected from inflationary fluctuations as well as from the influence of the states.
Bitcoin – the oldest cryptocurrency in the world
Bitcoin is the world's oldest cryptocurrency and defines blockchain and cryptocurrencies. In this regard, the Bitcoin network is considered one of the most secure, stable and resistant to censorship. Moreover, the network has by far the most subscribers. At the same time, Bitcoin is the representative currency for all digital currencies.
Overall, the number of BTC is limited to just under 21 million, which makes the digital currency a limited resource. Forecasts indicate that the last bitcoin is expected to be mined in 2140. What many do not know, however, is that bitcoin is considered pseudoanonymous. Still many users assume that the flagship of cryptocurrencies is completely anonymous. However, this is not the case. This is mainly due to the nature of the blockchain.
Each Bitcoin transaction is stored transparently, which means that the amount, as well as the sender and recipient, are stored. Even if the names are not stored in clear text, it is technically no problem to assign the Bitcoin addresses to real users. Thus, the digital currency is rather unattractive for illegal actions, even if in the meantime there are ways to disguise the Bitcoin transactions.
The function of BTC
The Bitcoin is decentralized and all transactions within the Bitcoin network are transparent. If you also want to be part of the network, you need a Bitcoin account, so a so-called wallet. The wallet has the private key and the public address, a cryptographic key pair. You can install this wallet on your computer or on your smartphone.
The private key is a kind of password, i.e. a digital signature. With this you can then dispose of your Bitcoin in the blockchain. The public key, on the other hand, is a public address that you can compare to an email address. You can then send the Bitcoins to the public address.
Bitcoin advantages
The advantages of Bitcoin are clear, as banks and credit institutions are for the most part superfluous. But this also means that the transaction costs, which are often charged by banks, are not incurred. But also the fact that the network is decentralized and tamper-proof is a big advantage of the digital currency. Since all transactions must be signed, participants have the security that the transactions do not disappear on the way and really arrive at the receiver. Fast confirmation within the network is also a big advantage.
Bitcoin advantages in a nutshell:
- tamper-proof
- censorship resistant
- decentralized
- Participants do not need a bank account
- global network
- inflation-proof, as quantity is limited
The disadvantages of Bitcoin
Where there are advantages, there are of course also disadvantages. There are also some restrictions that are quite deliberately written into the protocol. A big disadvantage is that the volume of users is always increasing and therefore the transaction volume is also skyrocketing. This can then lead to the transaction taking longer to complete. Namely, the block size was specified in the protocol. For the previous transaction volume, this was absolutely sufficient. In the meantime, however, this has changed and the transaction density limit is simply not enough.
The block size was set to 1 MB in 2010. This means that blocks that are larger in size will be rejected. Actually, this restriction should serve to prevent hackers from crippling the system. In itself a good thing, but the high volume causes more and more users frustration, because the waiting times of up to several hours are very long. However, a solution is already being worked on.
The high power consumption of Bitcoin
The high power consumption from mining Bitcoin is also a big problem, which is increasingly coming under criticism. Bitcoin network requires about 115 TWh per year. This is equivalent to the energy needs of a country like Sweden, or about 0.55 percent of global energy production. Thereby, especially the mining of Bitcoin is the biggest point of criticism. Even though the network is the most secure in the world, it requires a particularly large amount of energy. At the same time, there is an advantage to this and it is not done in a completely careless way. This is because the high energy requirement makes it extremely difficult for hackers, as spam and manipulation attacks are very costly and therefore almost impossible to carry out.
However, around 40 percent of miners now rely on green energy and use alternative energy sources such as wind or solar power. In addition, unused electricity can be used for mining in the process, which then makes mining much more environmentally friendly.
Bitcoin cons in a nutshell:
- Size of the blocks is limited
- Transactions take a long time
- Power consumption is high
Is it worth buying BTC?
This is something you will have to decide for yourself. There are very many opinions on the net about whether it is still worth buying Bitcoin. But only you can answer this question for yourself. Therefore, you should look closely at the price trend and then decide whether it is still worth it for you or not. But you should not listen to the opinion of others, but weigh the pros and cons.
When should you buy bitcoin?
Of course, you should buy bitcoin when the price is low. Currently would be a good time to buy bitcoin if it is still worth it for yourself. One Bitcoin costs just under 20 today.170 euros (as of 04.10.2022). The all-time high of the Bitcoin was on 12. November 2021 reached and the price at that time was 56.300 Euro per Bitcoin. Thus, right now is a very good time to invest in Bitcoin if you want to invest your money for the long term. Because, again, with long-term investments, you can cope with price fluctuations much better and the risk of making losses is lower.
Here you can buy Bitcoin
If you also want to buy bitcoin now, you have several options to acquire the cryptocurrency. BTC can be bought on various exchanges and trading platforms. However, you will not be able to buy bitcoin from traditional banks such as savings banks and direct banks. Here you only have the option to buy bitcoin derivatives and warrants. If you want to buy real bitcoin, you will find a wide range of reputable providers on the net.
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Stephanie Hahn
Stephanie Hahn has always had a soft spot for numbers and therefore worked in accounting for a long time. She has been a copywriter for twelve years now and specialized in financial topics years ago. She also invests in stocks, ETF and cryptocurrencies herself and knows what matters.