Bitcoins – How They Work

Bitcoins – How They Work

More and more investors outside of the computer scene are interested in investments in so-called “cryptocurrencies” such as Bitcoin. But what exactly does that actually mean? What happens there?

Bitcoin – A Currency That Isn’t One

First, a brief explanation of the term: The word “currency” in connection with bitcoins is actually not entirely correct, because behind it does not state institutions such as central banks, but officially unregulated, decentralized computer networks. However, like a currency, bitcoin can be exchanged for euros at the respective daily rate. Like many other currencies, it is freely convertible, but its final exchange rate is still unclear and the exchange rate is very unstable. Bitcoin is limited to 21 million units and is therefore finite. This artificial shortage counteracts the risk of inflation in the long term and allows a certain analogy to trade in gold and other precious metals, whose pricing is also dependent on fluctuating daily rates.

Without Coins Or Bills: The Digital Equivalent Of Cash

The Bitcoin payment system was initiated as an attempt to create a digital equivalent to cash in 2007. The initiator was a person or group who appeared under the pseudonym Satoshi Nakamoto at the time. There is no real value behind Bitcoin. There are no coins and bills, but digital units of account. Satoshi is the smallest digital unit of the cryptocurrency Bitcoin. The satoshi to bitcoin ratio is 100 million satoshis to one bitcoin. In terms of how Bitcoin works, it can be compared to cashless payment systems such as PayPal or credit cards: customers first have to buy Bitcoins in order to pay on the Internet. You can then use it to pay in real-time from a digital wallet on the web. However, the transactions are subject.

Encrypted And Organized Decentrally

In contrast to the classic banking system, Bitcoins work anonymously with regard to the owners of the credit balances on the basis of a decentralized booking system with a digital signature via a network of equal computers. This system, the so-called blockchain, works like a digital ledger that publicly records all transactions made.

The software collects the transfer data, combines them into blocks, and links them together like a chain. Hence the term blockchain. With Bitcoin, the necessary computing capacity is provided by decentralized so-called “miners” who operate decentralized server farms. The “Bitcoin miners” are rewarded for this in the digital currency.

How Bitcoin Works | HowStuffWorks

Data Security And Anonymosity

The system offers a high level of data security because each user maintains a copy of the database. So it is not possible to manipulate them unnoticed. All information is stored in a tamper-proof and encrypted form. Since users only have to provide an identifier and not their personal data, all user-related transactions are anonymous.

A bank, which acts as a control and steering authority, ensuring that money ends up in the right account, is not necessary with this form of payment transactions. Bitcoins are stored in personal storage platforms, the “digital wallets”. This “digital wallet” can be on the Internet, on your own computer or on external storage media.

Investing In Bitcoin Carries Risks

Anyone who was one of the first Bitcoin buyers and has not sold until today is a rich person today. In 2010, the rate for a bitcoin was 0.08 cents. In January 2021, one bitcoin was worth between $30,000 – $40,000. In February 2021, Tesla founder Elon Musk invested over $1.5 billion in Bitcoin, which fueled the price again.

Despite everything, investing in Bitcoin and Co. is risky, since the price is always subject to extreme fluctuations and thus a high risk of loss. Bitcoin and meme coins can be purchased on crypto exchanges such as Coinbase, Binance, or eToro, and hokk finance, where you can exchange it for euros or dollars. A purchase via digital marketplaces such as is also possible.

The Official Currency In El Salvador

Bitcoin has been the official means of payment in El Salvador since September 7, 2021. Over 200 bitcoin ATMs have been deployed in El Salvador following the passage of a law to speed up bitcoin adoption. There, Salvadorans should be able to exchange Bitcoin for cash and vice versa.


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