I’m the founder of a blog that brings to light the truth about bitcoin and other cryptocurrencies. I read about bitcoin in The Economist and thought it sounded interesting. But then I read Satoshi Nakamoto’s white paper, which is called “Bitcoin: A Peer-to-Peer Electronic Cash System,” and I decided to research more. I learned that bitcoin might not be safe, it might be too good to be true, and it might become worthless.
People who disagree with me will say that I am trying to make a fortune off bitcoin. That’s not true. All I want is for people to understand how it works and if they don’t agree with me, then they can think twice before accepting bitcoin as payment.
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Bitcoin is a cryptocurrency. A cryptocurrency is money that isn’t controlled by a government. Governments can’t make it, they can’t take it away, and they don’t have to print more of it. What they can do is tax it, or freeze it, or confiscate it.
Bitcoin is different from traditional money in other ways. It’s not backed by anything physical. It doesn’t have a central bank backing it up like the dollar does. And most importantly for now, people don’t necessarily trust the word of the bitcoin developers regarding its future direction – two things that would be essential if bitcoin was to replace dollars and pounds.
So what is bitcoin? It’s an idea – a way of making sure that everyone in the world has access to a secure online payment system without having to trust an organization or individuals. The idea is brilliant but flawed.
Bitcoin, the world’s most famous cryptocurrency and the inspiration for many others, is more than just a currency. It’s a new technology that has the potential to completely disrupt and transform the way we do business on the Internet.
Bitcoin was originally described as “a digital currency without the government.” But that’s not quite right. Bitcoin is really a “digital currency with the government” — or rather, with a government that doesn’t need to be trusted.
Bitcoin is not created by a central bank or issued by a government. Instead, it has been designed to be produced by computers running software that solves very complicated mathematical problems. The Bitcoin protocol guarantees that only 21 million bitcoins will ever exist, based on how many problems can be solved by computers running this software.
Unlike regular currencies you can use at the grocery store, these bitcoins are designed to have a fixed supply – and they never get any cheaper. The total number of bitcoins in existence right now (just under 16 million) is about 5% more than all the money in circulation in all forms of currency around the world combined.
People often say that Bitcoin is a bubble, but I think that’s misleading. Bubbles are based upon irrational exuberance. Bitcoin has no central figure, no founder, no company to speak of. It’s just the product of a bunch of math. And maybe there’s something wrong with that math.
If you want to make money with cryptocurrencies, it is useful to understand the basic facts. These are:
Cryptocurrencies are not anonymous.
Cryptocurrencies are not secure. Even if they were secure, they would only be secure when everyone shared that security.
Cryptocurrencies have extremely limited uses.
Cryptocurrencies are more likely to generate money than to create wealth.
There are a lot of different kinds of cryptocurrencies. The most popular ones today are Bitcoin and Ethereum. But they are not the same thing. There is a lot of confusion about them, so let’s do our best to explain what they are and what they mean.
The most obvious difference between Bitcoin and something like Ethereum is that Bitcoins are all about money; Ethereum is about applications, or “smart contracts.”
Bitcoin is an exchange system. You can send Bitcoins to other people, but first you have to convert them into something else: dollars, yen, euros, whatever. That’s how you get paid for the work you do on the network: by converting bitcoins into dollars or other currencies that people will actually use in their real life.
Ethereum makes it possible for applications to work without having to be connected to a central server. Applications can run on their own computers instead of on someone else’s computer, just as if they were running on your computer at home. They don’t have to rely on a single company like Amazon or Microsoft for hosting; there are many different hosting providers in case one company stops being reliable.
But there is a big difference between running an application on your own computer and running it with the help of millions of other computers around the world