Although we are all accustomed to the idea of digital currency – spending and receiving money that is not physically in front of us – cryptocurrencies, such as Bitcoin, remain a mystery. bitcoin mining? How could we use the money in the future? And can we trust cryptocurrencies at all? In this quiz, we ask Dr. William John Knottenbelt, director of the Imperial College’s Center for Cryptocurrency Research and Engineering, to help us better understand this type of mysterious currency.
Bitcoin is a form of electronic money. This means that he has no physical form. Instead, e-money units are exchanged over a computer network that has some unique features: There is no central control point (no “bank”).
There is no central point of storage of transactions (central database containing a record of all executed transactions).
Instead, it runs on a global network with thousands and thousands of nodes — machines within a network like a computer or other device — that process and store 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 common record of transactions. It prevents anyone from “double-spending” bitcoins and makes it extremely difficult to change historical transactions. It is very difficult, if not impossible, to stop or disturb him.
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 to it, forming a continuous and 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, encryption.
2. Where does it come from?
Bitcoin was first published as an idea on an electronic mailing list for computer scientists studying secure communications (or cryptographers) in 2008.
The author is called the mysterious pseudonym Satoshi Nakamoto, but no individual (or group of people) has so far been definitively identified as Satoshi.
3. Is it still used and where can it be used?
Bitcoin is still in use and is very actively traded on cryptocurrency exchanges, which allow users to exchange “ordinary” money like pounds for bitcoin.
To use bitcoin, the first step is to create a wallet (which can be an online, mobile application or, for added security, a hardware device). This protects the secrets used to allow the movement of bitcoin under your control.
Your wallet will control several “addresses” that, like bank account numbers, can be used to receive bitcoins. It will also control the secret password required to authorize the sending of bitcoin (technically known as a private key). If you lose your private key or have it stolen, you are actually losing control of your bitcoins, much like someone reveals your PIN.
4. Why would anyone want bitcoins instead of “normal” money?
The “normal” silver we use today is actually quite unusual in the history of silver, in the sense that it is no longer valuable in itself (like gold coins).
If you read the promise on the £ 10 bill, it says (in very small letters):
“I promise to pay the bearer, on request, a sum of ten pounds.”
(Next time you find a ten pound bill in old jeans, take a look)
It’s not too much of a promise if you consider 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 do not necessarily notice this erosion because the nominal amount of their money remains the same; however, they note that their Sunday groceries, restaurant meals, and movies are costing 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 itself is divisible by 100 million units called satoshi. This helps prevent the kind of erosion of value that affects the “normal” currency (a phenomenon that people in Zimbabwe and Venezuela are well aware of).
5. Can bitcoin make you a millionaire?
Bitcoin is a highly risky, speculative and volatile asset. Like many risky investments, it goes through boom and bust cycles, and depending on when you buy (or acquire) it, it can make you a millionaire or destroy you.
In its early days, bitcoin was traded at $ 1 per bitcoin; it peaked at about $ 20,000 in 2017 before falling to about $ 3,000 and then stabilized at about $ 8,000.
Like stocks or houses, bitcoins are not worth more or 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 a common transaction record (called a blockchain).
There is a constant global competition – called the mining race – to win the right to add a new block to the blockchain.
To participate in this competition, users must purchase specialized mining hardware that consumes a lot of electricity; the hardware itself is likely to become obsolete quickly due to the constant discovery of more efficient hardware – so it’s not a profitable business for most people.
The people involved in this activity are called bitcoin miners. They participate in this competition for two types of awards:
- block award (currently 12.5 BTC) issued to the publisher of each block
- Transaction fees – parts of bitcoin that encourage miners to include transactions in published blocks.
To make matters worse (from the miners ’perspective), the“ difficulty ”of competition increases as the number of miners involved increases, to avoid issuing new bitcoins too quickly. The block award is also halved every four years, making them significantly more expensive to produce.
7. Can cryptocurrencies be trusted?
As in any rapidly evolving space where new technologies are spreading, there are high and low quality cryptocurrencies.
Faced with often cunning marketing operations, many ordinary people find it difficult to distinguish cryptocurrencies that have real potential and show real technical innovations, from those that are just clones of other currencies or, worse, real scams.
Sometimes schemes like One Coin pretended to be cryptocurrencies, but then it turned out to be nothing more than a well-organized pyramid scam, backed by a centralized database.
8. Could cryptocurrencies become more popular than physical currencies in the future?
It is theoretically possible, but it will probably take many years and many technical, economic, regulatory and legal problems before it becomes a reality.
For example, the Bitcoin blockchain can currently support far fewer transactions than traditional centralized payment networks such as Visa or Mastercard.
One category of cryptocurrencies that has proven to be very popular and is likely to become more popular than the physical currency are “stable currencies”, ie cryptocurrencies whose value is linked to “normal” currencies such as the US dollar, euro and pound, and for Unlike bitcoin, a unit cannot be worth £ 26,000 a year and £ 6,000 two years later.