What is Bitcoin?

What is Bitcoin? Bitcoins are created and managed by a community of Internet users who make their computing power available.Created by Satoshi Nakamoto, Bitcoin is the most famous cryptocurrency in the world, and also the most valuable. It stands out as a precursor of virtual currency because it represents the first generation.

Definition of Bitcoin

Bitcoin, also written under the acronym BTC, is a cryptocurrency or “crypto-asset” based on a community blockchain system.

1.1 What is a cryptocurrency?

In order to define Bitcoin and explain how it works, you first need to know what a cryptocurrency is. The latter represents a virtual currency which is said to be “ decentralized ”, that is to say, that it is not managed by the State or the banks. The latter, not having their hands on it, qualify cryptocurrencies in general as being “any instrument containing in digital form non-monetary units of value, which can be kept or transferred for acquiring a product or a service,” but not presenting a claim on the issuer ”.

1.2 What is blockchain?

Made up of “blocks” and “chains”, the blockchain is a register noting all the transactions that have been made, as well as many other data concerning Bitcoin , since its creation in 2009. Each block represents new trades and cryptocurrency data from the past 10 minutes.

It must therefore be considered that every 10 minutes, a new block is created in order to write all the new transactions and fluctuations in the value of Bitcoin. All the blocks are linked by chains, which induces a retrospection of the actions carried out. This is what makes it possible, like a State or a bank for institutionalized money, to regulate virtual currency, because all of its history is registered and fully searchable.

To write all this data, many computers are used, but they consume a lot of electricity, costing a lot of money. Indeed, writing the history in the blockchain requires a great deal of computing power on the part of these electronic devices.

Thus, the protocol, which can be likened to a script, rewards people in the community making their own computer available, or their computers if they have more than one, to participate in the writing of this data. This reward is in the form of Bitcoins, more precisely " shards" of Bitcoins.

Note: This action is also known under the term " mining ". Thus, when a person “ mines Bitcoin ”, it is because he participates in the writing of 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.

1.1 Price

Since it is a currency first and foremost, Bitcoin is assumed to have value, but it is difficult to consider it a fixed price. This is true given that it:

  1. This is a virtual currency that is not recognized by the state or by banks. By way of comparison, one could say that these are casino “chips ;

  2. Does involve some “conversion” which can be defined between itself and fiat currencies, but it fluctuates all the time.

1.2 Value

Take for example the value of Bitcoin which was taken at a time T, that is to say a single Bitcoin estimated at around 9,645 €. During the day, this value will increase and decrease every second. This is called the “price”, just like with stock markets. At the end of the day, several data will be listed:

  1. The starting value (at the start of the day);

  2. The end value (at the end);

  3. The maximum value reached during the day;

  4. 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 this, which is already provided for. Indeed, in 2140, 21 million Bitcoins will be created, and this will represent the maximum number that can be generated. However, each Bitcoin is divisible into 100,000,000 individual units, hence the term “ Bitcoin shards” mentioned above. In other words, a Bitcoin is divisible until the 8th decimal place.

Did you know? As a tribute to the creator of this cryptocurrency, the community has decided to call a piece of Bitcoin a “ satoshi ”. Thus, it should be remembered that 1 satoshi = 0.00000001 Bitcoin.

History and operation of Bitcoin

The creator of Bitcoin had started his project 2 years before its launch, in 2007.

1.1 The creation of Bitcoin

The Bitcoin system is an improvement of two concepts that have not succeeded, due to an insufficiently developed trust model:

  1. b-money, established in 1999 and designed by Wei Dai;

  2. Bitgold, in 2005 by Nick Szabo.

It was on January 3, 2009, that the first block of the blockchain was created, called the “genesis block”. In February, Satoshi Nakamoto sends the first version of his Bitcoin software to P2P Foundation and generates the first Bitcoins with his computer that he then made available.

1.2 The objectives of Bitcoin

Like all currencies, Bitcoin is primarily used for transactions. The difference lies in the fact that, in the case of a purchase with Bitcoins, we are in a P2P (peer to peer) network, and therefore only the buyer and the seller will be concerned, without the intervention of some other entity.

To date, compared to transactions made with the euro, dollar and other institutional currencies, far fewer have been done through Bitcoins. This can be explained for several reasons:

  1. People who mine Bitcoin prefer to speculate, that is, to wait for the value of the currency to increase in order to buy or sell (whether it is goods, or the cryptocurrency itself);

  2. Transactions are carried out exclusively online. There is no liquidity with the Bitcoin system, making it impossible to purchase goods that only accept money;

  3. It is not mandatory for a company, a professional or any seller 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.

Characteristics of Bitcoin

The name Bitcoin will immediately ring a bell with a large group of people. But, what are we talking about? Below is an overview of the main features of Bitcoin

1.1 Easy and fast mobile payments

Bitcoin payment is relatively fast for international transactions. Average transaction times are between zero and twenty minutes. It is not as fast as, for example, an “ING to ING” payment. With Bitcoin, you do have the option to pay with a smartphone in 2 steps. To transfer money from mobile to mobile you just need to scan a QR code.

1.2 Manage money safely

Transactions within the Bitcoin network use encryption that in practice can never be broken. As long as you do not share your wallet password, no one can use your Bitcoins. This provides protection against many forms of fraud.

1.3 Works anywhere, anytime

As long as you have an internet connection you can use Bitcoin. You are therefore not dependent on office hours and banks that are down because of maintenance or a DDoS attack.

1.4 Pay quickly internationally

Distance and boundaries are irrelevant when sending Bitcoin. So you can just as easily and quickly pay the neighbour as your second cousin in Australia.

1.5 Low transaction costs

Low costs are of course relative. When someone wants to make an international transaction of a few million euros, it costs you a relatively large amount of money. You decide how much you spend on this. Low costs are therefore relative to the total amount.

1.6 Protect your identity

With Bitcoin, no identity fraud is possible as long as you keep your password safe. In fact, it is even possible to remain (almost) completely anonymous as long as you take sufficient measures to do so. For example by using Tor.

Technology behind Bitcoin

  1. Bitcoin uses blockchain technology. This is a public list of all confirmed transactions ever made within the Bitcoin network. Based on this list, it can be checked how many bitcoins there are in each wallet and whether you actually have enough bitcoins to perform a transaction. All transactions are visible to everyone and are usually confirmed via Bitcoin mining within 10 minutes.

  2. In order to be confirmed, transactions in this block must comply with very specific cryptographic rules. By applying these strict rules, it can be prevented that someone changes the information in a block, which would make this block and all subsequent blocks invalid. By applying to mine, it can also be prevented that one person can determine which blocks are added.

Business and Bitcoin

Tech companies were among the first to participate. For example, at Microsoft, it was already possible in 2014 to buy Xbox games with bitcoin. AT&T and crypto turned out to be a less fortunate combination, the largest telecom provider in the world were sued last year for theft of $ 1.8 million, including cryptocurrency.

More and more exchanges have been added over the years, BitPay (USA) and Bitstamp (Luxembourg) were the first in 2011. Bitstamp is still one of the most popular Bitcoin exchanges, along with Bitfinex, Binance and Bitvavo, among others.

Cryptocurrency, especially Bitcoin and Ethereum, is also playing an increasingly important role in online gaming. Paying with Bitcoin in casinos is becoming more and more common. For players, this means more privacy, for operators lower costs and more security.

Where and how to buy Bitcoins?

You have several ways to buy Bitcoins:

  1. The shopping platforms, that is to say, sites where you can directly buy Bitcoin with conventionné money (Euros, USD and others). There are several sites that allow you to do this, the most recommended of which are eToro, Binance, and Kraken. Note that if you have Bitcoins, some of these platforms will also allow you to sell them;

  2. The trading platforms that allow you to exchange another crypto money against Bitcoin. For this you can use eToro or Kraken;

  3. The brokers such as Coinbase, Coinhouse or XTB France. These connect sellers and buyers of Bitcoins.

What is Bitcoin halving?

Bitcoin halving refers to the phenomenon by which the miners’ reward is halved every 4 years or so, or every 210,000 blocks excavated. The halving of May 11, 2020, increased the miners’ reward from 12.5 to 6, 25 bitcoins.

Halving, due to the scarcity of Bitcoin it entails, tends to drive up the price of the cryptocurrency.

How to mine bitcoins?

Maybe you are tempted by the activity of miner and you are wondering how to go to mine Bitcoins and above all, how many Bitcoins can one mine and in how long?

If the activity of miner could be relatively easy during the few years which followed the launch of the famous cryptocurrency, the computing power now necessary to mine Bitcoin is enough to discourage an individual from becoming a miner.

First, you will need to equip your computer with software intended to mine Bitcoin. Then, you will need to have enough computer equipment so that you can run your software while continuing to use your computer, which will not be easy.

Bitcoin miners are therefore above all professionals. They are even gigantic structures with substantial computer systems. In fact, Bitcoin mining has become more professional in recent years and Bitcoin is now mined in “farms”, that is to say, warehouses of several thousand or even tens of thousands of m2, housing servers computers running at full speed, located in relatively cold regions so that the servers do not overheat.

Bitcoin is experiencing unprecedented success in China, where there are no longer any mining farms for the famous cryptocurrency. Most Bitcoin miners are Chinese. Thus, China’s share in Bitcoin mining is estimated to be between 70% and 80% globally.

Why invest in Bitcoin?

Now that you know what Bitcoin is for, it is possible to wonder what can be gained by investing in this currency.

1.1 The advantages of buying Bitcoins

Bitcoin is the world’s leading virtual currency in terms of value. Investing in this cryptocurrency today will allow you to potentially earn more down the road if you want to speculate. Knowing that even today, this cryptocurrency is new (although it is the first created), it is still possible that its value will explode.

Bitcoin’s system, in addition to being innovative, **is very secure**. Why? Because the computing power necessary to write the new data in the blockchain must be very large and that, to hack it, it would be necessary to take possession of more than 50% of the links.

This then represents an almost unattainable computing power. The blockchain system is so efficient that it is even being considered in areas other than cryptocurrency.

Tip: **Prefer to deposit your Bitcoins in a secure wallet**, whether online, offline or even physical (via USB key for example). Physical wallets, also called “ hardware wallets ”, provide very good data protection.

1.2 The risks of buying Bitcoins

The potential danger in the Bitcoin system lies above all in the fact that they have an uncertain future. In 2140, the year of the last Bitcoin, the cryptocurrency could be worth much more, or much less than its current value.

Conclusion

Bitcoin is designed as a digital payment method with which you can send transactions to each other without the intervention of a third party such as a bank. The transactions are verified and executed by a decentralized network of computers. This network consists of miners and nodes.

You can get bitcoins in different ways: By accepting bitcoins as a means of payment for services and goods. By mining them. But most people choose to simply buy them, for example through BTC Direct.

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