Understanding Bitcoin in five questions
Officially created on 3 January 2009, bitcoin is the first and largest cryptocurrency.
Have you heard of Bitcoin, but don't know exactly where it comes from, how it works, why it's progressing so much? The Big Whale answers your essential questions.
Where did Bitcoin come from?
The incredible story of bitcoin began on 31 October 2008. On that day, a mysterious internet user called "Satoshi Nakamoto" posted a nine-page document online presenting a theoretical digital cash system operating on a peer-to-peer basis called "Bitcoin". There's nothing random about the date. Even though we've known for years that Bitcoin was already in the making (the idea of a digital currency dates back to the late 1980s), Satoshi published his "white paper" a few weeks after the collapse of US bank Lehman Brothers and the bailout of numerous financial institutions by governments around the world.
On 3 January 2009, the first "block" of the Bitcoin blockchain was created on the network (referred to as the "Genesis Block"), and a first transaction took place between Satoshi Nakamoto's address and that of the American developer Hal Finney, who died in 2014, whom a large part of the community suspects of being... Satoshi Nakamoto himself. For several years, Bitcoin would live out its life in its own corner, most often perceived as a technological experiment within the communities of cypherpunk developers and activists, who hold high the protection of privacy on the Internet and whose monetary emanation the young cryptocurrency is.
How does it work?
Bitcoin is a decentralised "cryptocurrency", based on the protocol created by Satoshi Nakamoto. It is not dependent on any state, central bank or company that could control its issue and value. This computer programme, which automatically issues bitcoins, is the DNA of the cryptocurrency. In particular, it defines the number of bitcoins that will be issued over the years, i.e. 21 million units on the network by 2140. Today, just over 19 million bitcoins have already been created and its issue is decreasing over time. Its system is secured by miners and can be improved by developers from all over the world. With one caveat: for any changes to be made, the community must reach a consensus. In this respect, Bitcoin is a very democratic construction.
Who are the miners?
"Miners" are the people who make the Bitcoin network work by validating transactions. This validation is carried out using special computers connected in a network. Miners use the computing power of these machines to verify and validate Bitcoin transactions. In exchange for this validation activity, they themselves receive remuneration in bitcoins (user transaction fees and the monetary creation generated by the protocol).
Initially reserved for private individuals, "mining", which became highly lucrative with the exponential rise in the value of bitcoin, was taken over by businesses. Before China decided in 2021 to drastically limit this activity - officially for environmental reasons (and more likely to keep strict control over its citizens' money flows), the country was the overwhelming leader in the sector (up to 65% market share). Since then, it has been the United States that has partly taken the lead in this area (43%).
How to buy and sell bitcoins?
As the price of bitcoin continues to rise, the points at which bitcoins can be bought and sold are only multiplying. Currently, the easiest way to buy cryptocurrency is on platforms such as Coinhouse, StackingSat, Coinbase or Binance. Other more traditional players have also started offering it more recently. These include payment giant PayPal and fintechs such as Lydia and Revolut.
Who are Bitcoin users?
Bitcoin users fall into two broad categories. At one end of the chain, there are individuals. In some countries such as France, where the banking system is developed, Bitcoin holders do so primarily for investment purposes. In other parts of the world, particularly where there is high inflation and a poorly developed banking system, crypto holders do so to protect themselves from the depreciation of their local currency and to access financial services...
At the other end of the user chain are financial players, such as banks, stock market operators, investment funds and more recently companies. In 2021, several giants such as Tesla announced that they were holding bitcoins in their treasury. The car manufacturer has more than $1 billion in bitcoin in its accounts. The latest phenomenon is the growing interest shown by governments in this asset, dubbed "digital gold" because of its rarity and now universally recognised value. In 2021, El Salvador became the first country in the world to make the world's largest cryptocurrency a legal tender. Other countries, especially in Latin America, are considering doing the same.