Although we are all familiar with the idea of digital currency – spending and receiving money that we don’t actually have – cryptocurrencies, like bitcoin, remain a mystery.Bitcoin mining? How can we use the money in the future? And can we even trust cryptocurrencies? In this quiz, we ask Dr. William John Nottenbilt, Director of the Imperial College Center for Cryptocurrency Research and Engineering, to help us better understand this type of cryptocurrency.
Bitcoin is a form of electronic money. This means that it does not have a physical form. Instead, electronic money units are exchanged over a computer network that has some unique characteristics: there is no central control point (there are no “banks”).
There is no central transaction storage point (a central database containing a record of all completed transactions).
Instead, it operates on a global network with thousands upon thousands of nodes — a device within a network like a computer or other device — that process and store transactions together.
With thousands of nodes, it is difficult to have a common record of all transactions, but a technology called blockchain makes this possible. Blockchain is a shared record of transactions. It prevents anyone from “doubling up” on bitcoins and makes it very difficult to alter historical transactions. It is very difficult, if not impossible, to stop or interfere with it.
node: A machine that participates in the World Wide Web by running a Bitcoin program.
Blockchain: A database of financial transactions that is constantly growing as new transactions or “blocks” are added to it, forming a general and continuous data series.
Cryptocurrency: Digital and decentralized currency that uses cryptography for security.
Encoder: The science of encoding and decrypting messages and data in a secure manner. For example, by encryption.
2. Where did it come from?
Bitcoin was first published as an idea in an electronic mailing list of computer scientists studying secure (or cryptographic) communications in 2008.
The author goes by the mysterious pseudonym of Satoshi Nakamoto, but no individual (or group of people) has yet been conclusively identified as Satoshi.
3. Is it still used and where can it be used?
Bitcoin is still in use and actively traded on cryptocurrency exchanges, allowing users to exchange “regular” money such as the British pound for Bitcoin.
To use bitcoins, the first step is to create a wallet (it can be online, a mobile app, or a device, for added security). This protects the secrets used to allow the movement of bitcoins under your control.
Your wallet will control several “addresses” that, like bank account numbers, can be used to receive bitcoins. It will also control the secret password needed to allow bitcoins (technically known as the private key) to be sent. If your private key is lost or stolen, you lose control of your bitcoins, just like someone discovers your PIN.
4. Why would someone want bitcoins instead of “regular” cash?
The “ordinary” silver we use today is actually quite unusual in the history of silver, in the sense that it itself is no longer of value (like gold coins).
If you read the Promise on a £10 note, you will find (in very small letters):
Prepared for the bearer upon request the amount of ten pounds.
(Next time you find a ten pound note in old jeans, take a look.)
This is not a great promise if you think that every escrow authority (such as the Bank of England) must print another sheet of paper to fulfill that promise.
When money is created, it dilutes the value of money in circulation. People do not necessarily notice this erosion because the nominal amount of their money remains the same; However, they note that weekly groceries, restaurant meals, and movies cost more and more money.
Bitcoin is different.
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 every bitcoin itself is divisible into 100 million units called satoshis. This helps prevent value erosion affecting the “normal” currency (a phenomenon that people in Zimbabwe and Venezuela know all too well).
5. Can Bitcoin Make You a Millionaire?
Bitcoin is a highly risky, speculative and volatile asset. Like many high-risk investments, it goes through boom-and-bust cycles and, depending on when you buy it (or acquire it), can make or break you a millionaire.
In its early days, bitcoin was trading at $1 per bitcoin; It peaked at around $20,000 in 2017 before declining to around $3,000 and then settling at around $8,000.
Like a stock or a house, bitcoins are not worth more or less than others are willing to pay for them.
6. What is bitcoin mining?
Bitcoin mining is the process of adding new sets of transactions (called blocks) to the shared record of transactions (called a blockchain).
A major global competition – called the mining race – is constantly taking place to win the right to add a new block to the blockchain.
To participate in this competition, users must purchase specialized mining equipment that consumes a lot of electricity; The device itself is likely to quickly become obsolete due to the constant invention of more efficient devices – so it is not a profitable business for most people.
The people who engage in this activity are called bitcoin miners. They participate in this competition for two types of rewards:
- Block reward (currently 12.5 BTC) issued to the publisher of each block
- Transaction Fees – Bitcoin fractions that incentivize miners to include transactions in published blocks.
To make matters worse (from a miner’s point of view), the competition is getting “harder” as more miners participate, in order to avoid new bitcoins being issued too quickly. The block reward is also halved every four years, making it much more expensive to produce.
7. Can cryptocurrencies be trusted?
As in any rapidly developing space where new technologies are proliferating, there are high-quality and low-quality cryptocurrencies.
In the face of often clever marketing, many ordinary people find it difficult to distinguish cryptocurrencies that have real potential and show real points of technical novelty, from those that are just copies of other currencies or, worse, real scams.
Sometimes schemes like One Coin pretended to be cryptocurrencies, but then it turned out to be nothing more than well-organized pyramid scams, backed by a central database.
8. Could cryptocurrency become more popular than physical currency in the future?
It is theoretically possible, but it will likely take many years and many technical, economic, regulatory and legal problems before it becomes a reality.
For example, the Bitcoin blockchain can currently support much fewer transactions than traditional centralized payment networks such as Visa or Mastercard.
One category of cryptocurrency that has proven to be very popular and perhaps even more popular than physical currency is “stablecoins”, i.e. cryptocurrencies whose value is tied to “regular” currencies such as the US dollar, the euro and the British pound, so unlike Bitcoin, it cannot be worth The unit is £26,000 in one year and £6,000 two years later.