How to invest in Bitcoin – Will BTC still be profitable in 2019?

Bitcoins and other crypto currencies are appearing more and more frequently in the news. The high value and the question about the course tempt more and more people to deal with the topic. But what is actually behind it? Very few people know that! It concerns the so-called Blockchain .

Blockchain – what is it?

In 2008 the pseudonym “Satoshi Nakamoto” developed the crypto currency Bitcoin. The aim was to offer an alternative payment system in response to the global financial crisis. The blockchain is a decentralized database. It consists of a list with many transaction blocks. All those involved in the production of the blockchain are able to initialize, receive, verify and participate in the process of creating new blocks.

Spanish Sources of this article:

How was the blockchain created?

At the beginning the crypto currency was developed. After the basis was created, smart contracts and digital contracts were added. These are executed automatically as soon as both parties to a transaction comply with the previously defined rules. These are stored in the program code in a kind of if-then-function. In the last step, the blockchain was published and thus integrated into many services worldwide, e.g. as a payment method.

What are the properties of the block chain?

The block chain is characterized by the following properties:

  • Decentrality: Due to its decentralized database, all data is stored on thousands of different computers worldwide.
  • Trust: The different nodes within the blockchain cannot simply be manipulated. This creates confidence in the system.
  • Anonymity: No personal data is exchanged during a transaction, so the partners do not need to know each other and anonymity is guaranteed.
  • Transparency: All transactions are publicly visible and thus the degree of decentralization determines how far information can be traced back to its origin.
  • Manipulation security: Individual nodes can only be controlled by a participant and thus blocked, changed or transferred to any address if they are owned by more than 51 percent. This makes it almost impossible for transactions that have been added to the blockchain to be processed or removed.

How does the blockchain work?

In very vivid terms, a blockchain is like a kind of transaction book that neither belongs to a person nor is kept in one place. In order to give the whole thing more confidence and security, various procedures were created to process the transactions. One of the best-known algorithms for this is the proof-of-work algorithm.

In this case, Miner (participants group the transactions into blocks and confirm them) must provide proof of performance. This is done by a participant fasting the transactions received by him to an unchangeable block. After the required result has been found by millions of arithmetic operations, the block is confirmed and appended to the block chain. The incentive for the participants to perform these arithmetic operations is the remuneration with Bitcoins.

What are the advantages and disadvantages of the blockchain?

Advantages are

  • Decentralized data storage.
  • No need for central management.
  • Tamper-proof due to a complex encryption procedure.
  • Low transaction fees due to the elimination of third parties.
  • High data quality – all data within the blockchain is complete, consistent, temporally and everywhere available.
  • Many possible applications, e.g. as a basis for crypto currencies.

Disadvantages are:

  • Slower than centralized databases.
  • Unclear legal basis.
  • High resource consumption due to the proof-of-work algorithm of the Bitcoin blockchain.
  • Danger of 51% attacks.
  • High implementation costs of a blockchain.
  • Danger of unknown security vulnerabilities.