Bitcoin (₿, BTC, XBT) (bit: unit of binary information and coin “coin”) is a cryptocurrency otherwise called cryptographic currency. In the case of the unitary denomination, it is written “bitcoin” and, in the case of the peer-to-peer payment system, it is written “Bitcoin”. The idea was first presented in November 2008 by one person, or a group of people, under the pseudonym Satoshi Nakamoto. The source code for the reference implementation was released in 2009.
The G20 considers Bitcoin to be a “crypto-asset”. This term “crypto-asset” then refers to “virtual assets stored on an electronic medium allowing a community of users accepting them in payment to carry out transactions without having to resort to legal tender”
Presentation
Functioning
To create and manage bitcoins, Bitcoin relies on software. In this software, bitcoins are created according to a protocol that pays the agents (called “minors”) who have processed transactions. These agents use their computing power to verify, secure and record the transactions. transactions in a virtual register n 3, called the blockchain, in French blockchain, name which comes from the fact that the basic entity of Bitcoin is called a block, and that the blocks are then connected in a chain, the chain of blocks.
For each new block accepted, the verification-security-recording activity, called mining, is remunerated by newly created bitcoins and by the costs of the transactions processed5. As a currency or a commodity, bitcoin can be exchanged for other currencies or commodities, goods or services. The cryptocurrency exchange rate is set on specialized marketplaces and fluctuates according to the law of supply and demand.
It is possible to buy bitcoins online on specialized platforms, physical terminals or in exchange for any good or service with a person who already has them (the transaction can be done from smartphone to smartphone). The platforms also make it possible to follow in real time the evolution of the price of bitcoin in relation to other currencies or cryptocurrencies.
Account unit
Bitcoin’s unit of account is bitcoin. Its emission is limited to 20,999,999.977 units, each divisible to the eighth decimal place (called Satoshi or Sat). The official currency symbol Bitcoin Symbol was registered and accepted in 2015 with Unicode. The corresponding acronyms, used by the exchange platforms, are BTC and XBT. Among the unofficial symbols used are ฿ and Ƀ.
Decentralization
The system operates without a central authority or a single administrator. It is managed in a decentralized manner thanks to the consensus of all the nodes of the network. Bitcoin is the largest decentralized crypto currency, with a capitalization of $ 545 billion as of January 1, 2021 ($ 130 billion as of January 1, 2020).
Means of payment
As a means of payment, bitcoin is accepted by a growing number of merchants, encouraged by transaction fees generally lower than the 2 to 3% charged by credit card organizations and independent of the amount of the financial transaction. However, in 2017 the fees increased dramatically over the course of a few months, from $ 0.2 in 2016 to $ 20 on certain days in December 2017, so that the Steam platform or Microsoft withdrew Bitcoin as a payment method, precisely because of too high transaction fees (Microsoft re-authorized Bitcoin in January 2018). In order to address the issue of excessively high transaction fees, the gradual rollout of various technology enhancements (Segwit, Lightning Network, batch transactions, Schnorr) throughout 2018 and 2019 allowed fees to drop to around $ 0.05 for non-urgent transactions, and even amounts less than $ 0.0001 for Lightning16 type transactions. Unlike credit cards, any charges are borne not by the seller but by the buyer, who chooses to pay them voluntarily. A bitcoin transaction is irrevocable and cannot be reversed. Despite a 500% growth in the number of merchants accepting bitcoin in 2014, cryptocurrency is not very established in the retail sector, but continues to gain a foothold in trade.
Energy consumption and climate impact
For blockchain technology, each financial exchange must be validated, this involves the calculation of cryptographic proof, requiring a great deal of decentralized computing power. Mining cryptocurrency consumes a lot of electricity. A Digiconomist study reveals that Bitcoin required 30.25 TWh of electricity in 2017, i.e. an instantaneous power of 3.4 GW, a consumption greater than that of 159 countries
Bitcoin is estimated to consume up to 130 TWh in the early 2020s, or 0.6% of global electricity consumption.
In 2019, an association promoting bitcoin claims that 74.1% of the energy consumed is produced from renewable energies. Following the criticisms, the lead author of the study admits errors. Indeed, the major renewable energy in China, hydropower, is only available at low cost in the wet season. The rest of the year electricity production comes mainly from coal.
Bitcoin’s network consumes 0.4% of the world’s electricity, about as much as the Netherlands, and emits as much greenhouse gases as the oil burned by American Airlines, according to a Bank of America report. . In two years, these emissions have increased by 40 million tonnes, the equivalent of 8.3 million cars, to reach 60 million tonnes. Three quarters of the world’s mining capacity is based in China; 27% of Chinese miners are in Sichuan, a province with high low-carbon hydroelectric production, but 43% are in Xinjiang, where 80% of electricity comes from coal-fired power stations.
To minimize the energy required for cooling equipment, several farms were set up in Siberia, including one in the Arctic Circle in 2021.
A study carried out by Chinese scientists and published in April 2021 in the scientific journal Nature Communications reveals that in 2020 mining is carried out at 78.9% in China; CO2 emissions due to mining over the period 01/01/2016 to 06/30/2018 are estimated at 13 million tonnes, the equivalent of Denmark’s annual emissions; according to the simulations of this study, the energy consumption of mining in China could reach 297 TWh in 2024, or 5.4% of China’s electricity production, causing CO2 emissions of 130 million tonnes, equivalent to those of the Czech Republic and Qatar.
This study could be at the origin of the decision taken to no longer accept bitcoin payments at Tesla, causing the prices of 19 out of 20 cryptocurrencies to fall; Elon Musk says,
We are concerned about the increasing use of carbon-rich fuels to mine bitcoin, especially coal, which has the worst greenhouse gas emissions of all fuels. […] we will use them for transactions as soon as the mines are supplied with more sustainable energies .
Afterwards, Elon Musk met with several North American Bitcoin mining companies ready to reveal their share of renewable energy and their projections for it, while a cryptocurrency like Ethereum began a transition to another mode. of operation, the proof of stake, supposed to be less greedy in electricity29.
A study by Cambdridge University estimates a renewable energy rate of 39%.
On the other hand, mining leads to a significant use of graphics cards and computer components comprising rare and non-recyclable metals.
Printed circuits were designed for the purpose of mining. These Application-specific integrated circuits (ASICs), the most recent models of which have a power of 32,500 watts, which corresponds to an electrical consumption of 28,470 kWh / year in continuous operation.
In June 2021, authorities in the Sichuan region issued a notice demanding the immediate closure of 26 mining farms. Sichuan is the second largest bitcoin mining province in China, according to data compiled by the University of Cambridge. Before Sichuan, which derives its electricity from hydroelectric dams, other provinces, such as Xinjiang, Inner Mongolia, Qinghai or Yunnan, ordered measures against bitcoin mining. According to the Communist Party daily “Global Times”, 90% of Chinese bitcoin production facilities have been closed in recent weeks. The central bank of China has asked several of its largest state-owned banks as well as the mobile payment platform Alipay to “investigate and identify” bank accounts facilitating cryptocurrency trading, and to block all corresponding transactions.
Use
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Between January 2009 and March 2010, using bitcoin was a hobby among crypto enthusiasts, and bitcoin had no real value. However, in April 2010, bitcoin started trading in an exchange for $ 0.003, and soon after, in May 2010, it was already worth $ 0.01. A few months later, in July 2010, 0.08 USD35 was added to its value again. These, although they are made at very low prices and their actual use as a means of payment is very low, reflect the rapid rise in prices that this zero-value cryptocurrency has experienced at 10 cents.
Since its creation in 2009 and until the closure by the American authorities of Silk Road in 2013, bitcoin was used mainly as a medium of exchange by criminal networks for gambling, the purchase of illicit substances, or for hacked databases.
Contrary to popular belief, Bitcoin is based on a public blockchain, where all transactions are recorded in clear and therefore traceable. It is therefore possible to go back to the origin of a transaction, or even to follow token exchanges. Illegally acquired Bitcoins can thus be tracked, which can allow the identity of the criminal to be found in certain cases. One solution to overcome this problem can be to use a cryptocurrency mixer.
A criminal entity may want to launder illegal money by purchasing bitcoin from an anonymous account. A person may want to anonymously take money out of their country.
Cryptocurrency has attracted the attention of financial authorities, legislative bodies in various countries, particularly the United States, and the media.
Nevertheless, in recent years, cryptocurrency has matured and a growing number of studies conclude that these illegal activities, although they still exist as in any payment system, only represent a minority share of cryptocurrency exchanges.
The United States Senate also recognizes that bitcoin allows for the provision of perfectly legitimate financial services
Using bitcoins to buy goods and services is a dying out practice due to speculation as early as 2017.
Safe investment
In a country at risk of hyperinflation causing savings in local currency to be reduced, bitcoins can be bought that are protected from inflation by their limited number.
According to some of the experts, bitcoin would be a safe haven much more than a means of payment, even if unlike gold, Bitcoin can indeed be used for these two purposes. Conversely, other financial experts consider Bitcoin to be far too volatile to be a safe haven, but it has only existed since 2009 and its possible safe haven status will only be possible after a first period of intense volatility . As for the question of knowing whether Bitcoin can reach the market value of gold (or even exceed it), this remains much debated, hence the volatility of bitcoins.
Speculative asset
Financial speculation buys bitcoins in the hope of reselling them at a higher price, this is practiced by 170 funds specializing in bitcoin in 2017.
According to the Governor of the Bank of Japan, the majority use of bitcoin in 2021 is speculation; bitcoin is “hardly used as a means of payment”. The US Federal Reserve (Fed), European Central Bank (ECB) and Bank of England have already warned investors against bitcoin, and China has reaffirmed its ban on cryptocurrencies.
According to the director of Kraken, one of the biggest bitcoin exchanges, people are “ready (…) to [live frugally] to obtain bitcoin” . Bitcoin could then be the cause of a drop in consumption and an economic crisis.
Market size
Although there are a large number of cryptoassets in circulation, the market is dominated mainly by Bitcoin (876.6 billion euros) which is in first place, followed by Ethereum (410.5 billion euros ). These top two cryptoassets account for nearly two-thirds of the total market value. As of May 9, 2021, according to CoinMarketCap, there are 5,023 cryptoassets, or cryptocurrencies, worth 2,031 billion euros.
Story
Creation
Bitcoin is an improvement of the concept of b-money, imagined by Wei Dai in 1999, and of bitgold, described in 2005 by Nick Szabo. Bitcoin in particular solves the crucial problem of the trust model: servers considered serious vote with their computing power to determine the legitimate transaction chain. In b-money, the servers were supposed to pay a security deposit according to a mechanism that was not very explicit. The idea of using a computational proof chain was put forward in the bitgold project although Nick Szabo only proposed using a majority of addresses to establish the legitimacy of a chain of transactions, which left the problem of controlling the number of addresses.
Satoshi Nakamoto claimed that he worked on bitcoin from 2007 to 2009. As early as 2008, he published a document on a mailing list describing the digital currency bitcoin. In February 2009, he published an announcement about his work on the P2P Foundation site. On January 3, 2009, the first block or genesis block was created54. In February 2009, he released the first version of the Bitcoin software on the P2P Foundation site and to operate the network, he used his computer and thus generated the first bitcoins. Along with other developers, Nakamoto continues the implementation of the software and its Bitcoin-Qt version until 2010.
Developers and the bitcoin community gradually lost contact with him in the middle of 2010. On December 12, 2010, a final message was posted by Nakamoto on the main forum. Shortly before passing out, Nakamoto designates Gavin Andresen as his successor, giving him access to the SourceForge bitcoin project and a copy of the alert key. The latter is a unique private cryptographic key allowing to mitigate the effects of a potential attack on the Bitcoin system, such as the discovery of a cryptographic flaw allowing to modify a posteriori the transactions, or the take of control of more than 51%. nodes in the network. The operators of the nodes of the network can during an alert either warn their users or stop any transaction recording.
On September 27, 2012, the Bitcoin Foundation was created57. Important figures from the world of new technologies quickly supported the project, such as Wences Casares.
Identity of Satoshi Nakamoto
Several people claimed to be Satoshi Nakamoto, but none of them could prove it. There is no trace of his identity before the creation of Bitcoin. On his profile, Satoshi claimed to be a 40-year-old Japanese.
In March 2014, journalist Leah McGrath Goodman from Newsweek magazine announced that she had tracked down the inventor of Bitcoin who she said would be a 64-year-old Japanese-American whose birth name is “Satoshi Nakamoto”, although he changed his name to “Dorian Prentice Satoshi Nakamoto” at the age of 23 years old. He is believed to be a retired physicist living in California. This thesis was methodically dismantled a month later by linguists from Aston University in England who carried out an in-depth study of the linguistic correspondences between the written productions of the author of the Bitcoin white paper and several suspected personalities, notably Dorian. Nakamoto.
Satoshi’s way of writing on the forums and in the whitepaper suggests that he is a Briton.
In 2016, Craig Steven Wright, an Australian entrepreneur, claims to be Satoshi Nakamoto64. However, strong doubts remain, the interested party having himself declared on May 5, 2016, in an enigmatic message on his personal blog67, to give up disseminating the evidence confirming that he is indeed the creator of Bitcoin.
Acceptance
- On November 16, 2012, WordPress accepts bitcoins for its paid services.
- On November 28, 2012, the remuneration of minors decreased for the first time, from 50 to 25 BTC. The bitcoin source code provides for a halving of the remuneration, called halving, every two hundred and ten thousand blocks mined, or approximately every four years.
- On December 6, 2012, a partnership between the startup Paymium (French exchange site) and the company Aqoba (payment institution) enabled Paymium to operate as a payment service provider, and therefore to keep accounts in euros and ” issue payment cards usable in euros and bitcoins.
- On February 14, 2013, the Reddit community site set up a system to buy “Reddit Gold” with bitcoins.
- On February 16, 2013, the online storage site Mega, successor to Megaupload, accepts payments in bitcoin.
- On October 14, 2013, the giant Baidu (Chinese equivalent of Google) accepts bitcoin transactions for its Jiasule firewall service.
Bitcoin ATM in Zurich, Switzerland. - On October 29, 2013, the first automatic bitcoin cash machine-exchanger went into service in Vancouver. In September 2016, more than seven hundred and seventy of these automatic distributor-exchangers were installed worldwide, including four in France.
- On November 21, 2013, the University of Nicosia announced that it accepted bitcoin and opened a master’s degree in economics specializing in digital currencies.
- On November 22, 2013, Richard Branson announced that Virgin Galactic will now accept bitcoins as a means of payment for its space tourism flights.
- On November 29, 2013, Jiangsu Telecom (third largest Chinese operator), a subsidiary of China Telecom, now accepts bitcoins.
- On March 25, 2014, the US tax authorities declared that bitcoin should not be considered as a currency, but as a good, whose transactions are subject to taxation on capital gains. This implies taking into account the exchange rate at which a bitcoin has been acquired and the one at which it is used in order to calculate the realized capital gain, which makes the legal use of bitcoin in the United States particularly difficult.
- On May 9, 2014, the United States Election Commission accepts that election campaigns be funded in bitcoins up to a limit of $ 100 per election cycle.
- On September 23, 2014, Paypal allowed certain North American digital goods merchants selected by partner bitcoin payment processors to accept payments in bitcoins, and thus very gradually opened up to bitcoin.
- As of October 16, 2017, there were 1,686 distributors around the world.
- In December 2017, the French Minister of Public Accounts, Gérald Darmanin, reminded French taxpayers of the requirement to declare income, when it comes to capital gains realized during bitcoin transactions.
- In November 2018, the Ohio government announced that it was accepting Bitcoin tax payments.
- In January 2020, an investing.com study revealed that 9% of financial advisers already place part of their client’s funds in bitcoin to protect them from monetary troubles.
Notable incidents
- On August 15, 2010, a block was generated containing a transaction creating 184,467,440,737 bitcoins for three different addresses. This flaw is linked to the fact that the code did not foresee the case of creating such large amounts of bitcoins. This problem was solved automatically by the bitcoin blockchain and these bitcoins no longer exist.
- On March 12, 2013, an incident occurred related to a non-backward compatibility of version 0.8.0: the chain split into several versions and some remained blocked for a few hours.
- On April 11, 2013, the value of bitcoin collapsed from $ 266 to $ 105 before stabilizing at $ 160 (€ 122) in less than six hours. On April 13, the price reaches € 66. The course had been multiplied by eight in less than five weeks.
- On October 2, 2013, Ross Ulbricht was arrested. He is the alleged founder of Silk Road, which is shut down by the FBI88 and used only bitcoin for all of its transactions.
- On February 11, 2014, the Bitcoin network was the victim of a massive and concerted attack launched on numerous exchange platforms.
- On February 24, 2014, the Mt. Gox trading platform suffered a record loss of 744,408 BTC, the equivalent of over 250 million euros. The website is closing temporarily. A crisis management document has been drawn up and is publicly available. According to some specialized media, the future of bitcoin is threatened. The exchange rate remains stable on the other platforms. Bitcoin lost more than 38% of its value in the first quarter of 2014.
- On September 11, 2015, Mark Karpelès, owner of the Mt. Gox platform, was indicted in Japan for embezzlement. He is suspected of having embezzled 2.3 million euros of bitcoin deposits. The suspect denies all of these accusations.
- In May 2016, the Gatecoin exchange site was hacked and had 250 bitcoins and 185,000 ether stolen. The hacker managed to bypass the online storage limits of the exchange platform’s assets: while only 5% of the deposits are not cold stored, the hacker managed to empty these deposits while continuing to feed the address by transfer of cold storage assets from the exchange platform.
- On August 3, 2016, the Bitfinex exchange site reported the theft of 119,756 bitcoins on its exchange platform, or $ 65 million over the cryptocurrency in July 2016.
- On May 7, 2019, hackers stole more than 7,000 Bitcoins from the Binance Cryptocurrency Exchange, worth over US $ 40 million. Binance CEO Zhao Changpeng said
Hackers used a variety of techniques, including phishing, viruses and other attacks … Hackers had the patience to wait and perform actions well. orchestrated through multiple seemingly independent accounts at the most opportune moment.
All incidents related to exchange platforms only affect people who do not themselves hold the private keys of their bitcoin wallet. Not your keys not your bitcoins
Following a tweet from Elon Musk on May 12, 2021, indicating that his electric vehicle company Tesla would no longer accept payment in bitcoin for the sake of preserving the environment and Beijing’s announcement on May 19, 2021 banning the use of cryptocurrencies by financial institutions, Bitcoin lost 30% of its value in less than a week, causing other cryptocurrencies to fall by more than 40% for Ethereum and 45% for Dogecoin.