Bitcoin is a form of electronic money (this is just a visual representation).
Although we are all accustomed to the idea of digital currency – spending and receiving money that is not physically in front of us – cryptocurrencies, like Bitcoin, remain a mystery. How could we use the money in the future? And can we even rely on cryptocurrencies? In this questionnaire, we ask Dr. William John Knottenbelt, director of the Cryptocurrency Research and Engineering Center at Imperial College, to help us better understand this type of mysterious coin.
Bitcoin is a form of electronic money. This means that he is not physically fit. In contrast, electronic money units are exchanged over a computer network that has some unique properties: There is no central control point (there are no “banks”).
There is no central transaction storage point (a central database that contains a record of all transactions made).
Instead, it operates on a global network with thousands and thousands of nodes, a machine within a network such as a computer or other device, that processes and stores transactions together.
With thousands of nodes it is difficult to have a common record of all transactions, but a technology called blockchain makes it possible. Blockchain is a shared transaction log. It prevents anyone from “spending twice as much” on bitcoins and makes it extremely difficult to change historical transactions. It is very difficult, if not impossible, to stop or interfere with it.
Node: A machine that participates in the global network by running bitcoin software.
Blockchain: A database of financial transactions that is constantly growing as new transactions or “blocks” are added, forming a continuous, public chain of data.
Cryptocurrency: Digital and decentralized currency that uses cryptography for security.
Cryptography: The science of encrypting and decoding messages and data in a secure way. For example, by encryption.
2. Where does it come from?
Bitcoin was first published as an idea in an email list for computer scientists studying secure communications (or cryptographers) in 2008.
The author uses the mysterious pseudonym Satoshi Nakamoto, but so far no individual (or group of people) has been conclusively identified as Satoshi.
3. Is it still used and where can it be used?
Bitcoin is still in use and is very actively traded in cryptocurrency exchanges, allowing users to exchange “normal” money such as free for bitcoin.
To use bitcoins, the first step is to create a wallet (which can be online, a mobile application, or, for added security, a hardware device). This protects the secrets that are used to allow the movement of bitcoins under your control.
Your wallet will control various “addresses” that, such as bank account numbers, can be used to receive bitcoins. It will also control the secret password needed to authorize the sending of bitcoins (technically known as a private key). If you lose your private key or have it stolen, you effectively lose control of your bitcoins, just as someone discovers your PIN.
4. Why would anyone want bitcoins instead of “normal” money?
The “normal” silver we use today is quite unusual in the history of silver, in the sense that it is no longer valuable (like gold coins).
If you read the pledge on a £ 10 note, it says (in very small print):
“I promise to pay the bearer, on request, the sum of ten pounds.”
(Next time you find a ten pound note with old jeans, take a look).
Not too big a promise if you keep in mind that all the guarantee authority (like the Bank of England) has to do is print another piece of paper to fulfill that promise.
As money is created, it erodes the value of existing money in circulation. People don’t necessarily notice this erosion because the nominal amount of their money stays the same; however, they realize that their weekly groceries, restaurant meals, and movies cost more and more money.
Bitcoin is different.
The supply of bitcoins is carefully controlled and limited, and no one can create or issue more bitcoins at will. There will never be more than 21 million bitcoins, and each bitcoin is divisible into 100 million units called satoshis. This helps prevent the type of value erosion that affects the “normal” currency (a phenomenon that the people of Zimbabwe and Venezuela know all too well).
5. Can bitcoin make you a millionaire?
Bitcoin is a high risk, speculative and volatile asset. Like many high-risk investments, it goes through ups and downs and, depending on when you buy it (or buy it), it can make you a millionaire or ruin you.
In its early days, bitcoin was trading at $ 1 per bitcoin; it peaked at about $ 20,000 in 2017 before dropping to about $ 3,000 and then stabilizing at around $ 8,000.
Like a stock or a house, bitcoins are worth no less than what other people are willing to pay for them.
6. What is bitcoin mining?
Bitcoin mining is the process of adding new groups of transactions (called blocks) to the shared transaction log (called blockchain).
There is an ongoing global competition – called the mining career – to win the right to add a new block to the blockchain.
To participate in this contest, users must purchase hardware that specializes in mining that consumes a lot of electricity; Hardware itself is likely to become obsolete quickly due to the constant invention of more efficient hardware, so it is not a profitable business for most people.
The people involved in this activity are called bitcoin miners. They participate in this contest with two types of prizes:
- the block reward (currently 12.5 BTC) issued to the publisher of each block
- transaction fees: fractions of bitcoins that encourage miners to include transactions in published blocks.
To make matters worse (from the miner’s perspective), the “difficulty” of competition increases as the number of miners involved increases, in order to avoid issuing new bitcoins too quickly. The blog’s reward is also halved every four years, making them much more expensive to produce.
7. Can cryptocurrencies be trusted?
As in any rapidly developing space where new technologies proliferate, there are high-quality, low-quality cryptocurrencies.
In the face of often sensible marketing operations, many ordinary people find it difficult to distinguish between cryptocurrencies that have real potential and show real points of technical novelty, from those that are simple clones of other currencies or, worse, again, real scams.
At times, schemes like One Coin pretended to be cryptocurrencies, but then turned out to be nothing more than well-organized pyramid scams, backed by a centralized database.
8. Could cryptocurrencies be more popular than physical currency in the future?
Theoretically it is possible, but it will probably take many years and many technical, economic, regulatory and legal issues before it becomes a reality.
For example, the Bitcoin blockchain can currently handle far fewer transactions than traditional centralized payment networks such as Visa or Mastercard.
One category of cryptocurrency that is proving to be very popular and perhaps more likely to become more popular than physical currency is “stable currencies”, that is, cryptocurrencies whose value is tied to “normal” currencies such as the dollar. of the US, the euro and the pound, so unlike bitcoin, a unit cannot be worth £ 26,000 a year and £ 6,000 two years later.