Although the history of Bitcoin is short (it emerged in 2009), much attention has been paid to it since its creation. Its creation has always been surrounded by a certain halo of mystery, for it is not known who created it. Satoshi Nakamoto is just a pseudonym used by the person or persons who gave birth to the project.
But even today, eight years after its creation, Bitcoin is not entirely mainstream. Many have been surprised that the creators of ransomware Wannacry cyber attacks wanted to charge in Bitcoin. Let’s explain everything about this coin.
Bitcoin, technology and economy
Bitcoin is a very curious technological idea. By combining computer networks, cryptography and software it is possible to create a fully distributed virtual currency, without the need for a central entity to issue and control it. Eight years later, the cryptography remains robust and Bitcoin’s use has skyrocketed.
The economy behind this coin is the same as the one behind anyone: scarcity and confidence. That is to say, there is a solid base for a Bitcoin to cost money, at least as solid as the one that fixes the prices of the gold.
And although Bitcoin was the first crypto currency, there are many others. True, Bitcoin is still the most popular although lately others like Ethereum are rising in value for other value-added services they offer.
Bitcoin, how to get them
How do we manage to get Bitcoin since it is not official currency in any country in the world?
The beginnings of any currency are complicated. There has to be an issuing bank, people have to trust and accept the currency and, little by little, it is put into circulation. In contrast with Bitcoin, there is no issuer, the distributed computers that watch over the transactions are correct, occasionally get coins as a prize. This is called mining, and it is the way in which money is created with the Bitcoin.
But before we put our computer to work to create money, I have to say that mining is crazy right now. Those who get money with this technique have clusters of computers with dedicated graphics cards and in areas where electricity is cheap or even subsidized. Making money from mining is a thing of the past.
So? Where do we get Bitcoin? As in the real world, in the currency exchange houses. On the Internet there are many and allow us to change normal money (dollars, euros etc…) for Bitcoin. Coinbase is a siteÂ for buying and selling Bitcoin, for example.
Bitcoin, how to save them
Now we come to the big question: how and where are the Bitcoin kept? Well, cripto currencies like Bitcoin are completely virtual. To access them, we originally had to use software. This software allows us to see the balance we have in our account and make and receive transfers.
The good thing about Bitcoin is that it is an open protocol so there are many software programs to manage our money on Windows, Linux, Mac, Android, iOS…
However using a software has a dangerous element to it. If, for some reason our device is damaged or deleted or formatted, we will lose all the money. Let’s say that with Bitcoin the money is in “the cloud of Bitcoin” (the so-called Blockchain) and what keeps the software is a copy of the key to access it. If we use software, it is convenient to make a backup of these keys.
Another option to take control of our Bitcoin is to use a web wallet. A web page will be responsible for storing our keys and access our accounts with a user and password. Basically, what these websites do is function as a bank.
Coinbase is a good option for this, which also allows you to buy and sell Bitcoins. The only bad thing is that if we use this method, we lose part of the grace of having Bitcoins, using a completely decentralized system without relying on trust in any entity. No one can seize our money without stealing our keys. Instead, if we have the money on a website, we have to trust it.
Bitcoin, price swings
Now it may seem that the Bitcoin is very expensive, Â and that is not a good time to invest in it. But in the past, we have seen similar moments, and the advice should be the same: be careful because it is a pretty speculative good.
Bitcoin has suffered many bumps along the way. The first was the closing of Silk Road, a market of illegal exchanges that the FBI closed in 2013. Transactions were made with Bitcoins and the price collapsed.
Just a year later the world’s largest Bitcoin exchange, MTGox, was attacked and 744,000 Bitcoins were stolen from its users. Â Again the price went down.
But Bitcoin is not a fad. And although it still has many challenges ahead, it has managed to overcome every blow. So you have to take it into account in the future, either as an asset or as a currency to pay.