Bitcoin has revolutionized the financial world. Not just companies and investors, but even countries. Some, like El Salvador, are in its favor and plan to use it as legal tender. Others, like China, are against it and apply strict regulations to limit its use. The fact is, the word “bitcoin” is all the rage and it is impossible not to have heard it. Where was this asset born? What is it? How does it work? Why has its price risen so much? Here we tell you.
What is bitcoin?
It is a virtual currency that, like any other, can be used to exchange products or services. The difference with the traditional currencies of the rest of the world – such as the dollar or the peso – is that it is not at the expense of a central bank, it does not depend on any financial authority, and it does not exist physically.
The cryptocurrency was born in 2009, when someone with the pseudonym Satoshi Nakamoto emailed an article to experts in cryptography and digital code. In it he described the characteristics of this digital money and attached a code with which to carry out the so-called ‘mining’ of this virtual currency, the process to validate and carry out the transactions. Even today, the identity of Nakamoto and if he is a single person or a group of them is unknown.
The idea of having a safe currency outside the system and the control of the banks was all the rage. More and more people adopted it to make transactions, and little by little it became popular.
How does it work?
Bitcoin is born and lives on the blockchain. And what is the blockchain? It is difficult to offer a simple explanation, so let’s take an example. Imagine that the Internet is a schoolyard. There, the children exchange stamps, food or toys, but all transactions are carried out under the control of the teacher, who keeps a commission. One day, the children decide to ‘decentralize’ their exchanges, and create a common and transparent account book. This book is made up of identical blocks or nodes, where the information of the exchanges is automatically updated, and each child has access to one of them. They cannot be tampered with or falsified, and there is no longer a need for a central authority.
Simplifying, the blockchain is a public, transparent, secure database that is in the hands of all users who want to use it to exchange information, goods or services. “This is what makes it so secure, because the only way for these types of operations to be credited is for all of us to have the same copies,” says Maximiliano Hinz, head of operations at Binance, a cryptocurrency exchange.
Virtual currencies have flourished thanks to this blockchain system, and bitcoin is the highest value and the one with the highest adoption. It is the first use case of blockchain technology globally, and it is “super secure, there has never been a case of duplication of operations on blockchain,” Hinz says.
How much is a bitcoin worth?
One of the main debates is whether bitcoin has the characteristics of traditional money and whether it can be a legal tender such as the dollar, the euro or the peso. The detractors say no, because its price varies a lot: one day it can go up 30%, but the next it can fall 20%. In April, the cryptocurrency reached a record of $ 63,410.3 per bitcoin (approximately 1.3 million pesos), and by that time, its price had risen 800% in 12 months. Since then, the price has dropped 50%, to about $ 33,000.
Despite the doubts, bitcoin has more and more uses for the sale of products and services, which in turn encourages greater adoption. This makes its value go up. But for something to be money, it must accomplish three things, explains Javier Molina, analyst and spokesperson for eToro: that it be a store of value, that it be a unit of measurement and that it be a medium of exchange. At the moment it only meets the latter, but the high variation in its price makes it difficult for it to become a stable and reliable currency in the short term.
In the long term, the situation can change. In 2020, for the first time there were cases of real use of bitcoin by companies: Tesla, in addition to investing in the currency, announced that its cars will be able to be bought with bitcoins. Mastercard and Pay Pal also indicated that they will allow buying and paying in this cryptocurrency on their platforms.
“Suddenly the whole traditional market moved towards the crypto market, and the big companies and people said: ‘We have to move here.’ If you look at it, now there are fewer and fewer people selling their bitcoins. The supply is shrinking, and that’s why the price is going up, ”Hinz says.
Another of the differences of bitcoin with other currencies that work as currency, such as the dollar, is that the offer is limited, says Molina. The limit of bitcoins is 21 million, which will protect its value in the future and will limit the variation in its price, since this, with the supply capped, will depend solely on the demand, Hinz adds.
Being a new currency, there are still many fears surrounding it, so any news, good or bad, has a serious effect on its price. Specialists agree that high volatility will continue in the short term, but in the long term, when bitcoin matures in the market, the variations will be less and less. With this, it can be converted into ‘real money’.
What can I buy with bitcoins?
At the moment, you cannot buy anything with bitcoins. As with any other currency, it depends on whether whoever offers the service or product you want to buy accepts them. And still, many companies (and many people) do not accept it.
But more and more companies do. At the moment, these are some of the places where bitcoins are accepted as payment in Mexico: the Escuela Primaria Veteranos de la Revolución, in Nuevo León; the Alin’s Bar and the Cine Tonalá in Mexico City.
This is how you can buy bitcoins in Mexico
Bitcoin is not a physical currency, there is no issuer like a bank that people can go to to obtain it. Still possible but if you are only looking to invest in this cryptocurrency, the easiest way is through investment platforms.
Among the most popular platforms are Binance, Bitso or eToro. And it is not always necessary to shell out thousands of dollars: there are instruments that replicate the movement of bitcoin, but for only a fraction of its price. As adoption grows, people’s interest in investing in this cryptocurrency also increases, but like any other asset, specialists recommend investigating what to invest in, knowing its risks and not betting all the assets on it. “It’s not to put all the fortune, but a part,” says Molina.
