What is Bitcoin ?

Bitcoin is an alternative financial system based on informatic code and cryptography, without central authority, open to all 24/7, transparent and censorship-proof. Initially created as an alternative payment network, it is now mainly used as an investment asset and store of value.

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Check out our video explaining Bitcoin.

Everything you need to know to invest with peace of mind.

video explicative bitcoin

1. A revolutionary concept: the blockchain.

Bitcoin’s operation is based on a protocol: the blockchain. It is a digitalized account book in which all transactions are listed. It is on this network that bitcoins circulate, which are therefore exclusively digital.

This network has two fundamental characteristics: it is immutable and distributed. No data stored on the blockchain can therefore be changed or deleted. There is no central body that controls its operation: data is replicated on tens of thousands of computers around the world, and anyone can participate in the network and propose changes.

From these characteristics comes the confidence in using Bitcoin.

Blockchain Bitcoin

2. Bitcoin, a response to the 2008 financial crisis?

Réponse à la crise financière bitcoin

Mystery hovers around the creator of Bitcoin. At most, we know a pseudonym: Satoshi Nakamoto. It may be one person or a group of people, but it is impossible to be certain.

Some experts claim that Bitcoin was created as a reaction to the 2008 financial crisis, to free itself from banks and states. But the few writings of Satoshi Nakamoto, which go back to the origin of the cryptocurrency, do not confirm this theory. However, the flaws of the traditional banking system are discussed, including the need to use financial institutions as intermediaries to guarantee our transactions.

Bitcoin can operate without its original creator, who has not been active in the project since 2012.

Satoshi Nakamoto thus proposes an alternative value exchange system. He is the first person to have found a solution that aggregates security and decentralisation, i.e. a system that functions entirely without intermediaries or central management bodies.

2008 création du bitcoin

3. A bit of history on Bitcoin

Bitcoin was first born via a document released on 31th October 2008, which explained the concept. This document, called a ”White Paper”, is entitled: “Bitcoin: A Peer to-Peer Electronic Cash System“. The initial idea is to offer a digital currency.

The Bitcoin blockchain went live on 3 January 2009. In the early days, only a few computer enthusiasts were interested, but soon exchange platforms were set up, allowing bitcoins to be exchanged for dollars, and thus setting a price based on supply and demand.

On 12 October 2009, 5050 bitcoins were traded for $5.02, or about $0.001 each, marking the beginnings of cryptocurrencies as an investment medium. Less than two years later, on 9 February 2011, Bitcoin reached parity: on that day, 1&nbspBitcoin&nbsp=&nbsp1&nbspdollar.

4. Bitcoin started out as a fast way to pay

Bitcoin is the Internet’s first international and native payment method. This allows anyone with internet access to use Bitcoin without limitation. Transactions are fast, taking no more than ten minutes to reach their destination, even if your recipient is on the other side of the world. This is more efficient than bank transfers, which can take several days, especially if funds are being transferred internationally.

The Bitcoin network is also cheap: it is possible to transfer the equivalent of millions of euros in Bitcoin with fees of only a few euros.

Because of the abrupt movements in its price, the asset is still little used as a means of payment to buy goods or services. It is seen more as an investment tool or even a safe haven, but we will explore this issue in more detail later.

Understanding how Bitcoin works

Bitcoin is rare but highly divisible

For the sake of clarity, let's distinguish between the Bitcoin protocol - which is the network on which all transactions or information are stored - and Bitcoins, which are the units of value that are exchanged and whose price is set by supply and demand.

One figure: 21 million

One of the fundamental characteristics of Bitcoin is that its money creation is predictable. 21 million: this is the total number of Bitcoins that will be available on the futures market, determined by the protocol at its inception. This limit gives it an intrinsic scarcity, and parallels are often drawn with precious metals, so much so that Bitcoin is referred to as digital gold.

21 million units for 7 billion people may not seem like enough if Bitcoin wants to establish itself as a medium of exchange that everyone can use on a daily basis, but this is a false problem.

Bitcoin's units are currently divisible up to eight decimal places, and it is possible to go even further if needed. In honour of its creator, the smallest unit in the system is called the satoshi.

One bitcoin is therefore equal to 100,000,000 satoshis, and it is quite possible to buy or trade one thousandth or even one millionth of a bitcoin.

How is the Bitcoin price set?

The price of Bitcoin is set, as with commodities or precious metals, solely through supply and demand. There are exchange platforms where a large number of transactions are made every day, allowing a price to be set. More generally, the price is influenced by a myriad of factors on a daily basis: news, good or bad, the global economic context, or internal market dynamics.


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Understanding Bitcoin's currency creation

In order to reach the 21 million Bitcoins eventually, an amount of Bitcoins is created every ten minutes on average and added to the total money supply. Basically, these funds are used to pay those who run the network, the so-called miners. These bitcoins can then be sold on the market.

On 3 January 2009, the day the network was launched, 50 bitcoins were generated by miners every ten minutes on average. The programme stipulates that the reward for miners via money creation is halved every four years. The latest division, also known as halving, took place on 11 May 2020. We went from 12.5 to 6.25 bitcoins created every ten minutes. The next division will take place in 2024. Following this pattern, a maximum of 21 million bitcoins will be in circulation around the year 2140.

There are currently about 19 million units in circulation, but in just a few years' time we will have already reached 20 million. By way of comparison, there are, for example, 15 billion 50-euro notes in circulation.

Understanding the concept of Bitcoin mining

People called miners are volunteers who use their computers to validate transactions and secure the Bitcoin network. Through this action, known as "proof of work", they are the originators of money creation: the goal is to solve a mathematical equation, and the first machine to solve it receives a reward in Bitcoins.

For this reason, the analogy is sometimes made with gold: miners "discover" a new block of the Bitcoin blockchain every time an equation is solved. Just as the gold digger has worked hard in a mine, the Bitcoin miner is rewarded for committing computing power and enabling the network to function. The difference is that with Bitcoin, everything is digital and the total number of units is determined in advance.

Miners are also remunerated with transaction fees, the amount of which varies according to the use of the network, from a few cents to several dozen euros.

Today, bitcoin mining has been industrialized. These are known as "mining farms": they refer to a place, usually large, in which thousands of computers are grouped together for mining activities. These farms are often owned by companies because this is an activity that requires investment: to be competitive, you need a lot of equipment. Equipment that consumes a lot of energy and gives off heat, which requires air conditioning.

Some countries in the world are favoured for this activity because of their cold winters and low cost of electricity. Mining is still a technical subject, which we discuss in more detail in this article.

Bitcoin, investment opportunity and store of value?

You may have heard Bitcoin compared to digital gold. There are several characteristics that support this: like gold, Bitcoins are in limited supply, which introduces a notion of scarcity and is likely to drive up the price of the asset. Another point of comparison with gold is that Bitcoin is free from government money creation. In times of economic uncertainty, this characteristic may give Bitcoin the status of a safe haven, in the sense that state currencies could depreciate with inflation.

But beware, while buying Bitcoin for investment purposes may be a wise choice, one should not overlook its high volatility: its value can rise or fall sharply in the space of just a few days. Since it is not regulated, Bitcoin is regularly the subject of speculation.

Observing the price movements on the marketplaces shows that phenomenal rises and sharp falls follow one another. At the end of 2017, the price of Bitcoin rose from €8,500 to over €16,000. But the price then fell by almost 80% in the course of 2018 to fall below 3,000 euros again. In March 2021, the price reached 50,000 euros!

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