Bitcoin, blockchain and cryptocurrencies, explained in a simple way

What exactly are Bitcoin, Blockchain and cryptocurrencies? Is it safe to invest in them or are we facing a bubble of enormous proportions? On all these issues and the future of money on the Internet we spoke during the past Xataka Awards, in one of the talks that took place during the event.

The speaker of the talk was Carlos Domingo , co-founder of the company SPiCE VC specialized in investments in Blockchain with a long career in innovation in the field of telecommunications. He has lived in the United States and Japan, has been responsible for everything that carries the word R & D in Telefonica in different positions, and now is involved in a project related to the world of cryptocurrencies.

With this premise, Domingo places Bitcoin at the same level as the rest of the protocols that make the Internet work, such as TCP, IP, FTP or HTTP. A protocol that allows transmitting value as others allow to transmit voice, mail or files. And no, it has nothing to do with Paypal or Apple Pay, since these do not represent digital native money but a way to transmit the money of the current banking structure. Bitcoin is "a hundred percent digital native coin".

And where does Bitcoin come from? The first of the cryptocurrencies was created "Satoshi Nakamoto" , a pseudonym that corresponds to a person who nobody knows exactly who he is . This man published an article in 2009 describing a P2P payment system he called Bitcoin. After a few months he himself published the first version of the software that allows managing the currency network, and begins to interact in forums with the first interested parties.

Another important concept is that of exchanges, which allow you to change currencies such as euros or dollars for Bitcoins and get into the world more easily. When you get them, they are stored in what are called 'Wallets' or portfolios , which are applications that allow you to save or exchange them.

From there, from purse to purse you can change money, and when someone gives you their purse address you can send them Bitcoins. Once the transaction is made, it is replicated throughout the computer network so that you can no longer modify it, since to do so you would have to modify the transaction on all computers. This means that the larger the Bitcoin network, the more secure your transactions.

In addition, the amount of cryptocurrencies that are issued each year is configured in their algorithm. It is mounted in such a way that every four years the number produced is reduced by two , and only a total of 21 million Bitcoins will be issued. This is a fundamental difference with conventional currencies, since banks modify their value at their own free will. This gives it more capacity to generate value against currencies that can be devalued when banks say.

As Carlos Domingo tells us, the word cryptocurrency is made up of two different concepts. The first one is crypto, because cryptographic algorithms are used to make the Bitcoin network safe . These allow that when an action is taken the computers can not reverse it, and you can not know where it comes from and who has made it.

The second part of the concept is the definition of what a currency is. The currencies have to fulfill three functions , that of allowing to store value, make exchanges and transactions, and referencing objects. Reference means that you can use a reference value, as when you say the price of your phone so that the rest of us can get an idea of ​​its value.

According to these criteria, as Domingo explains, we can not say that cryptocurrencies are real coins because they do not fulfill these three properties. The one that is fulfilled the most is the storage of value, as if it were a virtual gold. But as a means of exchange is not accepted in too many places, and as its value is constantly changing does not serve as a reference.
Cryptocurrencies will not be real coins until these three properties are met.

"The Bitcoin since it started has probably had the greatest revaluation in the history of finance of any type of financial asset," says Carlos Domingo. The first Bitcoin was issued in January 2009, and from 2013 and 2014 it starts to rise in value until it starts to shoot in the last two years.

To understand if it is a bubble, Carlos Domingo compares its value with that of other financial assets, such as gold, which in total is 8.2 trillion dollars compared to the more than 260,000 trillion that Bitcoin is worth at the moment. to write this article. If the Bitcoin fails to convert into currency it could remain as a store of value, and could be considered a kind of digital gold .

"Imagine that it is worth a third of gold, and that ten years from now, a third of the value in gold moves to Bitcoin because people decide it is digital gold much better than gold," he says. conference. "That would mean that the market capitalization of Bitcoin would be $ 2 trillion.As Bitcoin's number is limited , if you run the accounts that means that a Bitcoin should be worth $ 150,000, and now it's 8,000."
Although now its value is almost double the same, because "you have to believe that you will get to replace at least the digital gold" and at most the coins. And if it passed its current value it would be very small compared to what it could become.

This, according to Domingo, makes Bitcoin a very small asset today, no matter how much we hear words on the television as a bubble. But even the value of this cryptocurrency is not as important as what is inside it, which makes it work the way it does. It is the block chain or Blockchain, to which more and more functionalities are being found.