Bitcoin is a revolutionary digital currency that has taken the world by storm. It operates on a decentralized peer-to-peer network, allowing users to transact without intermediaries or central authorities. Transactions are recorded on a public ledger called the blockchain, which ensures transparency and security in the system.
Bitcoin was created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. Its popularity has grown exponentially since then, with a market capitalization of over $1 trillion as of today. The supply of Bitcoin is limited to 21 million coins, which are gradually released through mining to maintain its value over time.
The idea behind Bitcoin was to create a currency that could be used globally without being subject to government or financial institution control. This means that anyone can use it regardless of their location or financial status.
One reason for Bitcoin’s popularity is its ability to provide anonymity and security in transactions. Unlike traditional banks, there are no account numbers or personal information required when sending or receiving payments. Instead, users have unique addresses that act as their identifier on the network.
Another factor contributing to Bitcoin’s success is its decentralized nature. There is no single entity controlling the network, making it resistant to censorship and manipulation. This also means that there is no need for intermediaries like banks or payment processors, reducing transaction fees and increasing speed.
Mining is the process by which new bitcoins are created and transactions are verified on the blockchain network. Miners use powerful computers to solve complex mathematical problems and add new blocks to the chain. In return for their efforts, they receive newly minted bitcoins as well as transaction fees from users.
Since its creation in 2009 and until the closure by the American authorities of Silk Road in 2013, bitcoin has been used mainly as a medium of exchange by criminal networks. Whether it’s for gambling, to buy illicit substances or even hacked databases.
Nevertheless, in recent years cryptocurrency has matured and an increasing number of studies conclude that these illegal activities, although they still exist as in any payment system, only represent a minority share of this trade. Since the end of 2020, many companies have been communicating about future purchases or uses of this crypto.
It started with MicroStrategy investing $250 million in August 2020. PayPal followed in October 2020, announcing that it will be possible to procure it through them. Tesla announces that it has invested nearly 1.5 billion dollars in February 2021. The very expansionary monetary policies of the central banks of many countries could be the cause.
How Does The Bitcoin Network Work?
- Transactions are made between different people. Bitcoins are sent from an address A to an address B (the equivalent of our bank RIBs)
- The latest transactions are grouped every 10 minutes in blocks
- They are broadcast to all nodes (the nodes keep the block history and therefore the transaction history)
- All nodes collect these new transactions
- Nodes that provide proof of work (to solve a math problem) attempt to validate their blocks for a reward. They are called minors
- As soon as the solution of the mathematical problem is found by a node it transmits its block to all the other nodes of the network
- The other nodes verify that the transactions included in the block correspond to those they had in the block broadcast at the beginning. This is to prevent the node that validates the block from cheating
- If the majority of nodes accept the block then a new block is created with a trace (hash) of the previous block. The blocks are linked, like a chain, hence the term blockchain.
Where Can You Buy Bitcoin?
You can buy Bitcoin using different ways.
- On an exchange: This is a platform for trading, swapping or buying cryptocurrencies. Some types of exchanges include P2P Exchanges like Remitano, Paxful and Coincola, DEXes like Uniswap and PancackSwap, Centralized Exchanges like Binance and OKX.
- At a physical exchange office or a Bitcoin automatic teller machine (ATM)
- On an online marketplace like LocalBitcoins
Find out how to buy bitcoin here.
Is it worth investing in Bitcoin?
It all depends on your risk appetite and how long you want to hold your bitcoins. People who hold their bitcoins for several years are rarely losers. But past performance is not indicative of future performance. Before investing, we advise you to learn about how Bitcoin works and not to invest money that you cannot afford to lose. Invest little by little and be eager to learn, even if you don’t earn money you could learn a lot of things about finance, economics and IT.
Advantages and Limitations of Bitcoin (BTC)
- The most famous cryptocurrency;
- Almost instantaneous transfers, less than ten minutes and with little cost;
- Global dimension of exchanges;
- Lower payment fees than credit cards or PayPal
- No limit in the amounts transferred;
- No intermediary to store or transfer bitcoins;
- Possibility for anyone to exchange them;
- Pseudonymization of transactions.
- Disagreements between miners can create instability;
- In the sights of some governments;
- Crypto-currencies with improved technologies could replace Bitcoin which is very slow to adapt;
- Governments can enact laws to prohibit the conversion of fiat (fiat currency) into bitcoin;
- Highly volatile, news-sensitive cryptocurrency.
Who is the creator of Bitcoin?
The answer will surprise you: no one knows . Is it a revolutionary, purely philanthropic will or the scam of the century? Maybe the future will tell. One thing is certain, the fact of not knowing maintains the legend about its creator and the craziest speculations as to its identity.
We still know the nickname of the creator of Bitcoin: Satoshi Nakamoto (聡中本 where 中本). This is the pseudonym of the author of the 2008 Bitcoin white paper . Satoshi is also the founder of the official Bitcoin website (bitcoin.org) and the specialist forum bitcointalk . His profile indicates that he was born on April 5, 1975 and lives in Japan. This is odd because he writes in perfect, very British English, and because there are no Japanese documents on Bitcoin from that time. In addition, certain clues (such as the hours at which he was active) indicate that he was based in North America.
Nakamoto posted the Bitcoin white paper online in 2008. He emailed it to crypto-anarchist mailing lists and discussed it on specialized forums frequented by crypto enthusiasts. In other words, if you did not gravitate around these communities at the time, it was almost impossible for you to come across this paper. The inventor of Bitcoin presented his project with the following words: “I am working on a new electronic cash system, entirely peer-to-peer and without a trusted third party”. Satoshi Nakamoto would be joined by several people, who helped him to realize his project.
Satoshi published his last message on the bitcointalk forum (of which he is the creator) in December 2010. A few days before his departure, he designated Gavin Andresen as his successor, giving him access to the project and a copy of the alert key , allowing the network to be notified in the event of major events. The last record we have of Satoshi is a message he sent to Martti Malmi (a Bitcoin Project contributor) in May 2011 in which he wrote, “I’ve moved on and probably won’t be around anymore. future” .
We don’t know if Satoshi Nakamoto is a single person or a group of people. For a long time, he was the only working miner. He reportedly owns over a million bitcoins on a bitcoin wallet . None of his bitcoins have been transferred since 2008. Legend says that Satoshi Nakamoto is dead , taking with him his secrets and his bitcoins. Still, if it were one and the same person, she would be among the 100 richest people in the world.
What does the Bitcoin whitepaper say?
The Bitcoin whitepaper is considered the holy grail of cryptocurrencies and was published by Satoshi Nakamoto in 2008. It is an 8-page scientific paper that describes how Bitcoin works . Its content is quite technical and sharp, it was not written in a simple language. However it is amazing that an invention as important as Bitcoin could fit a few pages.
I advise that you take a few minutes to read this document, you will probably not understand everything at first, but it will allow you to get a broad idea of this innovation.
Read the Bitcoin whitepaper: Original version
Breaking Down The Definition and Explanations of Bitcoin
Bitcoin is a cryptocurrency , that is to say a digital currency, usable only through machines (computers, telephones, etc.) and the Internet. Bitcoin is also a unit of account, intended to serve as a medium of exchange in the same way as the euro or the dollar. Bit means binary information unit and coin means coin.
Some rules are defined in advance:
- There cannot be more than 21 million units of bitcoin in circulation (it’s written in the bitcoin code)
- A unit of Bitcoin is divisible up to its eighth decimal place
- 0.00000001 Bitcoin corresponds to 1 Satoshi
- It is possible to buy or sell fractions of bitcoins
- Transactions are secure. The more the number of users increases, the more transactions are secure. This will be explained subsequently.
Bitcoin is a digital currency
Bitcoin is considered a digital currency because you must have an electronic device (computer, tablet, smartphone) and an internet connection to access it.
Let’s use a concrete example. Peter wants to send 5 bitcoins to Mary. He turns on his computer and logs into his digital bitcoin wallet on the internet. Then he enters the transaction data (amount of BTC -3BTC- Mary’s wallet address) and clicks send. The 3 bitcoins are then sent to the blockchain using the internet network and Mary will receive them on her wallet a few minutes later.
If Mary wishes to use her bitcoins, she will simply have to connect to her wallet using her computer (or her telephone). This is a simplified example, other things happen like signing the transaction with your private key to prove that you are indeed the person sending the bitcoins.
Bitcoin is therefore a digital currency, a virtual currency. There are no coins or bills in bitcoins, just computer lines that show your balance, much like your bank account. Bitcoin is a virtual currency with real value and can be exchanged for fiat currencies like dollars.
Bitcoin is a Peer-to-Peer system
A peer-to-peer (P2P) system is a computer network model where each client is also a server. This is the case of Bittorent protocol where computers communicate directly with each other (file exchange) on the internet network.
Files are transferred directly between two computers connected to the network without passing through a central server. In this type of system, each computer can receive/send information directly with other computers on the network. Machines connect to each other by a peer-to-peer network protocol called network nodes.
Bitcoin is based on a peer-to-peer system. All transactions on the bitcoin network takes place directly between two computers without a central server. The computer can act as a server (sending BTCs) or a client (receiving BTC).
Bitcoin is a decentralized network
Bitcoin is organized in a decentralized network. To better understand what this means, let’s start with the opposite example:banks operate within a centralized network.
Example, If Luke makes a bank transfer of $10 to Anne, Luke’s bank will first verify the transaction and give the green light if there’s money in Marie’s account. Then Annie’s bank will look at the source of the funds, then validate the transaction if everything is in order. Finally Annie receives the $10 into her bank account.
This concept is centralized because the bank plays the role of a trusted third party that checks and verifies the transaction. If you want to send money to someone, your transaction will always go through the bank’s servers and the same goes for receiving money. This is called centralization.
Bitcoin works in the opposite way called decentralization. If Bitcoins are sent from point A to point B, they will not pass through the hands of a trusted part or central server, but through thousands of computers around the world which will verify the transaction as genuine.
Therefore it does not use a single entity to verify transactions but thousands of entities scattered around the world.
Bitcoin is a transparent currency
Contrary to what we often hear, Bitcoin is not an anonymous currency. Every transaction is recorded in a general ledger that is available on the internet. Thus we can know that wallet XYZ sent 10 bitcoins to Wallet ABC on May 10, 2023. However what is mistaken as anonymous is the identity of the owners of these wallets but we know the name of the wallets.
This is why Bitcoin is called a pseudonymous currency, it is possible to track bitcoins and know the path they have taken since their creation.
Bitcoin is a predictable currency
Unlike fiat currency like the US Dollar or British pounds we know the number of bitcoins in circulation. Which is about 18 million at the time of writing this article and above all we know the maximum number of bitcoins that will be created (21 million).
Once this number is reached, miners will no longer be able to create new tokens as reward for securing the bitcoin network. Also the reward given to miners decreases over time and it is halved approximately every year.
This event is called Halving. In 2009, the initial reward was 50 bitcoins. It decreased to 25 BTC in 2012, then to 12.5 BTC in 2016 and 6.25 in May 2020. So today there are 6.25 new bitcoins in circulation approximately every 10 minutes.
This data predicts that there will be 20 million bitcoins in circulation around the year 2030 and that the last bitcoin will be mined in around 2140. As you can see, the creation of new bitcoins decreases drastically over time. It will have taken 10 years to create 17 million bitcoins and it will take more than a century to create the remaining 4 million bitcoins.
Bitcoin is an open source currency
Bitcoin code is publicly available on the internet; it is free software and any developer can contribute to the project. The advantage lies in the fact that developers from all over the world have analyzed and validated the Bitcoin code and that thousands of developers are working to come up with improvements (more transactions per second, more security, etc.).
Bitcoin is a divisible currency
Bitcoin is a divisible currency. You can buy/sell/send a fraction of bitcoin. It is for example possible to buy 0.1 BTC, or to sell 0.00019383 BTC. What is important to know is that a bitcoin is divisible up to its eighth decimal place. This unit is called Satoshi, in homage to the creator of Bitcoin (Satoshi Nakamoto). So, 0.00000001 BTC is equal to 1 Satoshi. And for example, if 1 Bitcoin is worth $10,000, then 1 Satoshi is worth $0.0001.
What is Proof-of-Work Consensus
The proof -of- work ( PoW ) validation system is a secure and cost- effective measure to deter denial of service (DDoS) attacks on a computer network.
In the Bitcoin system , proof of work involves asking miners to solve a mathematical problem that requires a large amount of computing power. This proof of work makes hacking attempts difficult and helps protect the network against spam and overload attempts. Bitcoin uses Hashcash , a famous proof-of-work system designed by Adam Back .
An important characteristic of this system is the asymmetry of the computational cost: the work must be difficult to achieve for the applicant, but easily verifiable for a third party. By this characteristic, it differs from a CAPTCHA , which is intended for a human being to quickly solve a problem, instead of a computer.
The first miner to solve the math problem is allowed to create the next block on the blockchain. The difficulty of the mathematical problem is adjusted in real time according to the total power of the network so that the blocks are always issued at regular intervals.
We have therefore just seen that Bitcoin is based on two already existing processes: the hash function and the proof of work . But then, how is Bitcoin innovative? First of all, Bitcoin is innovative because of its properties which are unique, such as the frequency with which new bitcoins are created or the limitation to 21 million units. Above all, Bitcoin is innovative because it is based on an underlying technology: the blockchain.
What is Blockchain
Blockchain is a common word attributed to cryptocurrencies and bitcoin for good reasons. Although the word blockchain has been in existence for a while, the rise of Bitcoin made it go mainstream as it is the underlying technology behind the popular cryptocurrency.
But then, what is blockchain? This is a technology that allows information to be stored and transmitted transparently, securely and without having recourse to a trusted third party . It can be compared to a large database that contains all the history of the exchanges carried out between its users since its creation. This database is secure and distributed: it is shared by its various users, without intermediaries, which allows everyone to check the validity of the chain. These different users are called nodes, they are the “guardians” of the blockchain, they manage the registers which contain all the transactions carried out.
There are public blockchains and private blockchains. The first, like the Bitcoin or Ethereum blockchain, can be viewed and used anywhere in the world and by everyone, they are open to everyone, anyone can become a node and therefore be the “guardian” of the blockchain. The seconds, which are generally used by companies, require authorization to participate, they can be used and consulted under certain conditions. Only a few people are nodes, so it’s easier to change transaction history when you need to change 2 nodes than 20,000.
Bitcoin is built on a public blockchain , which can be likened to a set of public, pseudonymous, tamper-proof accounting ledgers. Everyone can participate in the writing of these books, everyone can consult them, but it is impossible to modify them, to tear out pages from them or to destroy them. Note also that a public blockchain always works with a coin or a token .
In the case of Bitcoin, the blockchain allows users to exchange digital currency (bitcoins) in a secure , transparent and decentralized way . Exchanges are secured by network nodes , all transactions since 2008 are publicly available on the internet, and the absence of an internal control body allows total decentralization.
As said before, the Bitcoin blockchain can therefore be compared to a set of open ledgers. If we look more closely, these are documents in which we will write all bitcoin transactions:
- John sends 1 bitcoin to Amanda on 08/01/2018
- Amanda sends 0.5 bitcoin to Arden on 07/15/2018
And so, by reading these books, one can know who sent how much to whom, and what each individual has. And, what you need to know is that the space in these books is limited, and that we take a new book every 10 minutes or so! Thus, we write all the transactions in a book for 10 minutes, then we take a new book and we write all the following transactions for the next 10 minutes, and so on. All books are numbered in order (book 1, book 2, book 3…)
Each book contains a summary of the previous book. This summary corresponds to the unique code of the SHA-256 hash function that we saw earlier. So if we just finished book 570, we’ll take it and run it through the SHA-256 grinder. We will then obtain a unique code and write it at the end of the last page of our book. We are also going to write this unique code at the top of the first page of the following book, book 571 🙂 It is this summary, this unique code, which will make it possible to link the books together .
Of course, in the case of Bitcoin, it’s not really about books. In reality, these books are called blocks. And when these blocks are positioned one after the other, they form a chain of blocks, a blockchain 🙂
This blockchain is a mathematically verified database . As we have just seen, the transactions carried out between the users of the network are grouped by blocks, which are arranged one after the other and linked together. Each block is verified and validated by certain network nodes , also called miners , these are the actors who run the blockchain and create new blocks. To perform these verifications, miners solve mathematical problems like the proof of work that we reviewed in the previous part.
Once the block has been verified and validated, it is timestamped (we indicate the date and time) and added to the blockchain. The transaction is then publicly visible on the accounting ledgers (the blockchain). There are therefore miners who are generally companies or individuals who secure and create new blocks but also individuals and companies who own nodes (complete) with a copy of the blockchain to ensure that the history of transactions are correct and not falsified.
So, in 2009, during the first transaction in bitcoins, there was first a first block on the Bitcoin blockchain. Then about 10 minutes later, there was a second block, attached to the first. About ten minutes later, a third block was created and attached to the second block. The blockchain is therefore a series of numbered blocks linked one after the other.
Note: The first block in the blockchain is called the genesis block .
When we say that we “mine” bitcoins, we mean (in part) to solve a mathematical problem allowing us to create a new block. We will see all this in more depth in the following part.
What is Mining?
A miner is an individual who verifies transactions made on the Bitcoin network and certifies that they are compliant. These transactions are then added to the blockchain and publicly available online. To verify transactions, the miner must make the power of his machine available to the network .
Anyone can become a miner, just download the Bitcoin blockchain, install software on their machine and make the power of the latter available to the network.
Miners are rewarded for their work, for the time and computing power they have spent. They receive as rewards the transaction fees paid by network users. A miner is also selected every 10 minutes (at each block creation), to receive the mining reward that is associated with the creation of a new block on the blockchain. In 2018, this reward was 12.5 bitcoins every 10 minutes or so. It is important to specify that this reward is halved every 4 years on average, this is called the halving. In 2020 the reward increased to 6.25 BTC.
The transactions that miners verify are grouped into blocks. A new block is created approximately every 10 minutes. Once all the miners have checked, each on their own, the transactions of the current block, it is necessary to choose the block of which minor will be added to the unique blockchain (chain of blocks). This is where the Proof of Work system comes in . The consensus rules, which define this Proof-of-Work system, will make it possible to secure the network, by dissuading minors from falsifying their blocks. Indeed, miners will have to find the solution to a complex mathematical problem, requiring a lot of computer resources, it is a step that consumes energy and time. And this step is called proof of work.
The first miner who manages to solve the mathematical problem shares the proof with the network and is rewarded with newly created bitcoins. His block is then added to the blockchain.
How many people use Bitcoin?
It is quite difficult to answer this question precisely. Indeed, a user has several addresses ( wallets ). Below is an overview of the figures that are public:
- In September 2011, there were approximately 60,000 users
- In October 2014, according to Coindesk, there were over 7.5 million bitcoin wallets
- As of October 2016, according to Blockchain.com , there are approximately 8.8 million Bitcoin addresses
- Also according to Blockchain.com, from October 2016 to January 2018, the number of Bitcoin addresses almost tripled to 22 million addresses
- At the end of 2019, this number exceeded 40 million
- In March 2021, the number of wallets is approaching 70 million
- The number of active wallets, ie used, follows the same trajectory as the number of wallets created.
Key moments in Bitcoin’s history
- October 2008: Publication of the Bitcoin white paper by Satoshi Nakamoto
- January 2009: First bitcoin transaction between Satoshi Nakamoto and Hal Finney
- June 2010: First bitcoin purchase in real life: two pizzas for 10,000 BTC (about $40 at the time)
- January 2011: A bitcoin is worth about 30 cents
- January 2012: One BTC is worth about $5
- January 2013: One unit is worth about $15
- November 2013: Bitcoin surpasses $1,000 for the first time
- February 2014: Mt. Gox hack , the world’s most widely used cryptocurrency exchange, bitcoin drops below $ 200
- December 2016: After several years, bitcoin returns to the symbolic bar of 1,000 dollars
- July 2017: Permanent closure of Silk Road , the most famous platform for buying/selling illegal products on the Darknet
- October 2017: bitcoin exceeds $5,000
- November 2017: it exceeds 10,000 dollars
- December 2017: the crypto hits an all-time high at $19,974
- December 2018: its price drops to €2,775, the lowest of the year
- March 2020: Covid crash, bitcoin falls 45% on March 13 to reach $4,000
- May 2020: fourth halving event which reduces the creation of bitcoins by 2. 6.25 BTC are therefore now created every 10 minutes. The price returns to around 10,000 dollars
- October 2020: PayPal will offer the purchase of bitcoins on its platform
- December 16, 2020: crossing of 20,000 dollars
- February 2021: Tesla invests $1.5 billion, the price jumps from $37,000 to $45,000
- March 2021: 1 year to the day, Bitcoin exceeds 60,000 dollars
- June 9, 2021: El Salvador becomes the first country to make Bitcoin its official currency
- June 12, 2021: Taproot update is launched
How to get Bitcoin for free?
Some sites offer you rewards for carrying out actions or viewing advertisements, but these amounts are very low, barely a few cents (or satoshis, the Bitcoin unit of account). Other sites allow you to earn some crypto by taking courses like Coinbase Earn or CoinMarketCap Earn.
Is Bitcoin legal?
Bitcoin is legal in most countries, it has even been legal tender in El Salvador since June 2021 and several other countries are also considering it. However, it is also prohibited in some countries around the world. In France, although monitored, Bitcoin is legal.
How to make money with Bitcoins?
There is no magic solution and you cannot be sure of making money. First of all, you have to understand what Bitcoin is, how it works and the interest it has. You will be less sensitive to big drops, keep your bitcoins for the long term and you may have a better chance of making money.
What is the best site to buy bitcoins?
Who holds the most bitcoins?
Currently it is the creator of Bitcoin who holds the most bitcoins. He has 1.1 million but they have never been used and probably never will be.
How is the Bitcoin price calculated?
The price of bitcoin varies according to supply and demand. If many people want to sell their bitcoins and few people want to buy, the price will decrease and vice versa. The price is calculated based on the latest bitcoin trades on exchanges.
Is it time to buy bitcoins?
Impossible to know, you have to be aware that the price can very quickly go up or down. But many thought that at $10,000 it was already far too expensive…
How to get bitcoins?
There are many solutions: buy from friends, get paid in BTC… But the most used remains registration on an exchange to deposit local currencies by bank card or transfer in order to obtain this digital asset.