Bitcoin is a currency: just like the dollar, the euro, the yen or any other local currency you can think of. Their uses are exactly the same. What makes a big difference with the so-called fiat currencies (those issued and backed by a central bank) is that it does not exist physically. In the case of the euro, the Central Bank can intervene to affect the price through massive issues of money or through interest rates. This is not possible with bitcoin.
It is a digital currency that only exists in the chain of blocks or blockchain that supports it, and due to a sophisticated process of verification (consensus) of transactions, it can not be spent twice. Each bitcoin - or portion of it - is unique, as each transaction is publicly registered (albeit without personal data) in a large digital "book" of accounting, elaborated with complex cryptographic structures, called blockchain or chain blocks. Therefore bitcoin is called 'crypto currency' and is only the first of its kind.
Users can manage their funds with digital wallets that have both a public key (equivalent to a bank account number) and a private key (equivalent to the bank account password). With both, it is possible to carry out financial transactions from anywhere in the world and at all times. In the same way as any other currency, it is possible to exchange it for local money, for which there are exchange houses or platforms like LocalBitcoins, which work all over the world.
Bitcoin, as a digital system, has a very important value, since it is the first existing blockchain. Distributed accounting technology is an encrypted database where any information can be stored, from every bitcoin spent, to computer programs such as smart contracts. Its value lies in the fact that each piece of information registered - and protected with a powerful cryptographic system - is marked with a unique fingerprint that makes it unique and immutable; so, beyond Bitcoin, this technology is in development in multiple applications, by hundreds of very important companies around the globe.
HOW DOES BITCOIN WORK?
For the average user, the operation of Bitcoin is very simple. Bitcoins are managed in a digital wallet, which is a mobile or desktop application that can be downloaded at no cost, and from there, transactions are usually made free of charge; although the procedure is usually streamlined by paying a small commission. It may vary depending on the network congestion, the size of the transaction and the urgency of the user. The most common is to wait about 10 minutes to receive between 3 and 6 confirmations that validate the transaction.
The record of the amount of bitcoins that an address has - an alphanumeric string that equals a bank account number - plus all transactions made with its date and time, can be publicly viewed in a blockchain browser.
It is important to clarify that, against the urban myth, Bitcoin is not really anonymous. While no personal data is required, and therefore at first glance, it can not be known who the purse belongs to - in the case of the Internet Archive, it can be seen, as they decided, but in other cases no name appears - it is possible to trace the addresses to their owners if they have not taken any precautions to hide. For this reason, several proposals have been made to increase their privacy or, beyond that, other crypto currencies focused on this characteristic have been created, such as Monero and Zcash .
On the other hand, we can also explain how Bitcoin and its blockchain works with one of the analogies of the Sideways Dictionary :
It's like a glass ticket office. Everyone has their own glass ticket office with a coin slot on top. If you want to give Bob money, he tells you that his locker number is 1456. You put on a balaclava, go into the locker room, take the coins out of your locker and put them in the slot on top of Bob's closet. Everyone can see that the transaction takes place, but you are wearing a mask so that no one knows who you are.
BLOCK CHAIN
The block chain is the technology that is behind the bitcoin and that acts at the same time as a database and backup of the system. In a traditional financial system, any transaction is entrusted to a third person (bank, credit card ...), which is what gives validity to the process. With block technology, the users themselves are the ones who do it.
The blockchain is like a great book of digital events (transactions in the case of Bitcoin), shared and distributed among many people. It can only be updated based on the consensus of the majority of users and, once it is updated, the information can not be deleted.
In this sense, each block chain that is added contains verifiable information of all the transactions that have been made in the bitcoin history.
Bitcoin Security
Bitcoin as a means of payment is completely safe, since to make any transaction you need the authorization of the majority of users. The security of bitcoin is also based on the fact that in order to access your bitcoins, you will need to provide your private key. Without that key, nobody will be able to access your bitcoins.
COMPARISON WITH OTHER PAYMENT METHODS
To be able to compare it against other currencies and methods of payment, we must take into account certain characteristics that these two concepts present or should present to be ideal:
Transferable and portable : It is possible to send it, receive it and easily load it to acquire goods and services. In some cases, it is even possible to send it to the other side of the world in just a few seconds.
Possibility of making large transactions: It is possible to transfer large amounts to another person or entity easily and quickly.
Possibility of making micropayments : It is possible to transfer minimum amounts - such as tips - to another person or entity, easily and quickly.
Protected against inflation : It has an established supply, that is, it is not unlimited because you can not produce as many as you wish. In this way, inflation will not be a problem, because the less they have, the demand will increase and therefore the price.
International transactions : Can be used to send funds easily, quickly and effectively around the globe.
Decentralized : It is not controlled by a central entity - such as the government or a bank - and therefore it is not possible to freeze, lose or devalue funds according to the criterion or capacity of that entity.
Private transactions : The identity is not directly linked to the account where the funds are deposited.
Secure : It has strong resistance to theft and loss.
Scalable : Can support thousands or millions of transactions per second and continue to grow as the need arises.
Divisible: It is easily divisible into many smaller parts.
Durable: Does not disappear or is damaged as little as possible over time.
Fungible : It is interchangeable for goods, services or other currencies in a proportion of equal value.
Comparative table of Bitcoin with other currencies and methods of payment
Unlike the others, PayPal is not a currency, but only a payment method. Other currencies are used through its platform, such as the dollar. It is also not divisible or fungible.
Gold is only relatively portable and transferable in its original form. Only using paper money redeemable by metal becomes really portable. And even then, paper money is not as manageable as other methods.
International transfers in fiat money are possible, but include cumbersome paperwork, high costs and valuable time.
Bitcoin is pseudo-anonymous, because only the public address, which is not linked to any personal document, can be seen at a glance.
There is no currency or method of payment that is 100% secure. There is always the possibility of theft or loss, both physically and digitally. However, as the bitcoins are inside the blockchain and if the user safeguards his private key, it can be said that the possibility of theft or loss is quite low, unlike other currencies.
HOW TO GET BITCONS
What do you have to do to get a bitcoin? Basically there are three ways to get one of these crypto currencies: mine bitcoins, buy bitcoins through a platform, and sell something and get paid in bitcoins.
Of the three formulas to get bitcoins, the first two are the most used unless you have an online store and also accept payment with virtual currency.
Minar Bitcoins
Mining is the primary way to achieve bitcoins. The work of mining involves using powerful computer equipment to solve mathematical problems, while acting as guardians of the security of the currency.
To understand it better: remember that bitcoin is an encrypted code, associated with a bitcoin address, that is stored in a bitcoin wallet, that belongs to a natural person. These bitcoins can be sent to other people, used to pay, exchanged for another crypto currency or charge. Any transaction will not be valid for any additional amount that the Bitcoin P2P network approves, which is composed of other users and miners.
Each transaction is grouped into a block that must be sealed. This process requires complex mathematical calculations, and therefore, needs a lot of computing power to be carried out. That's where the miners come in. As a reward for lending their equipment for this task, the Bitcoin network releases blocks with new bitcoin for which the miners compete.
The reward for the miners, in principle, was 50 BTC per block mined, and the processing power required was much less demanding, so that bitcoins could be mined with just one computer. However, Bitcoin, unlike fiat currencies, was designed to emit only 21 million units in its entire history, so the amount of coins to be minted will decrease over time in a programmed manner, until reaching zero, to avoid inflation. This programmed reduction is called "halving", an event that occurs every 210,000 blocks mined (approximately every four years) and consists of halving the reward for mining. The first halving occurred in 2012, reducing it to 25 BTC; and the second occurred in July 2016, so now miners can only get 12.5 BTC per block mined. In the long run, the reward for creating new blocks - something vital for the network to keep working - will come only from the transaction fees paid by users, around 1 BTC per block.
The difficulty of mining varies according to the number of miners that are joining the network, and each 2,016 blocks is adjusted by increasing or decreasing. However, given that in recent years more miners have joined, solving the mathematical problems that arise requires more and more processing power: while at the beginning with a computer was enough to mine, specialized hardware is now required. It consumes a lot of energy to overcome the so-called Work Test (PoW) where billions of calculations are made per second to try to find the answer that the new block will create. And that's how the bitcoins are born, distributed and maintained.
How to mine bitcoins
To mine bitcoins on your own you need a powerful team specialized in this task. The reason is that with the increase in competition, domestic equipment does not have enough power to make the task profitable.
Today, the best equipment is specialized and incorporates ASIC circuits. Its price ranges from 1,300 euros to more than 2,000. The houses that make them include the Chinese Canaan, Bitmain, BitFury or Spondoolies Tech.
In the last few months, an alternative formula of mining bitcoins has materialized without the need for a personal computer. It is about mining in the cloud, with which a mining contract is rented with a certain power of mining (ability to solve those algorithms of which we spoke). Instead of having the equipment at home or in a warehouse, you pay a specialized company, which does the work and then shares the profits with you. Of course, keep in mind that the majority will reserve the right to keep everything obtained if they understand that the price of bitcoin at that time does not cover their expenses or does not leave enough margin.
How long does it takes to mine a bitcoin?
The time it takes to mine a bitcoin will depend mainly on the processing power or mining power . The larger it is, the less time it takes. Nowadays the machines already include approximate statistics of the time that can take and the possibilities of successes.
What you have to keep in mind is that as more people dedicate themselves to mining and the more competition there is, it will be more difficult to mine and more power will be necessary. In the same way, there is less and less bitcoin (remember that a maximum of 21 million will be issued) and that is why the network makes it increasingly difficult to mine them.
How much is earned by mining bitcoins?
This is the million dollar question. Is it profitable to mine bitcoin? Can you really live on it and make a fortune? As you just saw, making money by mining is not that easy. There are several factors that influence, starting with the power of processing you have.
In any case, the profitability of mining bitcoins is directly related to the price of bitcoin. In other words, the more expensive the currency, the greater the profitability and vice versa. In this sense, if the difficulty to mine continues to increase because more and more people enter the business and do so with more powerful equipment (what is called mining potential); the result is that you will continuously have to invest more resources to make money mining bitcoins .
How to buy bitcoins
To buy bitcoins, just go to one of the bitcoin trading platforms. Those who already invest in the stock market will find their performance similar, although somewhat different from that of a typical broker.
These platforms are called bitcoin wallets and it is where virtual currencies are stored. There are different types of bitcoin portfolios depending on issues such as security and usability.
The first ones are bitcoin wallets for PC, which you can download as a program for your computer. The second ones are the online purses of virtual currencies, which can be for mobile or computers, it is indifferent. The seconds are the safest and are the hardware purses. In other words, a physical device that will store the virtual codes of your crypto currencies.
As a user, you can use one or several virtual wallets that will have their backup passwords and their encryption system. In this sense, it is customary for online wallets to request double confirmation of keys via SMS.
Getting a purse
There are several options regarding purses, and the most important characteristics in which they differ are their safety and functionality. The most appropriate option for each user is the one that can offer the necessary level of protection, but, at the same time, occupy only the resources that are available . However, it is important to note that bitcoins, really, are not stored in your wallets, but in the blockchain that is backed by thousands of nodes. The purse is just a program that allows the owner of the funds to manage them much more easily.
We can say that a portfolio is 'hot' or 'cold', depending on whether it is connected to the Internet or not. Of course, cold (hardware) portfolios are the safest. In addition, we can divide the Bitcoin wallets into 5 types:
Bitcoin clients : These are the original Bitcoin portfolios, for which the entire blockchain must be downloaded to the computer. Therefore, its resource requirement is quite heavy, although in return reliability, privacy and decentralization increase. We can also call them complete nodes. The rest of the purses are simple nodes (SPV).
In the complete nodes, the entire blockchain is downloaded and validated. They are the ones used by the miners, so they are part of the main network and maintain it. The most popular of them is Bitcoin Core. Simple nodes, on the other hand, can verify if a transaction was made without downloading the entire chain of blocks, and although they also help maintain the network, they only do so following the full nodes.
Mobile wallets: These are lightweight applications, designed for smartphones and tablets, usually for iOS or Android systems. They are easy to install and manage, and require few resources on the device. The fundamental options they offer - their functionalities vary - is the generation of public keys, the protection of the private key within the software, the support for their recovery and, of course, sending and receiving funds.
Desktop portfolios: Programs that can be downloaded to any desktop or laptop PC, usually for Windows, Linux and MacOS systems. Their basic options are the same as in a mobile, plus certain additional features depending on the provider and, like mobiles, are considered hot wallets.
Hardware portfolios : They are small devices, like a pendrive, specially designed to store bitcoins securely, offline at all times (cold purses) and eliminating the risk of viruses that the applications might have. They are the only ones that are not free.
Online portfolios : They are a service provided by a third party, where, unlike the others, centralization is present, that is, there is a company responsible for the validation of funds, private keys or both. It offers the advantages of being able to use bitcoins from any device and have automatic backups, since it is very common to lose the private key and to lose access.
Beyond these five types, we can mention two additional functions:
Paper wallets: They are called like that, but they are not really wallets and may not be paper. It is simply a matter of annotating - or recording - the public and private keys in a physical medium, which can be both a designed paper that also includes a QR code - a service already offered by Bitaddress, for example - as a metal plate on which has been recorded. You can receive bitcoins unlimited, but to spend them it is necessary to resort to any of the alternatives that we mentioned.
Multiform function : In general, the purses include this function whereby, if this is configured, several people are necessary to carry out transactions, such as in a joint bank account. All or at least several of those involved must sign to release the funds.
BUY AND SELL (BITCOIN TRADE)
Currently there are four very well defined and established ways to buy and sell bitcoins and crypto currencies, which will surely increase in the near future as the adoption of bitcoin becomes even more popular. The current means to buy and sell bitcoin are: Exchange houses, Between people, ATMs and Physical stores or kiosks.
Exchange houses: The most popular way to buy and sell bitcoins today is through exchange houses, which are online companies specializing in the purchase and sale of crypto currencies. In these you can acquire several of the most important crypto currencies at the exchange rates set by the market. The sale of bitcoin in these can be done with or by other crypto currencies or fiduciary money (USD, EUR, JPY, among others) at the customer's pleasure.
To buy and sell bitcoins through exchange houses, the user must register on the website of the house of their preference and enter the data that the platform requires to start operating. These data can range from full name, email and residence address, to telephone number, passport and bank statements.
Exchange bureaus charge a commission for a purchase or sale transaction and another for transfer of funds to the customer's bank account, in case of sale of bitcoin for fiduciary money. As the commissions vary between exchange houses, the user must carry out his study to minimize these costs, but looking for an adequate level of security in the chosen option.
Individuals (P2P): This second form of purchase is possible thanks to the decentralization provided by the network, which allows the interested party to buy and sell bitcoins directly to people close to them, or simply acquaintances of the Internet with whom they have decided to reach an agreement of monetary exchange. For the sale of bitcoins directly between people, whether they are known or not, the interested parties should only have their respective bitcoin wallets and bank accounts, in case of exchange for fiduciary money.
The delay of the bank transfer for the availability of the fiduciary money, which may be days, and the need for several confirmations of the transaction in the network , to ensure the availability of the crypto currency in the Bitcoin wallet, which takes several minutes, originate the risk of fraud . Fraud occurs because one of the parties fails to fulfill its commitment, either because it does not send the bank transfer or cancels it after notifying it to its counterparty or because it incurs a double expense of the crypto currency object of the exchange.
The best way to reduce this risk is for the sale transaction to be carried out by the parties as simultaneously as possible and the transfer of funds is made between accounts of the same bank, to reduce the time of availability of funds to minutes or less. Hence, in this type of exchange, trust plays a fundamental role. Therefore, you must be very careful when buying or selling bitcoins between people directly.
Some ways to mitigate this risk are:
Agree on a meeting in person, if possible.
Use an intermediary, be it a person of trust between both interested parties or a guarantee service, commonly known as " escrow ". Intermediaries can charge a commission for arbitration in the exchange of money.
ATMs: Several companies in several countries have installed ATMs or ATMs for the sale of bitcoins , sometimes also known as BTMs. Depending on the capabilities of the ATM, you can buy crypto currencies for cash (the most common) or also sell bitcoins through it.
To use a bitcoin ATM, the user must have a portfolio of crypto currencies in any device with easy mobility. If the transaction is a purchase of bitcoins, the user must select this operation in the ATM, present the QR code of his wallet to the reader of the ATM, enter the money he wants to use in the purchase, verify the amount of bitcoins he will receive in exchange and accept the purchase.
If what the user wants is to sell bitcoins, he must select this operation in the ATM, enter the amount in fiduciary currency he wants to obtain and accept the sale. This operation will generate a paper portfolio with a QR code to which the user must send the crypto currencies (within the time established to maintain the same exchange rate). Once two or more confirmations have been given in the network, the user must select the option to "redeem" in the cashier, present the QR code of the paper wallet to the reader of the ATM or introduce some code that appears on the paper willing to withdraw the money (as the case may be) confirm the withdrawal and take your money in cash.
Some crypto currency machines ask for identification documents to carry out transactions. On the other hand, bitcoin ATM operators charge a fixed percentage of the amount of the transaction made (commonly between 0% and 7.5%).
Physical stores or kiosks: There are thousands of physical stores or kiosks around the world that allow you to buy bitcoins with cash or debit cards. These kiosks often require the user to fill in a form with personal and purchase information, before sending them the bitcoins or delivering a paper, voucher or redeemable gift card.
Like the ATM operators, the kiosks charge a fixed percentage of the amount of the transaction made (commonly between 5% and 16%).
SEND AND RECEIVE BITCOINS
Already with an electronic wallet, bitcoins can begin to be received. To do this, only the option to receive is chosen, and then a random alphanumeric address of 33 characters long - the public key - that can be accompanied by a QR code is generated. Any of the two data can be given to the person who is going to send the bitcoins or enter them in another purse or exchange house to be able to receive what has been purchased.
Once funds are available, we can send them to any address they give us just by choosing the option to send. There you enter the address that will receive the funds, the amount, and you can even modify the amount of the commission for the miners. The higher it is, the more priority will be given to the transaction to be included in the chain of blocks as soon as possible. Also, instead of entering the address, the QR code can be scanned with the camera of the device.
Regarding the sending and receiving to make purchases in shops, there is the possibility of facilitating the process of exchanging bitcoins for sellers through the use of payment processors. The payment processors integrate the bitcoin portfolios with the benefits of the exchange houses, which makes possible the instant exchange of bitcoins received to any currency that the platform supports. In addition, they issue invoices of the sale made.
TRUST MANAGEMENT FOR DIGITAL ASSETS
Trust management of assets is something that exits in a variety of industries, and has been in high demand for a very long time. Here, investors are willing to entrust their assets to successful and proficient traders in order to generate reasonable income. The same thing exists in the cryptocurrency market, and in recent years, it has been attracting more and more investors and traders. By transferring their assets to experienced traders, investors retain the possibility of obtaining exceedingly-high income in the crypto-currency market, while also minimizing the risks of significant loss, which is common to the inexperienced ones.
Unfortunately, the lack of convenient and safe tools on the market for the conclusion of contracts, has left it open to fraudulent activities; one of which is the disappearance of traders with funds belonging to investors.
Consequently, this has led to the rise of various platforms, offering digital asset management services. A big player and one of the most reliable in this service is Membrana Platform. Membrana effectively does the job of directly connecting investors and traders to conclude mutually beneficial, secure, and reliable contracts.Membrana provides investors and traders with a transparent, decentralized and secure system, which controls the process of concluding and executing a contract up to the point of revenue gained by both parties.
HOW MEMBRANA HELPS BUILD TRUST BETWEEN TRADERS AND INVESTORS
Safe Transfer of Funds in Trust Management : For the purpose of transfer of an investor’s exchange account to a trader in trust management, an API key provided by the exchange is used. The API key is not transferred to the trader, but stored on Membrana’s platform in a secure database. The trader trades on an exchange via the Membrana single trading terminal. Consequently, the trader does not have access to the investor’s assets. All investors’ funds remain on their exchange account, and are not transferred to the trader. Membrana also maintains the restrictions set at the contracting stage: stop loss, time period for trading by the API key, etc.
Contract Between Investors and Traders : To conclude the transaction between investors and traders an Ethereum Smart Contract is used. Traders’ consideration is reserved in a Smart Contract, in advance, and it is automatically paid upon reaching the target profit set in a percent of the amount transferred in trust management, or upon expiration of the Smart Contract term.
Confirmation of Past Trader’s Profitability Using Block chain : All contracts concluded by traders via the Membrana platform will be saved to the database. This information is further used to calculate traders’ success using indicators, such as ROI, rating, etc. These indicators will be provided to investors, giving them agreater ability to select suitable traders.
The Membrana platform uses blockchain to validate traders’ details. To do this, the hash sum of traders’ transactions for the day is saved in the blockchain Ethereum Smart Contract. The block, where the hash sum is saved, is dated and cannot be counterfeited; therefore, the validity of all data on traders’ transactions of exchange is confirmed by their hash sum in the blockchain—in the block dated with the respective date of transaction. Thus, it is impossible to save only profitable transactions in the database and their hash sum externally as far as at the moment of saving, because it is not known which transactions are profitable.
Distribution of investor’s assets among several independent traders : The Membrana platform allows the investor to transfer, to trader, only part of his funds in the exchange account, as is stated in the contract terms. The remaining funds remain under the investor’s full control and can be used for independent trading, transfer of these funds to another trader, or withdrawal from an exchange account.
Trade in crypto-currencies is actually carried out from one exchange account by different traders or by the investor himself. In spite of this, the Membrana platform provides isolated and independent trading within the amounts transferred to trust management for each trader and the investor himself.
At the time of the conclusion of the contract, the investor determines the amount transferred from trust management in the accounting currency to be used.
INVESTING IN BITCON
The benefits of investing in Bitcoin or other crypto currencies are evident. The first is the huge profitability you can get, provided you bet or bet at the right time. As with any other asset, and more after becoming a trend, the timing of the bitcoin investment is critical.
From there, it's all a matter of whether or not you believe in your future as an alternative to traditional currencies or fiat currencies. If you are confident that this type of system and the blockchain in general will end up having a gap, the long-term investment will be interesting.
However, there is one thing you should be clear about when investing in bitcoin : it is a very volatile asset. It is normal to see large swings in the price of bitcoin within a single day.
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