What to know about crypto money

The word Bitcoin is made up of “bit” and “coin”. Coin means coin in English, and “bit” refers to the smallest unit of information that a computer can process. Commonly, Bitcoin is a type of digital currency and is also known as crypto currency or cryptocurrency. “Crypto” in turn comes from cryptography, which is used to describe encryption. Before we can define Bitcoin in more detail, however, we must first explain another concept that is inextricably linked with Bitcoin.

Blockchain

As its English name suggests, the blockchain is a chain of blocks of information. According to their inventors, the information stored in the blockchain (more precisely in the distributed public ledger) is tamper-proof and can be clearly attributed chronologically. Indeed, each block contains a reference to the previous block.

The information of the chain is encrypted thanks to cryptography, the connection between the links of the chain being protected against counterfeiting (exchange of links) thanks to cryptography. Transactions in the public journal are also protected against counterfeiting by means of cryptography, the journal itself (content and sequence) is not encrypted.

Unlike the issuance of new banknotes by a central bank, new Bitcoin units are created through the IT solution of crypto tasks, known as mining, although the maximum amount is capped at 21 million Bitcoins. Much of it has already been created, the VZS explains on the show.

How to get it and how to spend it?

Bitcoins are usually managed through an electronic wallet, an electronic wallet. It is important to clarify in advance what costs will be incurred for which wallet. Payments also go through this wallet. Alternatively, local bitcoin software can be used. To date, wallets have not been uniformly regulated, although attempts are being made in Europe to regulate the technologies.

Commercial portfolios are therefore subject to regulations, depending on the country, such as the registration of the identity of their clients or the reporting of suspicious cases, and the standards provided for in the EU to combat money laundering and the financing of terrorism. are likely to multiply these requirements (this is the case for not self-hosted wallets).

What can you use bitcoin for?

There is a whole range of services and goods that can be purchased with Bitcoin – from password management programs that rely on absolute anonymity to pizza vending machines, Bitcoins are accepted. Bitcoin has been criticized repeatedly because – due to its anonymity – it is used for criminal purposes, for example to pay ransom (whether for kidnappings or for blocking data by ransomware).

How much is Bitcoin worth?

The price of Bitcoin is defined only by supply and demand, and results from a mechanism similar to an exchange. Since no central or central bank guarantee for the crypto currency, the price fluctuates widely. The term ‘cryptocurrency‘ is therefore misleading – behind currencies are states, central banks or central banks, behind cryptocurrency are blocks of information chain. A look at the past few months shows how much the price can fluctuate:

This way of defining the price makes the Bitcoin price extremely sensitive to external influences; For example, a Twitter post from Tesla boss Musk announcing that Tesla would no longer accept Bitcoin payments was enough to cause the exchange rate to collapse by 15%, the VZS continues.

Bitcoin as an investment

This susceptibility to fluctuations is also the reason why Bitcoin deserves the title “highly speculative” as an investment: an investment in Bitcoin can only be considered if one can do without the respective capital. For prudent investors with specific savings and investment goals, the currency is “intervention-free”. On the other hand, Bitcoin as a means of payment, acquired shortly before the date of issue, presents a manageable risk (and therefore in most cases also manageable).

The others: Doge-Coin & Co.

Bitcoin is not the only crypto currency, there are several, like Ether, Ripple or Doge-Coin, which are available on different trading platforms. The Italian stock market supervisor Consob issued a warning against the “Binance” platform in July 2021 because, according to Consob, all amounts invested could be lost. This warning can be extended to all crypto assets, regardless of the trading platform, explains the VZS.

Attention, free riders!

In addition to the actually existing cryptocurrency, there were and still are pyramid schemes marketed as cryptocurrency, which further calls for caution. The most sensational among these systems was certainly “OneCoin”, which, according to various prosecutors, wiped out over US $ 4 billion worldwide (the system was also active in South Tyrol). Investigations are underway against the top of the system in 20 countries. In Italy, the antitrust authorities identified the system as an illegal pyramid scheme and imposed a fine of 2.6 million euros.

Problem for the environment?

Bitcoin in particular has come under criticism time and time again because a huge amount of energy is required to mine it. Since this often happens in countries where electricity is mainly obtained from non-renewable raw materials, the emissions generated have a significant impact on the climate as well. A Bitcoin transaction consumed an average of 1,200 kWh of electrical energy in May 2021; In contrast, a transfer with a credit card requires an average of 1.5 watt-hours (0.0014863 kWh), VZS announced on the show.

Conclusion

“Don’t let technical buzzwords and promised profit margins chase you – cryptocurrency is a highly speculative investment product. Due to extreme price fluctuations, all of the invested capital can evaporate virtually overnight. On the other hand, money encrypted as a means of payment, bought in the short term and then spent again, comes with manageable risks. The European Union is currently working on uniform regulation of the various crypto funds, portfolios and platforms as well as on the introduction of a “digital euro”, which will serve as a – regulated – replacement for coins “, continues the VZS.

The present situation

The Bitcoin price started the week badly, with a minus 7%. At the beginning of September the rate still exceeded 44,000 euros, it is currently hovering around 36,000 euros, with a loss of 8,000 euros, a drop of more than 18% in 3 weeks. Analysts speculate that there are likely several reasons for this: regulatory initiatives by US authorities, similar projects in Europe, and the negative impact of Bitcoin’s energy consumption (according to the University of Cambridge, Bitcoin currently consumes around 101 TWh per year, which is just below the Dutch electricity demand per year).

“These price fluctuations clearly show that Bitcoin as a financial investment should receive the ‘highly speculative’ predicate, says VZS Managing Director Gunde Bauhofer.

STOL: What are the most common concerns of consumers?

Gunde Bauhofer: Most of the inquiries are about how consumers can get cryptocurrency. However, one should always be aware that cryptocurrencies are well suited as short-term investments, but certainly come with risks.

STOL: What is your advice to consumers?

Bauhofer: Money invested can be wasted – consumers need to be aware of this. You should never invest all of your equity, but only part of it, so that you don’t end up completely on solid ground in the event of a problem. How much you can invest depends on your personal fixed costs, savings goals, and security of capital. You can only invest your money in Bicoin if you can handle the fact that the money can run out practically “overnight”. Cautious investors with clear savings and investment goals should carefully consider whether they wish to invest in Krpy money.

STOL: How many inquiries is the Consumer Center getting about cryptocurrency?

Bauhofer:
Sometimes it’s more, sometimes less, requests come and go in waves. But interest in cryptocurrencies has never completely died out over the years.

vol / lmn

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