What is bitcoin ? And a cryptocurrency ? And blockchain ? You never really understood what it was ? The more you read about the subject, the less you grasp the concept ? Fasten your seat belt, you are about to understand everything! You can (maybe) even explain it to your great-aunt! And tell him that in two words, bitcoin is a form of electronic money.
Bitcoin is a form of electronic money, also known as "cryptocurrency"
In simple terms, bitcoin is a currency (with the symbol BTC), similar to the Euro (EUR) or the US Dollar (USD). These types of currencies (euro, dollar, etc.) are called fiat money. Fiat currency means that money exists in both physical form (notes, coins) and electronic form (when it is in your bank account or PayPal account).
Otherwise said, bitcoin is a form of electronic money. And because it is electronic, it is managed by software. To simplify, the software describes the behavior of bitcoin, such as the time it takes for a person to receive bitcoins from another person, the smallest unit of bitcoin, the number of bitcoins in existence, etc.
Bitcoin is a bit special. It only exists in electronic form. All currencies that follow this definition are called cryptocurrencies. Bitcoin is just one of them. It is the best known, because it was the very first cryptocurrency created.
From a strictly legal point of view, governments consider it an asset. Just like gold. Think about it for a moment. You can pay for goods with gold, can't you ? But from a legal point of view, it is not a "currency". Gold is an “asset”. Bitcoin is the same thing. An asset. A digital asset, to be even more precise (you can keep this definition in mind, you will amaze your audience during a conversation about cryptocurrencies!)
Bitcoin is one of the most well-known cryptocurrencies, but there are many others: Zcash, Litecoin, Ethereum, Monero, etc. Sometimes it is not clear whether a cryptocurrency should actually be called a cryptocurrency. That's why we simply call them "cryptos". Thus, bitcoin is a “crypto”.
The fascinating and mysterious birth of bitcoin
Bitcoin was invented in 2008 by a person named Satoshi Nakamoto, who claims to be a Japanese born in Japan on April 5, 1975. The interesting fact is that it does not exist no trace of any "Satoshi Nakamoto". The reason ? It is simply a pseudonym. There are many theories about who Satoshi really is. To date, it is unclear whether Satoshi Nakamoto is a single person or a group of developers.
The name "satoshi" was given, in collective homage to the original creator of bitcoin, to the smallest unit of bitcoin. This is one hundred millionth of a bitcoin (0,000,000.01 BTC).
A decentralized system
By definition, centralization is “the concentration of control of an activity under a single authority.” For example, in the traditional banking system, the bank centralizes money and data. In other words, banks control everything you do with your money.
Bitcoin is a decentralized system. It's exactly the opposite: there is no central entity that regulates bitcoin.
What does this mean ? Quite simply than in the traditional banking system, if you want to send 100 euros to someone, the bank will intervene to ensure that you have these 100 euros in your account before you can send them. If so, the recipient will be able to receive this money. The bank therefore verified and validated the transaction before the payment became effective.
In the world of bitcoin, as we have just explained, there is no central entity. When a transaction takes place, it is first routed to a randomly chosen Bitcoin user in the world. It is carried as "data". Because a transaction is just “data”. These randomly chosen users, to have a chance of being selected, are equipped with special machines allowing them to verify and validate all the Bitcoin transactions they receive. The act of validating transactions is called mining. The user is paid for this "work". For more details, you can read my article about it here.
As bitcoin is a 100% digital system, some potential issues may arise that need to be resolved to ensure the security of the ecosystem.
Avoid duplication of bitcoins
Imagine a file on your computer. A photo, for example. As long as it's on your computer, it's 100% digital, right ? So what can you do with it ? You can duplicate it a hundred times (copy/paste), or send it again and again to all your family and friends. They can have a copy on their own device. A beautiful copy of you during your last vacation. Cool ! But for bitcoin, which is only available in digital format (like your photo), it should not be possible to duplicate it! If you have 1 bitcoin, you shouldn't be able to copy and paste it to have 10 (even if it would be nice)!
So, to prevent bitcoins from being duplicated infinitely, each bitcoin is "tagged". Tags are verified during the verification process I explained above. If someone tries to send or spend the same bitcoin twice, the software will notice (during the mining process) that the tag was used twice and the transaction will be rejected. Duplication is generally known as "double spending".
A very intelligent technology: blockchain
Okay, but the blockchain is all that ? Where is it located ? The Bitcoin blockchain is a public ledger that records all bitcoin transactions. Ledger means database. In fact, it is a kind of large Excel file. Public means that anyone can access it and see what's in it. Do not modify it. Just see (for example if you follow this link; don't worry if you don't understand everything, we'll go into detail in future articles!)
When person A sends a bitcoin to another person B, I explained that a transaction is created. Information relating to the transaction is placed in a virtual “box” called a block. Long story short, every 10 minutes the box (block) is sealed, whether or not it is full of transactions and whether or not those transactions were approved (meaning the bitcoin was sent correctly).
You can therefore imagine the blockchain as follows: a huge warehouse (the ledger) in which boxes (the famous “blocks” of the blockchain) are added one by one, every 10 minutes. It's great. But what's so smart about block alignment ? Well, here's the thing: security. Without going into detail (that is not the aim of this series of articles!), it is almost impossible to modify a blockchain. This would require too much computing power. You can therefore completely trust the data stored in the blockchain.
An example of blockchain in the "real world
Let's imagine that you work for a logistics company that ships fresh food by container across Europe You want to make sure the temperature stays the same during transport. Very low and if there is a problem, you want to be clearly informed.
Traditionally, a thermometer would send readings. temperature at regular intervals, for example every minute The only problem is that in the event of a temperature problem, the person responsible could hack the data and modify it and a possibly contaminated container could arrive. destination without the recipient knowing that there was a temperature problem If the same logistics company was able to use blockchain, based on what I explained previously, it would be impossible for anyone. to modify the temperature data since it would be automatically detected during data validation and would therefore be rejected. Why ? Because sending a temperature measurement is actually sending data, and as you now know, all data passing through the blockchain must be impartially verified by a random user.