11 questions about bitcoin virtual currency help you understand it

What is Bitcoin? How to earn Bitcoin? What can Bitcoin be used for? And many other questions you will need to know if you are planning to invest in this "hot" currency.

If you do not know, in early 2011, this virtual currency only cost less than 1 USD. Therefore, this sudden price increase has led many people to wonder whether to pay attention to this technology or not. Coinbase - a popular USD exchange and Bitcoin service - recently announced there are 13 million users, so it can be seen that almost everyone interested in finance and technology has more or less known about Bitcoin. However, there are still many other "blind" about this virtual currency.

The following article from ArsTechnica will be a small manual for those who intend to set foot in the Bitcoin market.

first.

Bitcoin actually has two different meanings. Bitcoin with capital letter B refers to a payment network, for example MasterCard is a payment network. Bitcoin with the usual letter b refers to the currency of the Bitcoin payment network, for example MasterCard uses USD in the US.

What makes Bitcoin different from MasterCard, PayPal and other payment networks at the time of its birth in 2008 is that Bitcoin is the world's first decentralized payment network. It may sound confusing, but quite simple: the MasterCard network is operated by MasterCard Inc., and for Bitcoin, no corporation runs. Bitcoin is a peer-to-peer network that manages a "ledger" that details all transactions, also known as blockchain.

Creating a new currency is an inevitable consequence when the Bitcoin network operates in the form of decentralization. In a traditional payment network, the network owner promises to return the balance to traditional currencies such as USD or Euro. But there is no "Bitcoin company" , so there is no one to ensure that the Bitcoin balance will have any value. Bitcoin surpasses traditional currencies, with value determined by supply and demand.

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Bitcoin is the world's first payment network with decentralized nature.

Of course, there is no real "bitcoin" in real life (like the image above). Bitcoin is just the lines of code in a Bitcoin blockchain. If you own a few bitcoin, you have some encryption keys stored on your computer, external hard disk, or printed on paper. These encryption keys will allow you to use bitcoin balances similar to those you use on a bank's website to use the money in your account. The difference is that you cannot withdraw bitcoins from the network like withdrawing money from banks.

2. Bitcoin better than cash?

Bitcoin deals fast, safe and highly secure. International money transfer costs are low, limited to 21 million coins. Protected against inflation. Nobody can control and print Bitcoin like cash.

3. Is Bitcoin safe?

Bitcoin builds maximum security, uses Blockchain technology to verify transactions. Works as a global ledger, distributed to all users. This manual syncs across the network, every version of the ledger must be the same to verify a transaction. This makes fraudulent or duplicate transactions impossible.

If a hacking system happens, a person will have to own 51% of the network. There are 1000 independent miners running buttons, making it impossible to hack.

But you also need to install security software for yourself.

4. How much is Bitcoin worth?

The value of Bitcoin is based on economic law: Supply and demand. Unlike gold, with Bitcoin we know exactly the amount provided. As the demand for Bitcoin increases, the value of Bitcoin will increase.

5. If bitcoin is not linked to any traditional currency, how is it worth it?

When created in 2009, copper coins are extremely low value. The world's first real Bitcoin transaction took place in May 2010, when a Bitcoin user paid another 10,000 bitcoin users to buy 2 pizza. At the time, bitcoin was worth less than a cent.

But as the Bitcoin community grew, the value of bitcoin also increased. In April 2011, it cost $ 1, and this is the starting point of the first Bitcoin bubble. Media focused around Bitcoin has attracted many new users, causing the price of this currency to rise rapidly. Conversely, this price increase continues to attract more media. By June 2011, bitcoin was priced at more than 30 USD, then quickly dropped to only 2 USD at the end of 2011.

This loop took place twice in 2013. In May 2013, the price of bitcoin surged to more than 250 USD and dropped to about 80%. Then, at the end of 2013, the price of bitcoin increased sharply to more than USD 1,000 and then dropped to about 80% again. The current price boom, which has pulled this currency from $ 200 in early 2015 to more than $ 11,000 recently, is the fourth price boom of Bitcoin.

Each price boom - as with most bubbles throughout history - has its origins in public price loops. Specifically, during each price increase, there are many events that the media will pay attention to and make news more interested in this currency, of which many people will decide to buy bitcoin. Many people who buy bitcoins will push their prices even higher, and attract more media and public attention.

This process has done something that most people think is impossible in the last decade: a currency that is really valuable but not backed by a commodity, like gold or silver, or by a powerful organization like government or bank. The price of bitcoin increases because more and more people believe that its value will continue to increase over time. The question here is whether they think right or not.

6. Why do I want to use Bitcoin?

If you are a regular consumer, you probably won't want to use Bitcoin. Despite trying for many years, Bitcoin startups have not been able to build payment applications that ordinary consumers feel helpful.

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A Bitcoin ATM tree in New Mexico, USA.

One of the most frequently discussed applications about Bitcoin networks is international money transfer. Traditional financial networks such as Western Union and Moneygram are too expensive and take a long time to complete the transfer. In theory, the Bitcoin money transfer system will be much cheaper and faster.

But in fact, Bitcoin is still struggling to attract attention as a platform for remittances. There are many causes, of which the biggest reason is the money transfer fees of Bitcoin ATMs - which allow users to convert cash to bitcoin and vice versa. The average transaction fee for an existing Bitcoin ATM is about 9% if you buy bitcoin, and 6% if you sell bitcoin. It means that to transfer money abroad to a friend or family through, it is likely that you will have to pay transaction fees up to 15%, not to mention the transaction fee inside the Bitcoin network about 5 USD more!

There are many companies looking to improve the international payment experience with Bitcoin, especially Asian companies. Maybe they will find a way to make these payments fast, convenient and cheaper, but at the present time, they still have not reached the required progress.

Bitcoin also has a bad reputation because of illegal transactions. Many "black" websites that operate on the Tor platform (anonymous browsing) have appeared, acting as eBay online markets but for banned goods. These websites are based on Bitcoin because if using accounts on traditional credit card networks, the possibility of being knocked down is very high. Nobody has the ability to prevent others from using Bitcoin!

In addition, Bitcoin is also quite popular in some countries like Argentina and Venezuela, where there are unstable traditional currencies, or there are chaotic financial systems.

However, as mentioned above, if you are a normal person in the United States or rich countries in Europe, you do not want to buy banned drugs or speculation in the future of Bitcoin, then obviously Bitcoin is not for you. , or not yet.

7. If Bitcoin has a low practical application, how does it have a market capitalization of nearly $ 200 billion?

It is possible that this may be due to illusory Bitcoin speculators and that bitcoin prices will sooner or later plunge. However there are still some other possibilities.

First , it is possible that the Bitcoin economy is still in its early stages. The Internet took 25 years to develop from an experimental technology - ARPANET in 1969 - to become a global phenomenon - Netscape in 1994. Bitcoin is still a relatively young technology, with a time of only eight years. Bitcoin will become an important component of the global financial system, as long as we give it another 5, 10 or 20 years to be able to find ways to apply this technology effectively.

Secondly , Bitcoin will have important applications, but not for ordinary consumers. For example, the Bitcoin network collects the same transaction fee for every transaction, whether you transfer $ 10 or $ 10 million, so it can become a standardized way to transfer large amounts of money abroad. for international trade or investment purposes. Large companies are quite conservative, so it will take years to build the necessary infrastructures capable of supporting such types of transactions, and many more years to convince them to use them.

Another possibility : Bitcoin is becoming a reserve currency for a wider virtual money economy, like the dollar is the default currency for international transactions. Bitcoin has deeper markets and much more sophisticated currency conversion services than other virtual currencies. So when people want to buy a lesser known virtual currency, they first have to use the USD to buy bitcoin first, then use bitcoin to buy other currencies like dash or litecoin. As this virtual money economy grows stronger, it will push the price of bitcoin even higher.

Final ability : Bitcoin will become a valuable reserve like gold. Gold has practical value in many industries and jewelries, but most of the world's gold is preserved in warehouses and under underground tunnels as a long-term reserve solution. People like to keep gold because gold is compact, easy to store, and exists outside the traditional financial system.

Bitcoin also has the same advantages. You can store bitcoin numbers worth millions of dollars in a compact hard drive, or even on a piece of paper. As long as the encryption key is well secured, bitcoin will not be exploited by any government. Bitcoin also has a great advantage that gold does not have as it can be transferred around the world in a computerized manner.

8. Convinced me. Now how do I buy bitcoin?

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Investing in bitcoin is extremely risky.

Before answering this question, we need to emphasize that investing in bitcoin is extremely risky . Bitcoin used to have a 80% decrease in value in just a few days. And even though bitcoin has recovered after many devaluations, even higher than before, there is no guarantee it will recover from the next decline. Therefore, do not invest money if you cannot afford to fail.

Now go to the main question: buy bitcoins quite easily. You need to go to an online Bitcoin trading platform, create an account, deposit some money into this account through Internet banking service or any other possible method. Now you can use that money to buy bitcoins at the above trading platform.

Once you've owned bitcoin, the next question is to leave it in the trading floor wallet or withdraw to your own wallet. There are many ways to store bitcoins yourself, for example: storing encryption keys on your hard drive, storing them on electronic wallet applications, printing encryption keys to paper and putting this piece of paper in a safe place.

All of the above options are potentially risky. If you store it on the exchange, you can lose bitcoin if the exchange is hacked, or stick to a manager, or scam. In 2014, the largest bitcoin exchange was Mt. Gox has declared bankruptcy after a few million dollars worth of bitcoin have been stolen by hackers. Some other bitcoin services disappear from the Internet and all of the customer's bitcoin numbers. The Bitcoin economy does not have the same insurance services as the FDIC, so when you fall into these situations, you can only blame yourself for such misfortune!

Since 2014, bitcoin trading has improved significantly, but self-hosting bitcoin has its own risks. If your hard drive is broken and you have not backed up, your bitcoin will be lost forever. If you print an encryption key to paper and lose it, your bitcoin will be lost forever. If you store bitcoins in the web e-wallet and forget the password, your bitcoin will be lost forever. If someone installs a malware that steals a bitcoin on your computer, you can even lose bitcoins regardless of the way it is stored.

In short, there is no absolutely safe way to store bitcoins , and new bitcoin players are the most vulnerable. Bitcoin investors are the ones who must be aware of the risk of being stolen because of the biggest events or theft compared to investors of other asset types such as stocks and bonds.

9. Bitcoin is up, how do I withdraw cash?

If your money is being stored on bitcoin exchanges, you only need to execute the order to convert bitcoins into USD at the rising exchange rate at that time. Once completed, you can withdraw USD from the trading platform to your bank account.

The bitcoin market allows for easy cash withdrawal, so unless you have a million-dollar bitcoin number, withdrawal will not matter. Large bitcoin exchanges will have daily cash withdrawal restrictions to limit fraud, so if you own too much bitcoin, it will take you several days to several weeks to get all that huge money back. bank account again.

Some argue that bitcoin's market capitalization of $ 150 billion is not real because people cannot withdraw all of it at once. But this is a mistake, because this rule applies to every asset: imagine if billionaire Jeff Bezos tried to sell his entire Amazon stock at the same time, the stock market would collapse. . But people still say that his net worth is worth nearly $ 100 billion. In the bitcoin market there is always enough liquidity for people, except for extremely rich bitcoin players, to quickly and easily convert their bitcoin into traditional money. And even those extremely wealthy people can withdraw cash gradually until they run out completely if they want to.

10. Is it true that Bitcoin consumes tremendous energy?

Yes, Bitcoin networks maintain "blockchain" with a computer process called "digging". Excavators compete with each other to gain the right to add blocks to the blockchain - every time a block is added, it will be rewarded with 12.5 bitcoin - or $ 125,000.

Electricity is the biggest cost of digging bitcoins , and because this is a fierce competitive market, miners will try to spend more and more money on electricity until the amount of electricity purchased is equal to the number. peach money. Each bitcoin transaction uses 271kWh of electricity, enough to power a US household for 9 days.

However, this number is often assigned to each transaction, and has caused misunderstandings. The Bitcoin network generates 6 new blocks every hour, and digging each block consumes the same amount of power even if the block contains 1 or 2000 transactions. And with the price of bitcoin increasing dramatically, that amount of electricity could also help the Bitcoin network handle tens of thousands or even millions of transactions in each block in the future.

This means that we cannot save electricity by reducing the number of bitcoin transactions, and increasing the number of bitcoin transactions does not directly increase power consumption. This amount of electricity increases only when the price of Bitcoin increases, because the higher price means 12.5 bitcoin the reward will become more valuable, and the digger will have to spend more resources to get a bigger reward. .

Fortunately, this problem will be able to resolve itself in the future. The rewards earned on each block will be halved every 4 years according to Bitcoin law. Previously this award was reduced twice: by 2009 it was 50 bitcoin, and by 2020 there would be only 6.25 bitcoin on each block, and by 2024 it would be only 3.125 bitcoins per block. When the reward decreases, the electricity consumption will also decrease.

Clearly the Bitcoin network is a disaster for the environment, consuming more energy per transaction than any other payment network. However, as mentioned above, this issue will be resolved in the coming years, and in the coming decades.