How To Get Rich With Bitcoin Even If You Have No Clue About Technology

How To Get Rich With Bitcoin Even If You Have No Clue About Technology

Cryptocurrencies for dummies

Bitcoin Questions and Answers

The extension of cryptocurrencies, especially bitcoin, raises various questions. What are they exactly? How do they work? What does the jargon behind it mean? What consequences do they have for states, and even for democracy?

Bitcoin was born in 2008, the same year that Lehman Brothers declared bankruptcy. On October 31 of that year, a user identified as Satoshi Nakamoto posted on the “Cryptography” mailing list a message stating: “I have been working on a new electronic money system that is fully peer-to-peer , with no third parties. trustworthy." In addition, it contained a link to the document hosted on the bitcoin.org site known as a "white paper" where the operation of the system was explained point by point. In reality, no one knows Nakamoto's true identity .

Bitcoin was the first digital currency that was able to transfer value between users without the need for a central authority to verify transactions. The idea, as simple as it sounds, gave rise to an unprecedented monetary revolution. On January 9, 2009, Nakamoto released version 0.1 of the Bitcoin client (today known as Bitcoin Core), an open source software that connected multiple computers together, and this gave rise to the network that would support the cryptocurrency. The network's tasks were seemingly simple: allow transactions between users, list all transactions, verify that the same currency is not spent twice, and issue new currency units.

That same day, at 00:54, the first bitcoin block was mined and the first units were created with it. Three days later, on January 12, 2009, Hal Finney, one of the most prominent members of the "Cryptography " mailing list, received the first ever bitcoin transaction. On April 26, 2011, Nakamoto sent his last message and disappeared from public view. Three years later, on August 28, 2014, Finney died of advanced amyotrophic lateral sclerosis. His body is preserved in a cryogenic state in the laboratories of the Alcor Life Extension Foundation.

Along with Nick Szabo, Finney is recognized as one of the pioneers of Bitcoin and one of the main suspects of being Satoshi Nakamoto or, at least, of having had close contact with the anonymous character.

What is bitcoins?

Bitcoin, in addition to being the name of the currency, is the network that supports it: a peer-to-peer (p2p) network, without intermediaries, which allows value to be sent from one part of the planet to another without asking anyone's permission, at a relatively low cost. low, semi-anonymously, quickly and totally irreversible. These features allow Bitcoin to be immune to censorship attempts by any nation, company, or authority.

Users can transfer bitcoins over the network to do almost anything that can be done with conventional currencies, such as buy and sell goods and services or send money to another person, and some platforms even allow receiving or granting credit using bitcoins. Bitcoins can be bought, sold and exchanged for other currencies in specialized exchange houses. Unlike traditional currencies, Bitcoin is completely virtual. There are no physical coins that represent it.

Network users possess a series of keys (known as private keys) that allow them to prove ownership of bitcoin. With these keys you can make transactions to other network users. The keys are kept in digital wallets, which can be on a personal computer, on the phone, and even on specific hardware designed for this purpose. Private keys that allow transactions to be made are the only prerequisite for sending bitcoins, thus leaving full control of their funds in the hands of users.

What is mining?

Each unit of Bitcoin is created in a process called "mining." Certain network nodes, called miners, compete to find the solution to a mathematical problem while bitcoin transactions are processed. Any participant in the Bitcoin network can become a miner, as long as they make their computer's processing power available to verify and record transactions.

Every ten minutes, on average, a Bitcoin miner competes to validate all the transactions from the last ten minutes, and if he manages to validate them, he gets a reward in the form of bitcoins. This function is known as proof of work .

Currently, the reward is 6.25 bitcoins per block mined, and every 210,000 blocks, the reward is halved. In this way, Bitcoin will reach a limit of units close to 21 million. This limit is deducted from the speed of issuance of new Bitcoin units, which is established in the network software . In addition, each Bitcoin unit can be divided into 100 million parts, that is, we can divide a bitcoin until obtaining 0.00000001 of each unit. That minimum unit is called satoshi.

The bitcoin protocol includes algorithms that regulate the mining function on the network. The difficulty of solving the mathematical problem that allows a block to be mined is automatically adjusted so that the validation time between one block and another is ten minutes, regardless of the number of miners that are competing at that moment. The number of bitcoins in circulation takes the form of a predictable curve that approaches 21 million by the year 2140. Since the issuance rate is decreasing, in the long run, Bitcoin is deflationary. You cannot inflate it by "printing" new money beyond the expected rate of issue.

But the fact that it is a virtual currency does not mean that there is no "materiality" behind it. Mining bitcoins requires the use of electrical energy. With the current conditions where competition is widespread, bitcoin mining becomes profitable in regions that have some comparative advantage, such as very cheap electricity. The greater the computing power, the greater the chances of solving a block and, therefore, of obtaining the reward. That is why “ mining pools ” were created to concentrate that firepower.

That is one of the reasons why Paraguay, for example, became one of the places from where "mining bitcoins" is profitable. "In Paraguay it is still profitable to mine bitcoins because we have the lowest cost of electricity in the region," says Luis Pomata , CEO and co-founder of Nano Mining Paraguay. «The normal cost is 5 cents per KW/h and can even reach 3 cents per KW/h. It is something that is only seen in Asian countries or in some places in North America. And he adds that the South American country also has "low technical labor costs and finally warehouses/warehouses can be bought or rented to use them as data centers that meet the necessary requirements to house the mining machines at a very affordable price." .

How do you get your value?

One of the most frequently asked questions about Bitcoin is “how does it get its value” or “what is backed by it”. In order to answer this, we must take a little historical detour. At the end of the Second World War, the need to create an international trade system prevailed that would avoid the imbalances that had led to the First War, the crash of the 1930s, the rise of fascism and, finally, the confrontation again. war and the Holocaust.

The United States, with the doctrine of liberal globalism at its head, supported the hypothesis that a world open to trade was a world of peace. Thus, at the Bretton Woods conferences, the US dollar became the guarantor of international trade and, therefore, of peace. Until then, the dollar had a fraction of gold that guaranteed its "value." The dollars, in short, were convertible to a portion of gold. But in 1971 Richard Nixon decreed the withdrawal of the United States from the gold standard and then the US currency was no longer convertible to the precious metal. Thus, no global currency could be convertible, via the dollar, to gold. This type of money is known as fiat or trust money.

The "backing" of our currencies comes from the ability of states to force their use and outlaw all other currencies. The radical change between the gold standard and fiduciary money (which comes from the Latin fides , that is, faith) is still today, almost half centuries away, an unknown fact for a large portion of the public. Our money has no support other than the credibility of who issues it and the agreement between the parties that use it. In short, the value of money is a social relationship and hence, therefore, its inescapably political character.

The value of Bitcoin, beyond its particular characteristics such as scarcity, security, resistance to censorship, immutability and reliability, depends on the agreement of all users. In that sense, Bitcoin is also, in a way, a form of faith. The only difference with the money printed by the State or a bank (as may be the case in Hong Kong) is that the value is not associated with trust in a certain government, but rather with trust in a cryptographic proof system.

This implies the destruction of the monopoly of money by banks and States, and the empirical demonstration that a group of people who do not know each other, who have no contact with each other and who do not even have the same interests or ideology can generate consensus through through sufficiently robust technology and properly aligned incentives.

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