Created by Satoshi Nakamoto, Bitcoin is the most famous cryptocurrency in the world, and also the one with the most value. It stands out as a forerunner of virtual currency because it represents the first generation. Bitcoins are created and managed by a community of Internet users providing their computing power.
Definition of Bitcoin
Bitcoin, also written under the acronym BTC, is a cryptocurrency or “cryptoactive” based on a community blockchain system.
What is a cryptocurrency?
In order to define Bitcoin and explain how it works, you first need to know what is a cryptocurrency. The latter represents a virtual currency which is called ” decentralized “, That is to say that it is not not run by the state or banks. The latter, not having control over it, describe cryptocurrencies in general as being “any instrument containing in digital form non-monetary value units, which can be kept or transferred with the aim of acquiring a good or service, but not representing a claim on the issuer ”.
What is blockchain?
Made up of “blocks” and “chains”, the blockchain is a register recording all the transactions that have been made, as well as many other data concerning Bitcoin, since its creation in 2009. Each block represents new exchanges and new data on cryptocurrency from the last 10 minutes.
We must therefore consider that every 10 minutes, a new block is created to write down all new transactions and fluctuations in the value of Bitcoin. All the blocks are connected by chains, which induces a retrospection of the actions carried out. This is what allows, like a state or a bank for institutionalized money, to regulate virtual currency, because all its historical there is registered and fully searchable.
To write all this data, many computers are used, but they use a lot of electricity, costing a lot of money. Indeed, writing the history in the blockchain requires great computing power on the part of these electronic devices.
So the protocol, which can be likened to a script, rewards people from the community providing their clean computer, or their computers if they have more than one, to participate in writing this data. This award is under the Bitcoin form, more precisely from ” fragments “of Bitcoins.
Note: This action is also known as ” mining ” So when a person ” Bitcoin mine Is that he is involved in writing transactions and other information in the blockchain.
What is Bitcoin?
Bitcoin is the very first cryptocurrency, created in 2009 by a man calling himself Satoshi Nakamoto, although his real identity has not yet been discovered.
Since it is primarily a currency, Bitcoin is supposed to have value, but it’s hard to put a fixed price on it. This is all the more true since he:
- This is a virtual currency which is not not recognized either by the state or by banks. By way of comparison, one could say that it is about Casino “chips” ;
- Does involve a some “conversion” which can be defined between itself and the fiat currencies, but it fluctuates constantly.
Take for example the value bitcoin that was taken at a time T, either a only Bitcoin estimated at around € 9,645. During the day, this value will increase and decrease every second. This is known as the “price,” just like the stock market. At the end of the day, several data will be listed:
- The starting value (at the start of the day);
- The end value (at the end) ;
- The maximum value damage during the day;
- The minimum value.
Thus, it could be that at the end of the day, the value of Bitcoin is lower, or on the contrary higher than 9,645 €.
Although it is possible to generate Bitcoins, you should know that there is however a limit to that, which is by the way already planned. Indeed, in 2140, 21 million Bitcoins will be created, and this will represent the maximum number that can be generated. However, every Bitcoin is divisible into 100,000,000 individual units, hence the term “Bitcoin fragments” mentioned above. In other words, a Bitcoin is divisible until 8e decimal.
Did you know ? In tribute to the creator of this cryptocurrency, the community has decided to call a fragment of Bitcoin a ” satoshi ” So, you have to remember that 1 satoshi = 0.00000001 Bitcoin.
History and operation of Bitcoin
The creator of Bitcoin had started his project 2 years before its launch, i.e. in 2007.
The creation of Bitcoin
The Bitcoin system is an improvement on two unsuccessful concepts, due to an insufficiently developed trust model:
- b-money, established in 1999 and imagined by Wei Dai;
- Bitgold, in 2005 by Nick Szabo.
It’s the January 3, 2009 that the first block of the blockchain is created, called “genesis block”. In February, Satoshi Nakamoto sent the first version of its Bitcoin software to the P2P Foundation, and generated the first Bitcoins with his computer, which he then made available.
What are the principles of Bitcoin?
Why was Bitcoin created?
Unlike the other two concepts mentioned above, Bitcoin is based on a more transparent trust model thanks to blockchain. Here, each individual wishing to participate in the project can do so by simply making their computer available.
Bitcoin was created with the aim of having a currency that is not governed by the state. This cryptocurrency is decentralized and operated by Internet users in a regime of trust.
How is Bitcoin used?
For a person to receive or send Bitcoins, they must first have a Bitcoin address. For this, she will have to use a ” wallet “, Also called” Bitcoin wallet “.
The portfolio is a downloadable software on a computer or laptop that stores Bitcoins and generate addresses to receive Bitcoins. These portfolios have a secret key, which is therefore a password, which only the user should know. He can then write this password on paper or in a notepad, or keep it in mind if he wishes.
For a transaction made with Bitcoins, the receiver will have to send his Bitcoin address to the person having to pay, who will then send him the requested amount. Once the electronic signature is made between the two people, it will be impossible to go back.
The blockchain will allow us to know whether or not the transaction can be made. To do this, the computers in the community will dig into the history of virtual currency by asking themselves certain questions:
- Does the portfolio exist? ;
- Are there Bitcoins inside? ;
- Is the Bitcoin address good?
If all of these questions are answered positively, then the transaction will be accepted.
The blockchain network says ” transparent and anonymous ” Transparent because all transactions that have been made are written to the blocks. It is therefore possible to see all the exchanges that have been made. Anonymous, because it is impossible to know who carried out these transactions. We will only see addresses.
The objectives of Bitcoin
Like all currencies, Bitcoin is mainly used for trading. The difference is that in the case of a purchase with Bitcoins, we are in a P2P network (peer to peer), and therefore that only the buyer and the seller will be affected, without the intervention of any other entity.
To date, compared to transactions made with the euro, the dollar and other institutional currencies, there are far fewer that have been made using Bitcoins. There are several reasons for this:
- People who mine Bitcoin prefer speculate, that is, waiting for the value of money to rise to buy or sell (be it goods, or the cryptocurrency itself);
- Transactions are made exclusively online. There is no liquidity with the Bitcoin system, making it impossible to buy a good accepting only currency;
- It is not not mandatory for a company, a professional or any salesperson to accept payment by Bitcoin. Knowing that this currency is not recognized or managed by an institution, the number of traders or sites accepting Bitcoins is very low.
Where and how to buy Bitcoins?
There are several ways to buy Bitcoins:
- The purchasing platforms, that is to say sites where you can directly buy Bitcoin with agreed money (euros, dollars and others). Several sites allow you to do this, the most recommended being eToro, Binance and Kraken. Note that if you have Bitcoins, some of these platforms will also allow you to sell them;
- The trading platforms, which allow you to exchange another cryptocurrency for Bitcoin. For this you can use eToro or Kraken;
- The brokers such as Coinbase, Coinhouse or XTB France. These connect the sellers and buyers of Bitcoins.
Why invest in Bitcoin?
Now that you know what Bitcoin is for, you might wonder what you can gain from investing in it.
The Benefits of Buying Bitcoins
Bitcoin is the world’s first virtual currency in terms of value. Investing in this cryptocurrency today will potentially earn you more later if you want to speculate. Knowing that even today, this cryptocurrency is new (although it’s the first one created), its value may still explode.
The Bitcoin system, in addition to being innovative, is very secure. Why ? Because the computing power necessary to write new data in the blockchain must be very large and that, to hack it, it would be necessary to take possession of more 50% of the links. This then represents an almost unreachable computing power. The blockchain system is so effective that it is even considered in other areas than that of cryptocurrency.
Advice : Prefer to deposit your Bitcoins in a secure wallet, whether online, offline or even physical (via USB stick for example). Physical portfolios, also called ” hardware wallets », Provide very good data protection.
The Risks of Buying Bitcoins
The potential danger in the Bitcoin system lies mainly in the fact that they have a uncertain future. In 2140, year of the last Bitcoin, cryptocurrency could be worth much more, or much less than its current value.
So speculators are those who believe in the future of virtual money, while others prefer to distance themselves. For those wishing to start in mining or in Bitcoin investment, they are especially advised to put into play only what they are ready to lose.