How does Bitcoin work?
You have certainly heard of bitcoin, often associated with terms such as crypto, blockchain, mining… and Elon Musk. Below, we’ll help you understand this soup of terms, including why Tesla’s CEO is among them.
A Bitcoin is basically a currency, a type of money really, that can be used for transactions, buying, and selling over the internet. The currency circulates exclusively in digital form and is decentralized, i.e. it does not exist in physical form and is not controlled by any country, government, or central bank.
Created in 2009 by one or more programmers known only by the pseudonym Satoshi Nakamoto, bitcoin had the objective of uncomplicating negotiations on the internet. And this is exactly how they happen. Directly between the two parties involved, without the need for third-party intermediation, such as banks, for example.
But then it must be a messy and insecure system, right? Wrong. Bitcoin circulates through an extremely safe and secure network, which we will now explain how it works.
How does Bitcoin work?
A bitcoin (or a part of it) is represented by a complex code that no one can change. So when someone buys a bitcoin, it is this code that the person is buying.
Currency trading takes place via the Blockchain, a secure network that works with cryptography. Hence the term cryptocurrency, or cryptoactive. Cryptography is a way of scrambling information so that only those who have a specific key can decipher the content. In other words, only those who bought and those who sold can have access.
In the Blockchain, all transactions that have already taken place are stored, and future negotiations are controlled, protecting the system from fraud. The registration and validation of these negotiations are done by people using specific, super-powerful computers to check that everything is right with both parties in the negotiation. The reward for this mediation is nothing more and nothing less than bitcoin units.
But not everyone earns the reward. Bitcoin has limited units: there are up to 21 million coins, released bit by bit.
So let’s think of a transaction as if it were a precious metal, protected by a gigantic mathematical equation: Only the first one who manages, through millions of calculations, to solve this equation, is rewarded with bitcoins. This process is therefore called mining.
Mining bitcoins may sound interesting, but it requires high investment and a lot of time since mining-specific computers are expensive. This is just one of the ways to have bitcoin as part of your investments. There are also other products and other cryptocurrencies on the market.
Elon Musk and bitcoin – what can you use bitcoin for?
Today, you can use bitcoins to make payments on the internet, exchange for traditional currencies at specific exchange houses (exchanges), or even pay for some services. From tattoo parlors to real estate developments, the number of establishments accepting bitcoins as a means of payment is slowly growing.
But the highlight came from an announcement by entrepreneur Elon Musk on Twitter, which said that “Now you can buy a Tesla with bitcoin.” This and other posts by the CEO of the car company were responsible for a boom in the market.
How to invest in bitcoin?
In addition to mining or buying bitcoin at a specialized house, you can invest in the currency through funds and ETFs.
Cryptocurrency Investment Funds
To diversify the portfolio, some funds invest in more than one cryptocurrency. The best known are Ethereum, Tether, Litecoin, Bitcoin Cash, and Bitcoin SV.
It is important to point out that bitcoin investments have medium to high volatility, making them ideal for investors who have a greater acceptance of risk.
Another way to invest is buying, directly in the home broker, an ETF (Exchange Traded Fund), a stock fund that seeks to reach or exceed the performance of stock market indexes, in this case, a crypto-active index.
And if you are wondering whether it is still worth investing in, take a look at this video we prepared to clear up your doubts.