What is bitcoin and how does it work?

In the last year, the rise of cryptocurrencies has increased, especially bitcoin, driven by investment from large companies and financial institutions. Thanks to this, confidence in this currency grew. But what is bitcoin and how does it work, these are frequently asked questions today and in Hispanic Entrepreneurs we give you the answer

Is it time to invest in cryptocurrencies?

Bitcoin is the first cryptocurrency that was created, this happened in 2009. At the beginning there was only a limited community that was willing to invest. The reason is the very nature of this digital currency that generated mistrust and still does so in many people and institutions. We will explain the reasons later.

Despite the above, in recent years the number of users has grown. To the point that there are financial institutions that have invested in bitcoin and there are companies that accept this and other cryptocurrencies as means of payment.

Those in favor of this digital currency consider that it is an investment and a form of savings. Detractors, on the other hand, affirm that it is very risky due to its volatility, in addition to being suitable for illicit activities.

But most people still wonder what are bitcoins. Here we will try to explain it in a simple way so that you understand this topic better.

What is bitcoin and how does it work?

Bitcoin is a virtual currency, which does not exist in physical digital format, but is used to carry out exchanges and online transactions. Although many use it rather as a form of savings.

Apart from being virtual, another of its peculiarities is that it is not associated with any State or central bank. This is what generates the greatest mistrust, that there is no control or a regulatory entity as occurs with currencies such as the dollar.

By not having that control, which is what keeps prices stable, bitcoin becomes a volatile currency.

With this currency you can make fast payments, without intermediaries and anonymously, since the names of buyers and sellers are not revealed during the transaction.

To find out how to invest in bitcoin you must understand how it works, how to buy and where it is stored. There is a bitcoin guide It explains the entire structure of the system and it is advisable to familiarize yourself with the document.

When making a transaction, it is recorded in a chain of blocks, called blockchain, which Bitcoin.org defines as “shared public accounting”. This account of a series of nodes that use cryptography to guarantee their integrity and chronological order.

Pending transactions are processed through bitcoin mining. This increases the supply of this virtual currency. It consists of a computer that solves a complex mathematical problem and a bit of bitcoin is received as a reward.

The transaction is stored on the blockchain following strict encryption rules. Each of these transactions are verified.

Bitcoin detractors warn of the risks of investing in a currency that has no control or backing of physical assets.

Where are bitcoins stored?

If we are talking about money and transactions, there must be a place to store it, as with banks and physical currencies. In the case of cryptocurrencies, they are stored in a digital wallet.

Transactions are carried out through bitcoin purses or wallets, something similar to an account in a bank, but without the support of financial entities.

The wallets can be in the cloud, the computer or the mobile. In these, a code is stored known as a private key with which the operations are signed.

How to get bitcoins?

We already know about him what is bitcoin and how does it work, but how can I get them. There are three processes by which you can obtain them.

• Mining: we already explained that it is the process through which new transactions are added to the Bitcoin blockchain. The "miners" use powerful computers to carry out this process.
• Transfer of bitcoins: it is nothing more than sending and receiving money through digital wallets. You can sell things and get paid in cryptocurrency.
• Buy bitcoins: there are applications that allow you to buy and sell bitcoins.

What is bitcoin for?

There are those who use it as an investment instrument, but there are other ways to take advantage of cryptocurrency. It can be used to pay for goods and services in companies that accept it. For example, Uber announced that it could accept it as a means of payment; while the PayPal users they can also make payments with cryptocurrencies.

They can also be used to send money to other people or earn additional income through mining.

Now you have more clear what bitcoin is and how it works. Anyone investing who invests in cryptocurrencies should be aware of the risks it represents, since it is not backed by real money.