Editor’s Note: This series of “ELI5” articles is for beginners entering the world of cryptocurrencies, DeFi, NFTs and Web3 with lots of questions in mind. ELI5 refers to the famous English acronym, which means “Explain me as if I were five years old”. The goal is not to infantilize the reader, but simply to give him keys to understanding, so that the cryptosphere’s complicated vocabulary in a broad sense becomes, as if by magic, a child’s play! Read the previous article in this series: Cryptocurrency Explained to a Five-Year-Old (ELI5).
You’ve probably heard of Bitcoin (BTC). Every time the value of this cryptocurrency soars, all the media talks about it. But do you know exactly what it is?
To enlighten you on what Bitcoin really is, which can also be found under the name BTC, we have made this little one guide for beginners. We hope this will give you a better understanding of what this cryptocurrency is all about.
The origin of BTC
Bitcoin emerged after the crisis in subprime of 2007. If certain cypher punks who are totally against banks have already previously issued similar ideas to Bitcoin, it was not until 2008 that Bitcoin emerged.
October 28, 2008 became a show Satoshi Nakamotowhose true identity no one knows published what is called white paper bitcoin. This is a document that laid the foundation for this future cryptocurrency.
However, it took until January 12, 2009, before the first transaction in BTC was completed. This took place between the founder of Bitcoin, Satoshi Nakamoto, and Hal Finneya famous cryptographer.
Peer-to-peer payment system
Prior to the invention of Bitcoin, all electronic payments had to be made through what is called a trusted third party. In most cases, it was a bank. The latter was then responsible for transferring the money from one person’s or entity’s account to another.
With the invention of Bitcoin, it was no longer necessary for the bank to be in charge of securing transactions. But that does not mean we have to do without a trusted third party. In fact, if transactions in BTC are secure, it is thanks to what is called blockchain. This acts as a trusted third party and ensures that Bitcoins are transferred from one person to another.
After all, many people make the mistake of saying that there is no longer a need for a trusted third party. In reality, this is no longer the bank, but simply the blockchain. A trusted third party is always needed to ensure the integrity of transactions.
How secure is the network?
The big problem with computers is that it is possible to duplicate files easily. For a very long time, therefore, it was not possible to develop a digital currency due to so-called double consumption. This term means that there was a risk that the same Bitcoin could be used multiple times.
It is obvious that a currency that can be multiplied infinitely is not desirable. On the contrary, it is even something dangerous because no one would then use it and the value of it would then no longer be worth anything at all.
To avoid the problem of double consumption, Satoshi Nakamoto came up with the idea of creating blockchain. But for this to work, it requires so-called miners, a concept that is, of course, analogous to gold miners, where BTC is considered by some people as digital gold.
Who are the minors?
In the world of cryptocurrencies, miners are not people with a helmet and a pickaxe. It is actually people or companies that have what is called computing power. In other words, it is individuals who possess computer equipment that are capable of solving mathematical equations.
To secure Bitcoin network transactions and discover new BTCs, miners compete with each other. The first to solve the mathematical equation wins what is called a block reward.
A block has a duration of 15 minutes and includes all the transactions that have taken place during this period. When a block is discovered, the miner collects 50 BTC. This reward is divided into 2 for every 210,000 blocks. It is currently 6.25 BTC per created block. In total, there can only be 21 million Bitcoins in circulation.
Bitcoin: what to remember
While other digital currency projects were proposed long before Bitcoin, it was the first cryptocurrency to be fully functional. This was possible thanks to blockchain, which solved the problem of dual consumption.
To function, the network needs a verification team called miners. They have to solve complex mathematical operations in order to create a block and pocket the reward attached to it.
Bitcoin is still the most popular digital asset today. Its value was less than 10 cents when it was first traded and rose to $ 68,789 on November 10, 2021.
Discover more crypto vocabulary concepts
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