Bitcoins and Blockchain: Become rich quickly or impoverish yourself in a finger snapping?

Written by Paloma Ania

Paloma Ania

Published in

Adalab

5 min readNov 23, 2018

Introduction

Nowadays in 2018, many people have heard about investing in bitcoins to become fabulously rich, and others are afraid of losing their savings in the attempt. Do you want to know what bitcoins are, and how their system works? Keep reading and discover the basics for dummies in the next few lines.

1) Bitcoins. What are they?

Bitcoin (cryptocoins) is a form of virtual currency, more commonly known as cryptocurrency, which is decentralized and allows users to exchange money without the need for a third-party. All bitcoin transactions are logged and made available in a public ledger to ensure their authenticity and prevent fraud. The underlying technology that facilitates these transactions and eliminates the need for an intermediary is the blockchain.

No one knows exactly who created the first popular cryptocoin (bitcoin). While Bitcoin was the first kind of cryptocoin, there are hundreds of others, with more being created everyday. Most cryptocurrencies are designed for maximum anonymity — but bitcoins first appeared in 2009 from a developer supposedly named Satoshi Nakamoto. He has since disappeared and left behind a Bitcoin fortune.

Bitcoins are completely virtual coins designed to be self-contained for their value, with no need for banks to move and store the money. Once you own bitcoins, they behave like physical gold coins: They possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.

2) Blockchain and cryptocoin mining

A bitcoin holds a very simple data ledger file called a blockchain. Each blockchain is unique to each individual user and his or her personal Bitcoin wallet. Bitcoins are traded from one personal wallet to another (A wallet is a small personal database that you store on your computer drive, smartphone, tablet or somewhere in the cloud).

All bitcoin transactions are logged and made available in a public ledger, helping ensure their authenticity and preventing fraud. This process helps to prevent transactions from being duplicated and people from copying bitcoins.

Blockchain technology allows for fast, secure, and transparent peer-to-peer transfer of digital goods that include money and intellectual property. In cryptocoin mining and investing, it’s an important topic to understand.

Mining

Miners get bitcoins, solving complex technical problems. At the first stages of bitcoin development, home computers could handle this. However, the volume of bitcoins emission created the need for “farms” for mining.

Physically, cryptomining farms are rooms with a large number of computers and servers that take on tasks for mining. For example, we have the case of China, where we find entire buildings and lands destined to mining cryptocoins.

3) The lucky and unlucky in the world of bitcoin

The quick bitcoin growth has attracted a large number of people. Some of them make a fortune, while others have lost everything.

Most of the success stories around Bitcoin are played by investors who detect the potential of the cryptocurrency from the beginning. For example, Winklevoss twins, (who had a lawsuit with Mark Zuckerberg for Facebook creation) invested millions of dollars in Bitcoin since very early and today they have more than 400 million dollars.
Erik Fineman, when he was 11, started investing in Bitcoins with his grandmother’s tip when it cost $12 each, when Fineman sold his first Bitcoins, each one had a value of $ 1,200.

The unfortunate stories are mainly due to carelessness, hacking or bad investments. James Howells, a 32-year-old man from Wales, started working with Bitcoins from a computer in 2009. A year later, he disassembled the device and stored the pieces in a drawer, and finally he threw away the computer, along with all the money inside. Cody Brown, a start-up executive, lost $ 8,000 in Bitcoins in 15 minutes after a hacker logged into his Verizon account, which was connected to Coinbase.

4) Theory vs Practice — False decentralization

To “mine” bitcoin, you need a low cost of electricity; high speed Internet and cold weather to avoid having to pay for a ventilation system. The low price of electricity in China, makes it a suitable place to settle these “farms”.

For that economical reason, China mines about three quarters of the world’s bitcoin, a fact that destroys the decentralization prerequisite of the virtual coin functioning.

The Chinese Government is preparing a series of laws to end the huge energy consumption generated by the mining Bitcoins. The other reason why China pursues cryptocurrencies is because they are practically impossible to trace. The Blockchain protocol on which they are based makes them safer, but also more private, and that is a problem in a country that is obsessed with policing its citizens.

Conclusion

Blockchain is a technology with multiple uses including cryptocurrencies.

The virtual currency generates more and more interest. For example, the cryptocurrency market has grown from nothing to ~24M bitcoin wallet addresses in the last 4 years.

Its fluctuations scare the most conservative, but its proponents believe that it is the only currency that will not be devalued.

At this point of the article we know more about bitcoins and how they work. We have talked about stories of fortune and misfortune, and we have discovered that some basics of the Bitcoin Theory are broken because they are becoming more centralized in China. So now, it is our moment to decide if we will invest or not in this market. Probably this will depend on the precise time you buy or sell the bitcoin, or maybe not… What do you think?

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