A cryptocurrency is a decentralized digital currency that uses cryptographic algorithms and a protocol called blockchain to ensure the reliability and traceability of transactions.
But how do these new forms of currencies work?
What is bitcoin? Is there a simple way to explain cryptocurrency to better understand this mysterious type of currency?
What is bitcoin and how does it work?
First of all, Bitcoin is a cryptocurrency. There are several, but it was the very first cryptocurrency that appeared in 2008.
Bitcoin is a form of electronic money. This means that it does not have a physical form. Instead, units of electronic money are traded on a computer network that has certain unique properties.
Cryptocurrencies were born out of the Internet and globalization. Cryptocurrency is both a cryptographic currency and a peer-to-peer payment system. These digital currencies are therefore virtual currencies in the sense that they are characterized by the absence of a physical medium: neither coins nor banknotes, and payments by check or credit card are not possible either.
Cryptocurrencies have no central issuing or regulatory authority, but they use a decentralized system to record transactions and issue new units. Cryptocurrencies are entirely virtual, they can be stored in a digital wallet protected by a secret code belonging to its owner.
How do cryptocurrencies work?
Cryptocurrencies operate on a public distributed ledger called the blockchain, a record of all transactions maintained and held by the holders of a currency.
Where do Bitcoins come from?
Unlike fiat currencies, cryptocurrencies are not issued by a central bank. Instead, they are “mined,” a term that reflects the amount of work required to produce them. Miners donate their time and use their computing power to help verify cryptocurrency transactions and add them to the blockchain. As a reward, they receive new units. This process is expensive because it requires special computer hardware and a lot of power.
There are thousands of cryptocurrencies, but Bitcoin remains the most well-known:
Bitcoin: Important Points
- Founded in 2009, Bitcoin was the first cryptocurrency and remains the most traded.
- There are 21 million Bitcoins: 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 is itself divisible into 100 million units called satoshis.
- To obtain Bitcoins in a quick and easy way, you have to use online platforms where you can buy them for euros or another currency (coinbase, binance…).
- Satoshi Nakamoto created Bitcoin in 2009
- To use Bitcoin, the first step is to create a wallet (which can be online, a mobile application or, for added security, a hardware device). This protects the secrets that are used to authorize the movement of Bitcoins under your control.
- To pay a seller of goods or services in Bitcoins, it is necessary to receive an “address” from them. An address is a sequence of letters and numbers, to which the buyer sends the amount of Bitcoins due.
- Bitcoin is a volatile asset. Like many high-risk investments, it goes through boom and bust cycles, and depending on when you buy (or acquire) it, it can make you a millionaire or ruin you.