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Bitcoin and other cryptocurrencies

Bitcoin and other cryptocurrencies

What is Bitcoin - and how can you trade it?  Find out the answer with this in-depth explanation of cryptocurrencies.

Bitcoin and cryptocurrencies

You will learn from this article:

  1. What is Bitcoin and what can affect its value
  2. What is the blockchain technology behind digital currencies?
  3. What are alternatives to bitcoin, also known as "altcoins"

Initially, Bitcoin was considered a lottery ticket and now Bitcoin, along with other cryptocurrencies, has established itself as a recognized asset in trading wallets.

This "digital revolution" can be compared with the gold rush in the nineteenth century, especially as its value rose and global interest in it increased.

But what exactly are digital currencies? And how can individuals participate in this technological and financial boom without being IT specialists? And what should you know about these mysterious financial instruments?

  • You will find an answer to these questions in this article.

What is Bitcoin?

Bitcoin is a form of digital currency that is created and maintained electronically. Bitcoin is not printed unlike other traditional physical currencies such as the dollar and the euro. Instead, it is produced by people working on specific software to solve mathematical equations on computers worldwide.

  • One of the other essential differences between digital currencies and physical currencies is banks. Central banks have the primary task of issuing money and stabilizing their currencies, while there is no such thing as a Bitcoin bank.

This is because bitcoin can be considered a bank in its own right, it provides a separate settlement book containing information on the ownership status of all bitcoin users and the history of transactions between them, in addition to that there is a limited amount of bitcoin, which also limits the role of the institution overseeing it, and we will now take a look at how it works.

  • Central banks can print more money, while bitcoin has a limited number of currencies: by 2140 there will be 21 million bitcoins available for circulation, which is similar to gold as a finite resource.

In addition to this, the amount of Bitcoins traded as a reward for miners decreases in a predetermined way, every 210 thousand blocks (4 years) the reward for mining decreases by half. At first, it was 50 bitcoins, then 25 bitcoins, and at the moment (10.08.2017) the price was 12.5 bitcoins. At present, there are approximately 16.5 million bitcoins available for trading.

  • As a result, only 4.5 million Bitcoins remain to be mined, and the supply for circulation will decrease which is an important deflationary factor for this digital currency.

Blockchain technology - the basis of Bitcoin and other digital currencies

The way bitcoin is encrypted is a revolution in the field of information technology - "blockchain" technology.

This technology can be described as a tower of blocks, where the tower symbolizes the current state of cryptocurrency accounts (from the people who own them and the number of coins they have) as seen by all bitcoin users.

  • Each new block contains information on all new transactions that will change the state of the current account.

The new block must be encrypted and matched to match the tower and when this is achieved it will be attached to the tower as a result of this a new transaction will be completed and bitcoin will be transmitted in the system between users.

  • It is worth noting that if you try to remove or replace a block from the bottom of the tower the entire structure will be destroyed because each block in the tower contains the same information from the previous block they complement each other.

Replacing a block with other information (another encryption) may cause the previous block to not match and will therefore separate all subsequent blocks, so the information in this tower is considered incorrect. That is why blockchain technology can be considered an innovative technology in the field of security.

  • So who encrypts the following blocks to the tower How is this process going People who use crypto software are referred to as" miners", using advanced software to extract bitcoins?

The name of bitcoin mining comes as a result of the analogy of bitcoin with gold since the reward for miners, in the end, is the acquisition of bitcoin as in the case of gold. In this way, new bitcoins are mined and traded.

It is worth noting that the "mining process" is expensive and complex computers with a very high conversion capacity.

Bitcoin is a complex financial instrument and is a new chapter in the history of financial markets.

What factors can affect the value of bitcoin?

What will happen when bitcoins run out and no longer need to be mined And why do miners spend their computing power on maintenance and mining of coins Already at present some of the bonuses that miners receive to cover the transactions themselves, and in the future, it will be the total profit that miners receive.

  • But will these fees be enough for miners to cover the costs of mining and make enough profits for them?

The first problem and the most important factor is the cost of mining, which in turn depends on the following factors:

  1. The cost of energy and energy sources used in the mining process (electricity prices, renewable energy sources, etc.).
  2. Development of new computer technologies (reduction of current consumption).
  3. Growth of demand for computing power.

With the increasing popularity of digital currencies, the demand is also increasing for computing power, which may also increase the value of bitcoin, and as we pointed out there is a limited amount of Bitcoin, i.e., the supply is constant, so demand increases, the value of bitcoin rises accordingly.

There are also other factors to watch out for, such as increasing geopolitical tensions or traders losing confidence in traditional currencies, which may work to increase the value of bitcoin in return, and it should also be noted that digital currencies are a new and revolutionary product so the factors that affect prices may change over time.

Other digital currencies

Other digital currencies have grown in popularity significantly, as the success of bitcoin has led to the development of many alternative digital currencies, which are called alternative digital currencies "altcoins", where most of these alternative digital currencies offer their part in the Bitcoin protocol, and what helped the spread of these currencies also that they are still cheap and:

"Litecoin" - like most altcoins, it is based on the Bitcoin protocol but is designed to ensure that mining is much cheaper than bitcoin.

"Ethereum" - also called "bitcoin 2.0" is an alternative currency to bitcoin. It rose sharply when some problems occurred with bitcoin and when an update to its system was announced, which made payments through Ethereum easier and faster.

"Ripple" - is an open-source digital currency based on a "peer-to-peer" encryption system that offers the same features as Bitcoin but also has advanced capabilities, including instant transactions.

While bitcoin remains the most popular digital currency, alternative digital currencies such as Ethereum, Ripple, Litecoin, and others are still growing.

Digital currencies are a financial revolution that has many features and many changes to come.

  • ⚠️Important warning: Trading CFDs involves significant risks to your capital, and volatility increases the risk.

Question 01: Is bitcoin a good investment?

Reply: Bitcoin's high liquidity makes it a vast sea of investment if you're looking for short-term earn/profit.

Question 02: How do bitcoins work?

Reply: Bitcoin is essentially a file that is stored in-app on a smartphone or computer.

Question 03: How does bitcoin make money?

Reply: New Bitcoins are created as a part of the Bitcoin mining process, within which they're offered as a profitable reward to those who operate computer systems that facilitate validating transactions.

Question 04: How long does it take to mine 1 bitcoin?

Reply: It takes about 10 minutes to mine a single bitcoin by powerful/optimum hardware, so only a few individuals can afford it.

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