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How Does Bitcoin Work And Is It Safe?

Bitcoin seems to be on everyone’s lips right now, but how does it actually work, and is the cryptocurrency market a safe investment? 

Cryptocurrency is a hot topic right now and it doesn’t seem to be dying down like in the past. Bitcoin is a major part of the crypto market and as an investor, you might now be wondering if now is the best time to take the plunge into cryptocurrency. So, here at MyWallSt, we thought we would lay the groundwork so that you can make your mind up and understand if Bitcoin and the wider crypto market are a safe bet.

What is Bitcoin? 

Bitcoin is a digital currency that was originally launched in 2009. The real identity of its creator(s) to this day remains a mystery. All we know is a pseudonymous name, Satoshi Nakamoto Interestingly, although Bitcoin is classed as a currency, it is actually a type of software with a set of protocols and processes. 

You can get Bitcoin in three ways: 

  • You can buy Bitcoin using regular, fiat currency.
  • You can sell something and receive payment in Bitcoin.
  • You can mine it using a computer. 

As of April 15, 1 BTC is worth more than $62,000. Although its value is currently increasing rapidly, it is known to be a rather turbulent asset.

Bitcoin is built with blockchain technology which stores information in linked blocks. Bitcoin’s goal, as well as other cryptocurrencies that use this technology, is to provide a store of value and a payment system that is decentralized. However, in the future, this technology could include peer-to-peer assets such as savings and checking accounts as well as loans and even marriage contracts, etc. 

In Bitcoins case, the information contained in its blockchain is mainly transaction receipts. Creating this blockchain is called mining. It is an entirely public ledger of receipts that needs to be maintained and created from the information created with each Bitcoin transaction. Deliberately complicated sums make up the receipt information that is then given to each miner, who then uses their computer to solve and record each transaction. The same goes for creating bitcoins. Miners who carry out this record-keeping are compensated for their work in newly created Bitcoin. 

Is it safe?

So we know that each bitcoin is essentially a computer file that is stored in your digital wallet, with each transaction being recorded on the blockchain. This list allows people to trace the history of a bitcoin and make sure that the transactions are official and prevent people from spending bitcoin that they themselves do not own. 

In theory, the blockchain itself could be hacked and then altered so that a large number of bitcoin is then owned by the hacker. However, the sums required for each transaction increase with difficulty to the point that every four years mining becomes twice as hard. This, in turn, increases the computer power and electricity needed. Once, all someone needed was a single computer, now a whole team of servers is required to mine (or hack) Bitcoin, making the currency much safer.

It is possible to lose your Bitcoin, by simply deleting them, having them stolen from your remote storage site/app, or simply sending them to the wrong person. Additionally, Bitcoin and other cryptocurrencies are often used on the black market and in organized crime. 

This does not make the currency any less safe for investors, but, these links will definitely increase attempts by governments to regulate the crypto market. Such an attempt, if successful, will need to organize co-operation from multiple economies, which isn’t likely to happen anytime soon. 

Should you invest in Bitcoin?

Coinbase (NASDAQ: COIN) became the first major crypto company to go public in the U.S. bringing both positives and negatives to the market. On the one hand, cryptocurrencies will become more normalized if other such companies go public too. On the other hand, Bitcoin, Ethereum, Litecoin, etc. will be subject to much more scrutiny as they are introduced into a regulated system. 

Beyond this, Bitcoin could be an interesting investment. It is a risky move and one that long-term investors might have to mull over for a while. But, cryptocurrency is here to stay and if you are going to invest in the huge potential of this market, then Bitcoin is probably your best bet.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

Poppy Murray
Poppy Murray
Poppy is a contributing writer to MyWallSt. Poppy likes companies that go the extra mile. Her favorite stock is Amazon because she is fond of its innovation, variety, and creative solutions to sustainability.