What is Bitcoin: origin, uses, advantages and risks

Bitcoin Trends

Bitcoin is the first cryptocurrency to appear. It is a decentralized digital currency that allows a new payment system and digital asset. Although it is increasingly used, there are still many users who are unaware of what it is for and what its advantages and risks are.

In this article, we tell you the most important thing about Bitcoin, its origin and the arguments for and against its use:

  • What is Bitcoin?
  • What is the origin of Bitcoin?
  • What are the uses of Bitcoin?
  • Advantages and risks of Bitcoin

Bitcoin is the first cryptocurrency that appeared in 2009 and, since then, its use and relevance have been increasing exponentially, although its use is still limited by the perception of insecurity and the ignorance of many potential users. 

Bitcoin is a digital (not physical) currency that only exists on the blockchain that supports it. As a currency, it can be used for everything that is used in any other currency backed by a State, such as the euro or the dollar.

However, Bitcoin does not depend on any government entity that issues it or supports it, but the users themselves are the ones who manage and keep Bitcoin running and safe. Therefore, it is possible to make purchases, sales and transactions with this currency from anywhere quickly, without conditions or limitations of any kind.

But, in addition to currency, Bitcoin is a digital system, since, as has been said, it is the first existing blockchainThis technology is an encrypted database where any information can be stored. Its importance lies in the fact that each recorded data is marked with a unique fingerprint that makes it unrepeatable and immutable.

To differentiate these two concepts of Bitcoin, normally, when referring to money as such, the cryptocurrency is usually called “bitcoin”, in lowercase; On the other hand, when talking about the protocol or system that supports it, “Bitcoin” is usually written in capital letters.

From the user’s point of view, Bitcoin is an application that provides a personal Bitcoin wallet and allows the user to carry out operations with this currency or digital asset. If you want more detailed information about Bitcoin, its uses, advantages, risks and opportunities, click here.

However, from a more technical level, the Bitcoin network consists of a digital public ledger (“blockchain“), which records all movements and legitimizes the authenticity of each transaction, making them public so that they are the users themselves, without intermediaries. , those who keep control of the movement and value of the assets, avoiding manipulations.

In addition, there is a high level of anonymity, which varies depending on how the user has created their own wallet or “wallet” and how and from where they receive the cryptocurrencies.

Bitcoin was born in November 2008, when a person (or group of people) under the pseudonym Satoshi Nakamoto, sent a message to an email about cryptography, describing a project to create a digital currency that was used to record and transfer value. As Nakamoto himself stated when this cryptocurrency emerged:

Bitcoin was born with lofty ambitions: to provide citizens with a means of payment that makes it possible to carry out fast , low-cost transfers of value, and which, furthermore, cannot be controlled or manipulated by governments, central banks or financial entities”.

In January 2009, the first network based on the Bitcoin protocol came into operation, which was the origin of cryptocurrencies.

Beginning in 2011, some organizations began accepting bitcoin donations, and internet merchants began accepting bitcoin as a means of payment.

From that moment, his growth was unstoppable. However, over the years, more new cryptocurrencies have emerged, competing with Bitcoin and causing its value to fluctuate constantly.

In order to use bitcoins, the first thing that must be owned is the device in which to install an electronic wallet and, of course, own these cryptocurrencies. 

This electronic purse or “wallet” can be guarded by an exchange or cryptocurrency exchange page, where you can buy, store and sell your cryptocurrencies. Which would be very similar to a bank account where you store your money.

The interesting thing about cryptocurrencies is that you can also create an electronic wallet on your own, either digital or physical, or buy it from a company that offers it. The most famous in physical wallets is Ledger.

Despite the fact that its use is not yet widespread and many people do not know how this system really works, the truth is that there are more and more places that allow money transactions in bitcoins.

Many online stores, such as Microsoft, Dell, Expedia and G2A allow and facilitate the use of bitcoins. Other stores such as Amazon, iTunes, Starbucks or eBay allow you to obtain gift cards by buying them with bitcoins. In addition, in some online games and other network services, it is possible to make payments or receive money in bitcoins.

However, despite the fact that the use of these currencies is more frequent in the digital world, there are also (and increasingly) numerous physical stores that allow transactions with bitcoins.

In fact, there are applications that function as maps to find these physical stores around the world. For example, the CoinMap application has registered more than 9,356 businesses of all kinds globally where payment with bitcoins is accepted (restaurants, auto repair shops, art galleries, computer stores, travel agencies, clothing stores, clinics, etc. .).

On the other hand, more and more countries accept and advocate the use of bitcoins. The best-known case is El Salvador, since it promoted a law to make bitcoin legal tender along with the US dollar, forcing all businessmen and merchants to accept it and giving away bitcoins to its entire population. 

Furthermore, although the use of cryptocurrencies is legal in the vast majority of countries, many of them are beginning to regulate their use and possession, with the aim of protecting users, businessmen and investors.

In short, among the most prominent uses of Bitcoin, it is worth mentioning the following types:

  1. Pay using bitcoins cryptocurrencies.
  2. Earn interest on the bitcoins you own: Something similar to the concept of a bank deposit.
  3. Obtain a loan using your bitcoins as collateral.
  4. Hedge your financial exposure with derivatives in regulated markets.
  5. Obtain investment returns through the purchase and sale of bitcoins as it is an asset that theoretically tends to appreciate in a scenario of constant demand. 

Here are some of the most relevant advantages that Bitcoin offers:

  1. Higher liquidity relative to other currencies and cryptocurrencies: As the most popular cryptocurrency, Bitcoin is much more liquid. Furthermore, it is the cryptocurrency that is closest to real assets. This allows its users to buy and sell online and immediately when converting it into “physical” currencies, such as the euro or the dollar.
  2. Wider acceptance as a payment method: This is mainly due to the rise of online commerce and digital transformation.
  3. International transactions easier than with normal currencies: International transactions in Bitcoins are the same as those that can be carried out within the same country. Therefore, there are no limits or commissions for international transfers. Also, although most cryptocurrencies have no limits on this type of movement, international transactions using Bitcoin are easier because this cryptocurrency is the most popular worldwide.
  4. Typically lower transaction fees: Bitcoin has lower fees compared to other digital payment methods.
  5. Anonymity and privacy in relation to traditional currencies: Bitcoin wallets, despite the fact that all currency movements are publicly recorded in the “ blockchain ” ledger, are not associated with a user identity, so it is not possible to obtain data from them, contrary to what happens with a bank card, for example. Although it is possible to track bitcoin flows between users, it is very difficult to find out who those users really are and to be able to monitor them, unless they have previously provided their identity to an Exchange or cryptocurrency exchange platform.
  6. Independence from creators and political agents: Since Bitcoin is not created or controlled by any state entity (such as a central bank), it is not subject to political influence. This makes it difficult for governments to block the use and storage of Bitcoins. Furthermore, due to its completely decentralized nature, its popularity and its liquidity, Bitcoin is also not influenced by its creators, as is the case with other cryptocurrencies, whose values ​​can be manipulated by their creators when buying or selling large amounts of cryptocurrency thus influencing its market value.
  7. Inherent scarcity: The inherent scarcity of Bitcoin (only 21 million bitcoins will ever exist) maintains the value of this cryptocurrency in the long term, which is not the case with traditional currencies and with other cryptocurrencies that do not have this scarcity. In a way, the scarcity of Bitcoin gives it intrinsic value, similar to gold and other precious metals.

However, Bitcoin also has some disadvantages that must be taken into account:

  1. Exposure to Bitcoin-Specific Scams and Scams: As the world’s most popular cryptocurrency and one that can be used relatively anonymously, Bitcoin has been the currency used to carry out scams, fraud, and attacks at a higher rate than other currencies.
  2. Black market activity could harm its reputation and usefulness: Bitcoin attracts cybercriminals involved in the Dark Web and other online crimes, due to the anonymity it provides and the ease of transacting. Furthermore, as with cash, the international legal system is not prepared to prevent or solve this problem, including money laundering or terrorist financing. The CIA, as well as many intelligence and investigation experts,  point out that it is in the interest of cybercriminals to use cryptocurrencies since it facilitates their traceability and investigation, unlike cash which leaves no trace.
  3. Susceptible to high price volatility: Although Bitcoin is one of the most liquid cryptocurrencies and one of the easiest to trade, it is still susceptible to large swings in value over short periods of time. Therefore, although Bitcoin can be a good option to investment, it is not very suitable for conservative investors due to its lack of regulation and high volatility. Also, because the value of Bitcoin varies so much from one day to the next, it is difficult for users to use it as a method of exchange.
  4. No returns or refunds: One of the biggest disadvantages of Bitcoin is the lack of a standard policy for returns or refunds. In this way, users affected by fraud (such as bank phishing ) cannot request a refund using Bitcoin. In fact, the decentralized structure of Bitcoin makes it impossible for anyone to mediate disputes between users.
  5. Possibility of being replaced by a superior cryptocurrency: Some of the newer cryptocurrencies make it even more difficult to track money flows or identify users. Others even have systems that allow users to exchange cryptocurrency units directly for physical currencies, thus reducing the associated fraud risks. Therefore, over time, some of these alternatives such as Ethereum could outperform Bitcoin, which could have a negative impact on its value.
  6. Environmental damage from Bitcoin mining: Bitcoin mining consumes enormous amounts of electricity, which is necessary for its operation and security. Depending on the origin of the electricity used by Bitcoin miners, for example, coal power plants, it could be very harmful to the environment. On the other hand, mining activity is becoming more professionalized, so miners (or mining companies) prefer the use of renewable or clean energy in order to avoid assuming the associated electricity costs. This has led to the spread of the use of solar panels or other renewable energy systems in many countries, making the system more sustainable and reducing its impact on the environment.