The bitcoins explained well

For those who have resisted so far without knowing anything, and begins to realize that it must remedy

Today a bitcoin, that is a unit of the most popular cryptocurrency in the world, is worth $ 14,000. Five years ago, it was worth about 13: it means that its value has increased by over 1,100 times. But the exponential increase in the value of bitcoins was not gradual, as demonstrated by the recent new interest of international media: just a year ago, in fact, a bitcoin was worth about $ 850.

It exceeded $ 2,000 only in May, and up until three months ago it was under $ 9,000: after reaching close to $ 20,000, it collapsed between Thursday and Friday, reaching just over $ 12,000. It was the most serious currency collapse in three years, having come after the biggest ever peak.

So we've been talking about Bitcoin for several weeks now (the capital letter is usually used to indicate the system, the minuscule for the currency): what they are, how they work, their use, how risky it is to invest and how long this increase in value will last. I decided to gather a few answers to these questions in one place: this.

A Brief History of Bitcoins

We do not know who invented bitcoins: the inventor is called Satoshi Nakamoto, but it is a fancy name that has so far guaranteed anonymity to the person or people who created them in 2009.

Over time many hypotheses have been made - the most famous in 2014 by Newsweek - but nothing has been discovered yet. Nakamoto wanted to create a new electronic currency system without any kind of central authority: he succeeded and in 2010 basically disappeared, completely removing himself from the system he had created.

What are Bitcoins

Foregone introduction, but let's do it: the value we attach to money is the result of a convention. A banknote - from 5, 50 or 500 $ - is a piece of paper: if we can use it to get in exchange much more complex assets than a piece of paper is because we all agree on the value we recognize in that piece of paper. A 500 $ banknote is not intrinsically worth ten times a 50 $: we simply decided that. Because things change, as long as we decide otherwise.

We come to bitcoins. Bitcoins are a digital currency that users keep in virtual portfolios, and can be used to make payments to stores or companies that accept them (there are), to transfer money to other users, or simply can be stored hoping that they will increase in value . How much is a bitcoin worth? We get there, but let's say that the market decides it: and there is not a piece of paper, unlike the dollars.

The difference with normal currencies is that Bitcoin solves a large number of problems normally encountered in online economic transactions. In fact, there is no central authority controlling bitcoins: no banks, organizations or companies that manage their flows and their value.

This means that there is no third party involved in the transactions: so no fees to Visa, Mastercard, Western Union, etc., and no risk that these institutions suffer cyber attacks that steal credit card numbers and codes.

How Bitcoin transactions work

Here things start to get more complicated. Bitcoins work on the basis of a peer-to-peer protocol, similar to systems used for example to download and share files online, those in which each computer becomes a network node on a par with others without central nodes.

Every Bitcoin user is connected to all the others and holds a copy of a sort of ledger - that is, a document containing all the accounts of an accounting system - called a blockchain. In the blockchain are recorded all the transactions of all users of all time, since the Bitcoins were born.

This mechanism is the basis of Nakamoto's solution to the problem of verifying that online economic transactions, without central authorities to control them, are regular: and therefore that the recipients of the payments do not cheat the senders, or that the users do not pay with money that in reality they do not possess.

It is the blockchain that does what a bank normally does: removing the right amount of money from the user's account, and making sure that he can not spend more money than he has.

In the Bitcoin system, all users verify all transactions: when there is a bitcoin transfer, all the connected devices are subjected to a cryptographic problem that requires a huge number of tests to be solved. You do not need to confirm all the computers: the one who first finds a solution to the problem issues an alert to others.

More or less six times per hour a new "block" of confirmed transactions is created, which is added to the general blockchain. A transaction on Bitcoin, therefore, is recorded only when it actually occurred, and is recorded in the only place that takes into account how many bitcoins exist and who they belong to.

This prevents users from spending the same bitcoins multiple times, because the fact that they have already been spent is recorded on the blockchain held by anyone using Bitcoin. Cheating this system by falsifying bitcoins is very complicated, practically impossible.

All these operations take place "in the dark" of people in front of the computer: it is a calculation that the program does autonomously following random inputs generated by the protocol.

Bitcoin owners are anonymous, and identified only by a code. Each transaction is identified by a public key, which identifies the receiver and which is used by all the devices in the system to verify the operation, and by a private key, which serves the users involved to authorize the transaction.

If you lose your private key, you lose money: it happened, even with millions of dollars. If it is not possible to falsify bitcoins, it is possible to steal them: it happened in the past, but now everything seems much safer.

Bitcoin extraction is mining

The Bitcoin system distributes new currency - new bitcoins - between users who with their devices contribute to the calculations necessary to confirm transactions, and thus keep the currency safe and active.

When there is a new transaction, these users - called miners, extractors - try to solve the cryptographic problem, finding that one number able to confirm it and add the transaction to the blockchain.

The first to solve the problem sends the solution to the other nodes of the network, which confirm it: at that point it receives the bitcoin prize. The more a user contributes to the system in terms of computing power, the more likely it is to receive bitcoins in return.

The evolution and enlargement of the Bitcoin system has meant that today, actively participating in transactions that confirm transactions requires a great deal of computing power, which can not be provided by normal computers, as happened at the beginning of the currency.

For this, there are specialized centers: they are large warehouses where there are thousands of computers, cooled by impressive ventilation systems.

This process is called mining, or mining, and it has recently begun to discuss its environmental impact. In fact, these centers consume a large amount of energy: in total, the extraction processes currently consume more energy annually than entire small states, such as Ireland, and about 0.8 percent of the energy consumed in the United States.

How to calculate what bitcoins are worth

The value of bitcoins is dictated by demand and supply: that is, how much people are willing to pay them. The price of a bitcoin is calculated on the basis of the value at which it is exchanged with the normal currencies: in practice, a bitcoin has a value only because the users of the system agree that it has it.

A peculiarity of the Bitcoin system is that the total number of units produced is pre-established: they will be issued until they are close to the total amount of 21 million, presumably in 2030, without ever reaching it.

This is allowed by the fact that every four years the number of bitcoins emitted is halved, as well as the amount of money distributed to those who discover the new blocks to be added to the blockchain.

The currency's risk of inflation - that is, its loss of value - is therefore minimal, because it is not foreseen that new injections of money can be made by an institution such as a central bank, which in any case does not exist in the system. On the contrary, as that date approaches, if demand continues to rise, there will be a process of deflation, due to the ever-decreasing availability of the currency.

How to buy bitcoins

Most people who invest in bitcoins do so by buying existing ones, and participating in the extraction process. You can buy and store them on many sites, the most famous of which is Coinbase. It's very simple, and you can start spending them right away in online stores and for the services that accept them, which are more and more.

Because they have increased in value

The short answer is that there is no single explanation. And the premise is that bitcoins remain a very risky investment, because their value has always been volatile: as demonstrated by the most recent collapse.

It had already happened twice in the past that bitcoins had increased in value - never even remotely as happened in recent weeks - and these peaks had always been followed by very sudden declines.

Analysts warn since the beginning of 2017 that it is only a matter of time before they relapse: until it has happened, and even after the collapse their value has remained very high, compared to a year ago. Many have regretted not investing in it long ago.

The increase in value this year is due, among other things, to the fact that the Chicago stock exchange has begun to allow futures securities trading - contracts that allow investors to "bet" on the value of something - based on bitcoins , a decision interpreted as an important "customs clearance" of the currency, hitherto greatly opposed by the financial establishment.

The announcement of the Chicago stock exchange has been combined with an improvement in the reputation of the bitcoins that was already underway, and which had caused more and more investor interest, reassured also by the increasing security of the system.

Bitcoins were once associated with transactions at the limit of legality, when not entirely illegal, and in particular at the Silk Road site, where one could buy everything from drugs to sexual services to arms.

With time Bitcoin managed to shake off this fame: this, combined with the fact that bitcoins are a finite number, has generated a "rush" of investors who have tried to get them in fear of being excluded from this market.

Bitcoin is the only cryptocurrency?

No, there are many, such as Ethereum, Ripple and Litecoin. Bitcoin, however, remains the strongest, because it is the best known and the safest.

Is it all a bubble?

Cyclically we return to talk about the "bubble" risk of bitcoins: and the latest collapse has brought this theory to the center of discussion. Some believe that the level of their price is not sustainable in the long run and that it is destined to finally collapse.

Others speak of the "end of bitcoins" and cryptocurrency experts often joking about the amount of times the press has announced their death.

These warnings often come from bankers, but they are generally hostile to cryptocurrencies because they cut banks out of the possibility of intermediation.

A month ago the CEO of JP Morgan investment bank Jamie Dimon, one of Wall Street's most famous and powerful bankers, said that bitcoins are a scam and a trading system that is only good for criminal activities.

Almost all the big international banks, however, have groups of traders and analysts in charge of exchanging and studying the phenomenon of bitcoins and their possible applications.

Many economics professors are also skeptical about the future of cryptocurrency. Kenneth Rogoff, who worked for the International Monetary Fund and now teaches at Harvard, argues that the price of bitcoins is only tied to the hopes that investors have about future value increases.

So, rather than as a currency, bitcoins would behave like a "commodity", a raw material like wheat or oil, whose value can change even very much as a result of market expectations.

Despite the fluctuations, however, the value of bitcoins has only increased in recent years and many people who had bought or extracted them when they were worth a few dollars have become "rich" as a result of the constant growth of their price.

Supporters of cryptocurrencies instead argue that their continued growth in value is a sign that these currencies are destined to remain and to play an increasingly important role in our economies.

Besides the bitcoins there are countless new parallel projects, among which you could find some successful projects from here to a few years, I have collected for you some projects in which I believe if you are interested

Remember to learn how to avoid fraud in bitcoin

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A hug from Antonio