Surely you've heard stories of people becoming millionaires by investing in Bitcoin or some other cryptocurrency, which sounds very attractive, but...
How cryptocurrencies work ?
Is it safe to invest in them?
Join me in this opportunity to know how cryptocurrencies work and the reliability of their use. Basically this article is intended for users who have little knowledge on this subject.
To begin, it is necessary to understand cryptocurrencies as a monetary system, that is, they do not have a value for the material they are made of or for their physical utility, but because we agree, the difference between a $ 100 paper money and a piece of paper with the text 100 dollars written with crayons is that people through institutions agree to say that the first has value and the other does not.
The way in which any currency defines its value is because of its importance in the market, the more people are interested in buying them, the more valuable they are in an auction, if many people are interested in an item, they offer more for it and their price before the auction. market will be higher.
For the purposes of this article, I will use Bitcoin as a reference of cryptocurrencies.
Bitcoin is not unique in its kind, there are hundreds of cryptocurrencies and are so called thanks to their encrypted nature, that is, protected through encryption. This characteristic makes them a very attractive monetary system because it is difficult to alter or hack because it is not controlled by a bank or by a government. With traditional currencies every time you want to make a transaction this must be approved and done by a banking institution, that same organization could be fraudulent or in the worst case could be hacked or robbed, that is why cryptocurrencies choose to use a system of decentralized transactions known as Blockchain that works as follows:
Each transaction that is made is called a block and acquires a unique and unrepeatable code, think of a kind of DNA to identify the operation similar to a serial number of a ticket.
That block is registered forever with detailed information such as the issuer and receiver of the exchange, quantity, among other data.
The user network registers the operation virtually immediately, any user like you or me can install Blockchain on your computer.
This block is joined to a huge chain where absolutely all the operations that have been done with that cryptocurrency are listed, they are shown chronologically and since it is duplicated in many accounts it is impossible to alter or delete an operation once it has been added to the Blockchain.
Imagine that a person works in a store and has recorded every transaction that occurs in the trade if this person wants to cheat could modify the data and not report any of the operations, commit a fraud and it would be difficult to check, but if ten different people they keep track of all the operations at the same time the fraud would be practically impossible to commit because each one of them has a record that verifies what really happened, the one that has a different record must be lying.
The Blockchain operates in a very similar way but with thousands of people and computers around the world monitoring and recording all movements of cryptocurrencies. A hacker could circumvent the security of a computer but it is practically impossible that it can be achieved with all the individuals that supervise a chain of blocks, this quality has made the Blockchain a very attractive system for buying and selling.
Everything sounds very nice and safe with Bitcoin and digital currencies, because when something looks too good to be true it probably is. Until now the market for cryptocurrencies is based on speculation, this is a very dangerous economic practice which creates great instability since the real value of something can skyrocket one day and fall precipitously to the other.
Imagine an auction in which they offer a pencil with which Michael Jackson is believed to have written a song, then you speculate that its value must be enormous, you buy it for a large amount of money thinking that it is an excellent investment because many would like to have it and for that reason it will be worth more in the future, but you discover that nobody wants to buy your pencil, therefore its value plummets and instead of making a profit you lose all the money that you spent.
Acquiring cryptocurrencies should not be seen as an investment rather it is a bet where you can earn money if the predictions are met or lose everything in a single operation.
An interesting fact is that cryptocurrencies by themselves are not a scam but their current market is based exclusively on speculation therefore it can be a dangerous environment, they could become more secure and as time goes by, more institutions accept them as a valid transaction. Soon if you are interested in entering the world of cryptocurrencies remember that you are not investing but betting, so you should not risk more money than you are willing to lose.
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