What is Bitcoin ?– Should you buy bitcoin now
Bitcoin(BTC) is a decentralized digital currency that can be transferred on the peer-to-peer Bitcoin network without the intervention of a trusted third party such as a bank or government. This currency can be divided to the eighth decimal place (called Satoshi or sat), i.e. 1 bitcoin = 108 satoshis.
Bitcoin transactions are verified by the network nodes and are recorded on a distributed ledger called a blockchain. The blockchain is searchable and tamper-proof, but it is theoretically possible to attack Bitcoin if a cooperative owns more than 50% of the network’s computing power.
This technology didn’t come out of nowhere; it’s the result of many earlier innovations. Let’s go back a few years to understand the origins of Bitcoin.
The Bitcoin protocol has its roots in the cyberpunk movement that emerged in the early 1990s. Cyberpunk is a group of activists whose goal is to ensure online privacy through encryption. Encryption is designed to protect data considered confidential by making it unreadable without the use of a secret key. Many digital currencies are created to preserve the anonymity of citizens. However, the “eCash” project of the DigiCash company invented by the computer scientist and cryptographer David Chaum stands out. However, the company went bankrupt in 1998 and the eCash system also failed because it was tied to the company.
In 2008, a person or group of people under the pseudonym Satoshi Nakamoto published a document called the “White Paper”(Source : Bitcoin.org). This document describes the functioning of Bitcoin in only 8 pages, based on various innovations such as eCash, P2P technology and the blockchain.
Bitcoin was born on January 3, 2009, and the first block of the blockchain, or “genesis block”, was created. The genesis block refers to the first book of the Torah and the Bible, which tells of God’s creation of the world.
On January 12, 2009, the first transaction of 10 BTC is made between Satoshi Nakamoto and the computer scientist Hal Finney.
On October 5, 2009, Bitcoin was valued at $0.000 1.
In December 2010, Satoshi Nakamoto decided to retire from his project and handed over to the American Gavin Anderson (Source: Wikipedia).
Today, the Bitcoin protocol is still in use and continues to evolve. Bitcoin’s source code is open source and hosted on the most popular release manager GitHub.
More than 20,000 digital currencies have emerged as a result of its success. The cryptocurrency ecosystem is an implementation of the original ideas of economist and philosopher Friedrich Hayek where thousands of currencies are valued daily by the market according to changing factors.
How does Bitcoin work? – bitcoin a good investment
The Bitcoin protocol requires two mechanisms to function: the blockchain and mining.
The bitcoin blockchain is a public ledger that records bitcoin transactions. This way, it is possible to verify each new transaction. A transaction is a transfer of value between portfolios.
A wallet is a sort of account belonging to a user that he uses to store, receive and exchange his cryptocurrencies. It is attached to a public key that can be likened to a RIB and to a secret information called private key. The private key is used to sign transactions, i.e. to confirm transactions by providing mathematical proof that it comes from the right owner. The public key allows the signature to be verified publicly without the private key being revealed.
These transactions are grouped into “blocks” that are cryptographically secured during the mining phase and linked together.
Mining is the distributed consensus system for securing blocks through the intervention of miners. Miners are people who verify transactions and cryptographically secure them by solving complex computer tests using their computing power. As a result, new bitcoins are released into the network. These new bitcoins are called “reward”. Approximately every 10 minutes, a new block is added to the ledger and miners compete to receive the reward. This process is called the “Proof of Work”. Today, the reward is 6.25 bitcoins, but it is divided in half every 210,000 blocks, or about every 4 years. This event is called “Halving”.
The amount of Bitcoins in circulation is approximately 19.2 million and the total amount of Bitcoins is set at 21 million. It is estimated that the last block will be mined at around 2140 and miners will have to be content with receiving the fees for using the Bitcoin network as a reward. Everything has already been programmed, and this “mantra” is to continue over time. As a slogan in the cryptocurrency ecosystem says, “Code is Law”. In other words, source code should replace the law, especially when it comes to financial transactions.
The best sites to follow the price of cryptomoney– good time to buy bitcoin
CoinMarketCap is the leading site for tracking crypto asset prices. The site was founded in 2013 by Brandon Chez and then acquired by Binance in 2020. Its goal is to make crypto more accessible and effective to the general public by providing unbiased, qualitative and accurate information so they can draw their own conclusions.
CoinGecko is an alternative to CoinMarketCap if you don’t trust Binance. The site was founded by TM Lee and Bobby Ong in 2014. Their mission is to democratize access to crypto data and provide users with actionable information.
The best platforms to buy or sell crypto-currencies? – Should you buy bitcoin now
To buy bitcoin, you have the option of registering on an online platform called an exchange platform specialized in crypto-currencies, using a Bitcoin ATM or exchanging it with another person without going through an intermediary. In this part, we will focus on exchange platforms.
Warning:
In France, bitcoin is considered a digital asset and not a currency. If you exchange bitcoins with another person, the person who receives your bitcoins will have to pay taxes when he or she converts the amount he or she received into fiat currency on an online platform or when spending money online or in a store.
Personally, I prefer to use Binance to trade cryptocurrencies, because Binance is the most used cryptocurrency platform in the world, the transaction fees are very low (0.1% at most) and it offers a large number of digital currencies and interesting services. As a second option, I use Kraken because this platform has been around since 2011. The transaction fees are acceptable (0.26% at most) and the platform has never been hacked.
Before depositing fiat currency into an exchange platform, I recommend that you protect your online account:
- Create a dedicated email address for your cryptocurrency platform to hide your identity (except for the online platform that has your confidential documents) ;
- Secure your new email address with a strong password and reliable two-factor authentication ;
- Protect your exchange platform with a strong password and secure two-factor authentication;
- Synchronize your trading platform with your secondary bank, as some banks may block your transfer to your broker or even block your bank account.
To avoid problems with your main bank, where you may have a mortgage, it would be better to use a crypto-friendly online bank or neobank to take zero risk.
Once your euros are deposited on the exchange, you can exchange your euros for bitcoins.
Why is it essential to protect your cryptocurrencies? – investing in bitcoin
Unfortunately, many people leave all of their virtual currency on an exchange without understanding the risk they are taking. There is a very popular saying in the cryptocurrency ecosystem,“Not your Keys, Not your Coins” which means that if you don’t have the private key to your wallet, you don’t really have control over your digital currencies. If the platform goes bankrupt or gets hacked, you can lose all your funds.
Here is a non-exhaustive list of hacks, bankruptcies, or scams that have occurred on centralized cryptocurrency platforms in less than 15 years :
2014 : The former largest cryptocurrency platform Mt. Gox was hacked (Source: Wikipedia).
2018 : Ponzi pyramid Bitconnect shut down its trading platform (Source: Wikipedia).
2019 : Cryptopia exchange went into liquidation following a hack (Source: CoinDesk).
2019: 7,000 Bitcoins hacked on Binance (Source: Bloomberg).
2021: Bankruptcy of the cryptocurrency platform Celsius (Source: CNBC).
2022: Bankruptcy of FTX, the second largest cryptocurrency platform (Source: Capital).
The biggest risk in my opinion, is to entrust the management of one’s private key to a trusted third party and not to bear the fluctuations of the digital currency bitcoin. A financial crash in the stock market, i.e., a sharp drop in the price of an asset is considered a “small” correction in the cryptocurrency market.
For less than 15 years, the Bitcoin protocol has continued to grow and increase in value despite these various scandals. FTX’s bankruptcy has caused some individuals and professionals to lose a lot of money and I’m pretty sure there will be more scandals in the future.
In order to protect yourself against these threats, it is preferable to have your own private key in a cold wallet, i.e. the private key of your wallet will not be connected to the Internet, unlike hot wallets (exchange platform, online wallet, mobile wallet, computer wallet).
The best cold wallets to secure your cryptocurrencies?– Should you buy bitcoin now
Ledger is a French startup that designs and markets physical cryptocurrency wallets for individuals and businesses. Ledger is currently the leader in its field. This startup offers three models of physical wallets.
Trezor is Ledger’s main competitor. This Czech company offers two models of hardware wallets to protect its cryptocurrencies.
Is it safe to keep your private keys in a hardware wallet?– Should you buy bitcoin now
The software used in these devices is open source and regularly audited.
On the other hand, the probability of someone guessing the private key is very small. The chance of hacking a single wallet with a particular key is the same as winning the Powerball 9 times in a row (e.g. EuroMillions).
Warning:
To avoid being scammed, it’s advisable to buy your device from the official website of the manufacturer. In 2018, an individual bought a hardware wallet and had his money stolen, namely £25,000 (Source : Reddit).
By the way, when you initialize your device, you should write down 24 words and keep them in a safe place, because if you lose your device, these 24 words will allow you to restore your wallet on another device. Without this set of words, you won’t be able to access your wallet and the manufacturer won’t be able to help you because they don’t have this information.
If you have enabled the passphrase, which is a list of characters (25th word) on your wallet to increase the security of your funds, you will also need to keep the passphrase safe as you will need it to access your cryptos.
What are the trends in cryptocurrency adoption around the world?– Should you buy bitcoin now
The number of users of cryptocurrencies is similar to that of the Internet in 1998. Adoption is slow at first, before reaching an inflection point of hyperadoption similar to other technologies (Internet, cell phones, color TV, etc.). According to Chainalysis, a U.S. company specializing in blockchain analysis, cryptocurrencies are being adopted primarily in emerging markets.
To obtain these results, Chainalysis included 154 countries and used three criteria: the amount of cryptocurrency received weighted by purchasing power parity (PPP) per capita, the amount of cryptocurrency transferred by individuals only weighted by PPP per capita, the volume of peer-to-peer trading weighted by PPP per capita, and the number of internet users. Purchasing Power Parity is a method used in economics to compare the purchasing power of national currencies between countries.
It can be seen that Vietnam is at the top of the ranking. 18.7% of the population or 18.6 million Vietnamese hold cryptocurrencies. This country continues to digitize its economy over the past decade.
In developed countries, virtual currencies, especially bitcoin, are mainly used as a financial asset and not as a means of payment. However, more and more major retailers are accepting cryptocurrencies as an alternative payment method.
What major investors think about Bitcoin?– Should you buy bitcoin now
Digital currencies are the subject of much debate. Veteran investors have mixed views on the technology. Warren Buffett, one of the greatest investors of the 21st century, does not believe in Bitcoin. According to him, Bitcoin is not a productive asset and does not produce anything tangible.
I you offered me all the world’s bitcoin for $25, I wouldn’t take it.
Warren Buffett, CNBC
However, Bitcoin is gaining acceptance in the traditional financial and investment world.
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates owns bitcoin but believes the cryptocurrency is risky.
I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed.
Ray Dalio, CNBC
Frequent criticism of Bitcoin and cryptocurrencies : – Should you buy bitcoin now
Cryptocurrencies are used to launder money– Should you buy bitcoin now
Chainalysis estimates that $8.6 billion was laundered into cryptocurrencies in 2021, less than 0.9 percent of the market capitalization of cryptos (Source : Reuters)
This amount is still negligible compared to the total capitalization of cryptocurrencies. The majority of individuals with cryptos are not criminals. They see this technology as a store of value and not as a way to launder money.
For example, after the collapse of the Turkish lira, some citizens adopted bitcoin to protect their currency. (Source : Nasdaq). Hyperinflation is extremely rapid inflation.
The Blockchain, Not Bitcoin– Should you buy bitcoin now
The blockchain exists long before the creation of the Bitcoin protocol by Satoshi Nakamoto. The first study on blockchains was conducted in 1991 by Stuart Haber and W. Scott Stornetta (Source: Wikipedia). The real innovation is the combination of a distributed database and a consensus algorithm (proof of work) to induce miners to secure the ledger in exchange for a reward paid with a cryptographic digital currency that operates without a central authority.
Satoshi Sakamoto started from the assumption that all participants in the network will act in their own interest, this is the Game theory.
Bitcoin will boil the oceans – Should you buy bitcoin now
There’s no denying that the Bitcoin network contributes to global CO2 emissions like most man-made innovations (e.g., the financial system), but Bitcoin is not going to destroy the planet.
The independent research institute based at Cambridge University is studying the energy consumption used to run the Bitcoin protocol through the Cambridge Bitcoin Electricity Consumption (CBECI) project.
French startup Valuechain, which specializes in payment consulting and especially payments with digital currencies, has published a scientific research paper in 2022. This report corrects some of CBECI’s approximations about Bitcoin’s energy consumption due to proof of work (Source: Valuechain.pro).
Conclusion– investing in cryptocurrency
I hope this article has helped you learn more about bitcoin. It’s up to you to decide if this protocol is relevant to you or just another Ponzi scheme.
Please note that I am not a financial advisor. The information provided is for educational and informational purposes only. There are risks associated with investing in cryptocurrencies. You are solely responsible for your use of the information provided. I am not responsible for your profits or losses.
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