What is Bitcoin: risks and opportunities in your financial life

Knowing what Bitcoin is is mandatory if you want to stay on top of the current financial market .

After all, it’s all about this cryptocurrency and its impressive ups and downs.

Is it time to invest in Bitcoins? Or is it just another fad that will end in a cryptocurrency crisis?

Keep reading and understand what Bitcoin is once and for all.

What is Bitcoin?

It is simple to understand what Bitcoin (BTC) is: it is the world’s first cryptocurrency, created in 2008, the year in which the world was facing a major financial crisis, with a drastic drop in market confidence.

The first Bitcoin article was published in 2007 by a programmer (or group of programmers) using the pseudonym Satoshi Nakamoto.

The text described the news as follows:

“A P2P electronic money (peer-to-peer: a network for sharing data between users without a central server) that allows online payments made directly between people, without going through a financial institution.”

For the creators of Bitcoin, it was necessary to have an alternative to financial systems based solely on trust in banks and monetary authorities.

They wanted something more practical, safe and independent to make transactions online, without the intermediation of institutions and governments.

And so came the idea of ​​creating a decentralized virtual currency , which could be exchanged between people and was based on cryptography, instead of relying on the guarantee and regulation of institutions.

To make this idea viable, Satoshi Nakamoto presented an innovative technology called blockchain, which we will learn more about below.

For now, it is important to know that Bitcoin started the era of cryptocurrencies (crypto-based, decentralized digital currencies) and was created to be an alternative to traditional currencies.

How Bitcoin Works

To understand what Bitcoin is and how it works, you need to know what blockchain is .

Basically, it is a network that works as a public ledger of cryptocurrency trading, allowing the user community itself to validate transactions (transfers and creation of BTCs).

The term means “chain of blocks”, because transaction information is stored in “blocks” that connect to each other, forming a chain.

Each block contains a hash : an algorithm that transforms the information into a unique code, which allows authenticating that transaction — a kind of identity (ID) of the transaction.

Who connects these blocks are miners, who invest computational energy to validate and record transactions on the network — as a reward, they receive Bitcoins.

Information such as the amount of BTCs (or other currencies) transacted, who sent it, who received it, when this transaction was made and where in the book it is recorded is recorded.

Thus, the blockchain turns into a large record in chronological order of all cryptocurrency transfers and issues that took place on the network and were validated in mining.

This network is public, unique and shared among all participants in the system, and all its maintenance takes place in a decentralized and voluntary manner.

In this way, people can use their Bitcoins to make transfers, make purchases, pay bills, invest, save and everything that is done with a common currency.

Blockchain practical example

To make it even clearer, here’s how a Bitcoin transaction works:

  • One person wants to send a Bitcoin to another
  • Cryptocurrency is represented online as a block where information is recorded and encrypted.
  • The block is distributed over the network and each computer has a copy of the transaction in real time.
  • The network checks if the transaction is valid
  • If approved, the block is added to a chain of blocks and gains a permanent record on the network.
  • Bitcoin ownership is then transferred from one user to another

Remembering that all this movement is validated, but the identity of the users is not revealed.

Is Bitcoin safe?

This end-to-end encryption system that you just learned about makes Bitcoin a very safe asset.

As operations are gathered in blocks of encrypted information and copies are distributed simultaneously among thousands of computers around the world, it is virtually impossible to breach the blockchain.

No wonder it is called a “trust protocol” and is already used far beyond Bitcoin.

But what about all those news that appear about cryptocurrency thefts?

We are saying that the blockchain is secure, but outside the network there are numerous cyber threats.

What happens is that hackers break into digital wallets and cryptocurrency exchange accounts.

In 2020 alone, about US$ 3 billion in cryptocurrencies were stolen by hackers, according to an Atlas VPN study published on Tecnoblog .

Cybercriminals mainly use phishing techniques and malware to install malicious applications on victims’ computers and steal Bitcoins and other digital currencies.

Therefore, it is important to choose reliable exchanges (brokers specializing in cryptocurrencies) and invest in information security to protect these assets.