Has it ever crossed your mind invest in bitcoins? The news about the bitcoin price against the euro or the dollar occur at the same rate that doubts about this virtual currency increase. How does it work? Do youIs safe? We solve these and other questions clearly and succinctly.
1. What is bitcoin and how does it work?
The bitcoin is a cryptocurrency or virtual currency. It is a self-regulated payment unit without physical reference or endorsement from a country, which preserves the anonymity of its owners and whose transactions are carried out through the internet using encrypted codes and confirmed in a multiple way by the members of the network themselves (through the so-called technology ‘blockchain‘, in practice an accounting book or shared record of the activity). Knowing a code makes you the owner of that asset (cryptocurrency). It is a completely digital currency. One of the most controversial aspects is the process of creating bitcoins, what has come to be called mining. In practice, it has come to be controlled by a few hands, most of them organized groups based in Asia. With the increase in the price of bitcoin, profitability of the mining process is only possible in areas with low energy costs.
2. What is the price of a bitcoin?
The price of bitcoins is known through internet portals specialized in the trade of this virtual currency. There is a quotation in real time, as a consequence of the demand and supply movements that are registered by the members of the system. Given that in the case of bitcoin its number is limited in time, experts argue that its price will also tend to increase if the number of users continues to increase. Proponents of bitcoin argue that it is not a pyramidal financial structure as no one is promised returns and there is no single issuer to benefit. But as with any investment, there is no guarantee that the value of the bitcoin will not change. But there is an awareness that being a scarce and distributed digital currency, its price will never be zero. It is equivalent to the gold of cryptocurrencies.
Bitcoins are priced as long as they are useful as an investment instrument and as a currency or if people are willing to accept it as a means of payment. It has the characteristics of money (durability, portability, fungibility, scarcity, divisibility and recognizability), but based on mathematical properties (and and it is increasingly scarce), but it does not have the backing of any State. If the number of people in the club grows, its price will increase. Otherwise its price will plummet, as in any financial derivative. It does not take a significant amount of money to change the price of bitcoin. Experts announced years ago that when it reached a global capitalization of 10 trillion, its global weight would be relevant to the economy of the entire planet. That high is about to be reached, but the price of bitcoin changes daily.
3. How was bitcoin created?
The concept of cryptocurrency was first described in 1998 by a computer scientist named Wei Dai on the ‘cypherpunks’ email list, where he proposed the idea of a new type of money that would use crypto to control its creation and transactions, in rather than being done by a centralized authority. The first bitcoin protocol specification and proof of concept was published by Satoshi Nakamoto in 2009 on an email list. Satoshi, it is not known if he is an individual person or a working group, he left the project at the end of 2010 without revealing his real identity. The bitcoin code is open, any computer scientist can review it or create their own modified version.
4. What can be done with bitcoins?
With bitcoins you can pay for a good or a service. You can buy bitcoins in exchange houses or create bitcoins using machines designed for it. The bitcoin would be the result of the payment for the theoretical consumption of the energy required in the process of its creation. Without having a merchant account you can have bitcoins. A virtual wallet is required to operate. Payments are generally made through mobile or computer applications, entering the recipient’s address (the bitcoin account), the amount to be paid and pressing send. Once the button is pressed there is no going back, the virtual currency will have changed hands.
5. What are bitcoin miners?
The new bitcoins are generated by a decentralized process called “mining.” This process is based on the fact that individuals are awarded by the network for their services. Bitcoin miners process transactions and secure the network using specialized ‘hardware’ and collect bitcoins in exchange for this service. Bitcoins are created at a predictable and decreasing rate. The number of bitcoins created each year is automatically halved over time until bitcoin issuance comes to a complete halt at 21 million bitcoins. This conception tends to raise the price of bitcoin. At the beginning of 2021, the issuance of bitcoins has exceeded 18 million units.
6. How and where to buy bitcoins?
The bitcoins are bought in exchange agencies on the internet. Here you can find an example list of these intermediaries. Even there are already agencies or physical offices in Spain for the sale of cryptocurrencies. The process requires:
1. Open an account with one of the providers mentioned above (and a ‘wallet’).
2. Deposit money in the newly opened account (for example, by bank transfer, credit card or PayPal).
3. Buy the chosen currency (for example, Bitcoins, Ethereum, Ripple, Litecoin or Dash, there are about 8,000 cryptocurrencies).
4. Sell the currencies when you want.
5. Credit the balance to a private account.
7. Is it safe to invest in bitcoins?
Bitcoin advocates argue that no organization or individual can control bitcoin and the network remains secure even if not all of its users can be trusted. In any case, security firms warn of the possibility of code theft from any user or computer attacks against exchange houses. Hackers design programs for such theft. Kaspersky analysts disclosed the identification of the CryptoShuffler Trojan some years ago, for example, designed to change the addresses of users’ cryptocurrency wallets on the clipboard of the infected device. Since the operations carried out cannot be canceled and it is anonymous, any data theft has no solution. It also has no solution if you forget the personal code of the cryptocurrency account.
8. What does it imply that it is a virtual currency?
Bitcoin is as virtual as the credit cards and banking networks that people use every day. As virtual as the money that the ECB gives to the banks and the banks to the ECB. Money has long since ceased to be exclusively cash to be just virtual payment commitments. Bitcoin can be used to pay ‘online’ and in physical stores like any other currency if those involved in that transaction agree. Bitcoins balances are stored in a huge network and theoretically cannot be fraudulently altered by anyone. In other words, bitcoin users have exclusive control over their funds and bitcoins cannot vanish just because they are virtual. But the bitcoin implantation is small. And the implantation of other cryptocurrencies is even smaller.
9. How is it taxed to have earnings in bitcoins?
Bitcoin is not a legal tender fiat currency in any territory, so the regulations are not very specific. In practice, any capital gain must be listed in the Treasury as an increase in equity. There are doubts whether a profit in cryptocurrencies is invested again in cryptocurrencies after a theoretical capital gain not transformed into a legal tender asset. It is not clear in that case. It is also not clear whether that asset is considered an asset abroad or in Spain (for which it should be declared in form 720). In the event that an estate was not declared abroad, the Treasury could impose a fine even higher than its valuation. In any case, cryptocurrency trading is not as anonymous as people often think. Exchange houses require identification and their records are available to the authorities if required.
10. Is it advisable to invest in bitcoins?
Like any risk investment, it is not possible to advise anyone to invest in bitcoins. Even crypto advocates don’t advise investing your savings in virtual currencies. Its highly volatile nature means that today investment in cryptocurrencies is closer to gambling than to serious investment. The support given by large financial groups to bitcoin gives it a value that other cryptocurrencies do not have. The accumulated returns per bitcoin since its inception make it the asset with the highest appreciation in history. Central banks already openly recognize that digital money or virtual currencies are going to play an important role in the future and are already designing their alternatives. But bitcoin itself has already managed to take the lead due to its own characteristics. In the future there will be state-backed digital currencies. For the rest of private cryptocurrencies, their role is merely a speculative asset, although it is predicted that the so-called ‘stablecoins’ or digital currencies referenced to currencies (basket of currencies) or large technology companies (Facebook, Amazon, Alibaba …) will also have a role to play.
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