What is Bitcoin? And a cryptocurrency? And the blockchain? You never really understood what is what? The more you read about it the less you get the concept? Fasten your security belt, you are about to understand it all! You will (maybe) even be able to explain it to your great-aunt! And tell her that in two words that the Bitcoin is a form of electronic cash.
The Bitcoin is a form of electronic cash, also known as “cryptocurrency”
Put simply, the Bitcoin is a currency (with symbol BTC), similar to the Euro (EUR) or the American Dollar (USD). These types of currencies (Euro, dollar, etc.) are called fiat money. Fiat money means that the money exist in both in a physical format (notes, coins) and an electronic format (when it is on your bank account or on your PayPal account).
Said otherwise, the Bitcoin is a form of electronic cash. And because it is electronic, there is a software running it. To simplify, the software describes the behaviour of the Bitcoin, for example how long it takes for someone to receive some Bitcoins from another person, what is the smallest unit of the bitcoin, how many bitcoins exist, etc.
The Bitcoin is a bit special. It only exists in an electronic format. All currencies following that definition are called cryptocurrencies. The Bitcoin is just one of them. It is the most famous one because it was the very first cryptocurrency created.
From a strictly legal point of view, governments consider it as an asset. Exactly like gold. Think of it for a moment. You can pay for goods with gold, right? But legally speaking, it is not a “currency”. Gold is an “asset”. Bitcoin is the same. An asset. A digital asset, to be even more precise (you can keep that definition in mind, you will amaze your audience during a crypto conversation!)
Bitcoin is one of the cryptocurrencies, the best known one, but there are many other currencies: Zcash, Litecoin, Ethereum, Monero, etc. Sometimes, it is not too clear if a cryptocurrency should actually be called a cryptocurrency. So we just call them “cryptos”. So Bitcoin is a “crypto”.
The fascinating and mysterious birth of the Bitcoin
The Bitcoin was invented in 2008 by a person named Satoshi Nakamoto, who claims to be a Japanese man born in Japan on April 5, 1975. The interesting fact is that there is no record of any “Satoshi Nakamoto”. The reason? This is a just a pseudonym. There are many theories on the real identity of Satoshi. To date, it is not sure if Satoshi Nakamoto is a single person or a group of developers.
The name “satoshi” has been given, in collective homage to the original creator of Bitcoin, to the smallest unit of the Bitcoin. It is a one hundred millionth of a single Bitcoin (0.000,000,01 BTC).
A decentralised system
By definition, centralisation is “the concentration of control of an activity under a single authority”. For example, in the traditional banking system, the bank are centralising the money and the data. In other words, banks control everything you do with your money.
The Bitcoin is a decentralised system. This is the exact opposite: there is no central entity regulating the Bitcoin.
What does this mean? Simply that in the traditional banking system, if you want to send 100 euros to someone, the bank will stand in between to guarantee that you actually do have these 100 euros on your account before being able to send them over. If this is the case, the receiver will be able to receive this money. So, the bank verified and validated the transaction before the payment became effective.
In the Bitcoin world, we just explained there is no central entity. When a transaction occurs, it is first routed to a Bitcoin user randomly chosen in the world. It is routed as “data”. Because a transaction is just “data”. These randomly chosen users, in order to have a chance to be selected, are equipped with special machines allowing them to check and validate all Bitcoin transactions they receive. The fact of validating transactions is called mining. And the user is paid for that “job”. For more advanced detail, you can read my article about it here.
Now, since Bitcoin is a 100% digital system, there are some potential issues may arise and that must be solved to guarantee the safety of the ecosystem.
Avoiding Bitcoin duplication
Imagine a file on your computer. A picture, for example. As long as it is on your computer, it is 100% digital, right? So what can you do with it? You can duplicated it one hundred times (copy/paste), or send it over and over to all your family and friends. They can have a copy of it on their own device. A beautiful copy of you during your last holiday. Cool! But for the Bitcoin, which is only available in a digital format (like your picture), duplicating it should not be made possible! If you have 1 Bitcoin, you should not be able to copy and paste it in order to have 10 (even though it would be sweet)!
Thus, to avoid Bitcoins to be duplicated over and over again, each Bitcoin is “tagged”. Tags are verified by during the verification process I explained above. If someone tries to send or spend twice the same Bitcoin, the software will notice (during the mining process) that the tag has been used twice and the transaction will be rejected. The duplication is usually known as “double spending”.
A very smart piece of technology: the blockchain
OK, but the blockchain is all that? Where does it stand? The Bitcoin blockchain is a public ledger that keeps a record of all Bitcoin transactions. Ledger means database. Basically, a kind of big Excel file. Public means that anyone can access it and see what is inside. Not modify it. Just see (for example if you follow this link; don’t worry if you don’t understand everything there, we will go in details in the coming articles!)
When a person A sends one Bitcoin to another person B, I explained that a transaction is created. The information related to the transaction is put in a virtual “box” that we call a block. To make it short, every 10 minutes, the box (block) is sealed, whether or not it is full of transactions and whether or not those transactions have been approved (which means the Bitcoin was sent properly).
Now, you can think of the blockchain as follows: a huge warehouse (the ledger) with boxes (the famous “blocks” of the blockchain) added one by one, every 10 minutes. Cool. But what is so clever about aligning blocks?? Well, here is the point: safety. Without entering into too much details (that’s not the point of this series of articles!), it is nearly impossible to modify a blockchain. This would require too much computational power to do so. Which means that you can fully trust the data stored in the blockchain.
An example of blockchain in the “real” world
Let’s say you work for a logistic company, shipping fresh food across Europe by container. You want to make sure that the temperature remains the same during the transportation. Quite low. And if there is any problem, you want to be obviously informed.
In a traditional way, there would be a thermometer sending temperature records on a regular basis, every minute, for example. The only problem here is that in case of an issue with the temperature, the person in charge could be able to hack the data and edit it. No one would notice and a possibly contaminated container may arrive to its destination, without the recipient knowing that there was an issue with the temperature. If the same logistic company was able to use the blockchain, based on what I explained before, it would be impossible for anyone to amend the temperature data since it would be detected automatically during the data validation and would thus be rejected. Why? Because sending a temperature measurement is actually sending data, and as you now know, all data transiting on the blockchain must be impartially checked by a random user.
Now let’s go!
Now it is clear for you that he Bitcoin is a form of electronic cash, I invite you to read my article about mining, which goes into more details on the mining process. If you know everything already, maybe you want to know how to choose a wallet? Finally, if you feel like you are ready to start mining, you can visit our home page and contact us.
Happy mining! ⛏⛏⛏