As a leader in cryptocurrencies, the creation of Bitcoin has created a craze for virtual currencies, allowing the world of crypto assets to interest a large number of people. Since the launch of Bitcoin in 2009, we have counted neither the new cryptocurrency projects nor the Internet users who have decided to embark on the investment adventure. Out of curiosity or out of greed, the queen cryptocurrency has thus attracted many neophytes and their lots of questions. So what are the advantages and limitations of the market leading virtual currency? Let’s tackle the different points characterizing Bitcoin together in order to extract a relevant opinion! Are you starting from 0? In 10 minutes, you will know everything (or almost)!
Learn more about Bitcoin
Before exhibiting the Bitcoin project (BTC) and its cryptocurrency, let’s see her story together, as well as her goal.
What is Bitcoin (BTC)?
Bitcoin was created by Satoshi Nakamoto (which is a pseudonym), first theorized in a white paper in 2008, then put into practice the next year. Bitcoin is simply the first virtual currency in actual circulation. The idea is not revolutionary, because its operation corresponds to a subtle assembly of technologies already mentioned a few years ago, except that this project combines them within the same protocol. If you want to know more, please read our full definition of Bitcoin.
To put it simply: Bitcoin is a cryptocurrency. It’s about a decentralized currency, that is to say that it does not depend on a trusted third party or an institution, but on its community. She does not have a ticket or coin: everything takes place on a computer. It works thanks to blockchain (we’ll come back to this later) and asymmetric cryptography, which allows the creation of a private key, that is to say proof that we have the funds stored by a public key.
What is the purpose of the creator of Bitcoin?
The reason for creating Bitcoin is simple and can be summed up in one sentence: Bitcoin is a decentralized currency which makes the economy of the actors of the “old world” financial (banks, central banks, regulators …). The creator of this cryptocurrency wishes to replace the current institutions such as banks with its cryptographic process which is based on mathematical calculations, but also on the confidence of its community.
In summary : Bitcoin is an electronic money system operating entirely on a peer-to-peer network and allowing to perform online payments directly from one individual to another, without going through a financial institution.
How does the Bitcoin network work?
Bitcoin works through a peer-to-peer network. This one has a name: blockchain. Made up of blocks dragging along a virtual chain, this is a record of all transactions and cryptocurrency information. Regarding Bitcoin, every 10 minutes, a new block is created. In the latter are written all the information relating to bitcoin transactions. Chain connect these blocks together, thus allowing retrospective verification of transactions made.
The registration of transactions on this network is validated by the action of “Minors”. Behind these minors, natural persons who dedicate their computer equipment to this task, in order to solve complex algorithms. This is called mining. Each new validated payment takes place in a block which is then added to the register. The Bitcoin protocol network is in free access ((“Open source”), which means that anyone can download Bitcoin blockchain and contribute to its development (including on a simple phone).
Miners, those who put their computing power at the disposal of the network, obtain in bitcoin reward, which are therefore the cryptocurrency issued by the network. This process of monetary creation of BTC tokens is what is called the “Proof of work”, and this is the only way to create cryptocurrency on the network. If you want to know more about bitcoin mining, click here.
Good to know : Bitcoin production is limited to 21 million BTC. This decelerates gradually so that the maximum quantity is reached around 2140. This deceleration is guaranteed by a mechanism called “Halving” which halves the production of new BTCs every 4 years.
How do exchanges work on the Bitcoin network?
For a user to exchange Bitcoin, the user must have a address, for that, he will have to use a “Bitcoin wallet”. This is a system that allows store bitcoins of a surfer, more precisely his private key, which is sort of the password that allows him to access his cryptocurrency. This allows him not to have his balance stolen. If you want to know more about the different existing wallets for Bitcoin, click here.
To make a transaction with bitcoin, the receiver will have to send a public address (or public key), which is an address made up of a list of numbers and letters, which will allow the sender to pay the amount. The blockchain will therefore be asked to determine whether or not the transaction can take place. For this, the miners’ computers use blockchain history by asking several questions (“Does the wallet exist?”, “Is there bitcoin in it?”, “Is the address provided correct?”, etc.). If all these questions are verified, the transaction is therefore validated and added to the blockchain.
To know : The golden rule of a blockchain is that all transactions are final. The network is designed so that no backtracking is possible once an exchange has been made.
Bitcoin’s blockchain network is “Transparent and pseudonym”. Transparent, because all transactions carried out can be viewed on the blockchain, and pseudonym because the addresses used on the network are addresses public, not necessarily associated with an identity.
What are the advantages of Bitcoin and its disadvantages?
Bitcoin’s success with a large community proves that its qualities are many and varied. It would also be interesting to see what the disadvantages of pioneer cryptocurrency are.
The Benefits of Bitcoin
Here is the list of positive points that feed our opinion on Bitcoin:
- Cryptocurrency does not depend on a state or control bodies, which guarantees his autonomy vis-à-vis the real financial system;
- Cryptocurrency is more than a substitute currency to existing currencies, it’s also a society project which aims to free trusted third parties, that is, banks;
- His network is innovative, and was able to generate a great craze for cryptocurrency in general. In addition, it should be said that the blockchain system can be used in fields other than that of cryptocurrency;
- Cryptocurrency has the potential to streamline e-commerce on a large scale, all the more so as research is being carried out to further improve the speed of execution and make it possible to assume an increase in the volume of transaction volumes.
What are the disadvantages of Bitcoin?
Despite all its advantages, there are nevertheless some drawbacks to cryptocurrency.
First, cryptocurrency faces a great volatility of its course. In other words: the price of Bitcoin fluctuates enormously and very quickly, which can act as a pushback for some investors (to see the price of BTC, it is here).
Added to this is its mining process, proof of work, which is not the most optimal for people wishing to participate in the development of the project while obtaining remuneration in bitcoins. Indeed, this imposes a very large investment in equipment, but also in electricity. Added to this is halving, which reduces the number of bitcoins obtained for an ever-increasing investment.
Finally, we can talk about the lag between the principle of Bitcoin and its use.
By creating this network as well as cryptocurrency, Satoshi Nakamoto wanted to develop a virtual currency that people had to use to buy their goods.
However, cryptocurrency is widely used to the speculation, that is, keeping it and then reselling it once its price increases. So we can say that it is often more than one investment tool than a currency of exchange.
In addition, other projects created after Bitcoin have a more advanced lens and technology. We can cite for example Ethereum with its goal of becoming a global computer allowing the creation of decentralized applications, or IOTA which seeks to revolutionize the world of connected objects.
Our advice and opinions on Bitcoin
Our opinion on Bitcoin is clear: this cryptocurrency remains the benchmark. Pioneer, it is fascinating, and all the projects of other cryptocurrencies (altcoins) compare to it. The Bitcoin adventure is also the practical, concrete and tangible application of a hypothesis written on a white paper, followed by tests and experiments.
Bitcoin is obviously competing with faster, more functional or more scalable technologies. But its network does not forget to evolve, adapt and develop to convince and seduce investors. It’s not for nothing that it still remains the first cryptocurrency Coinmarketcap after more than 10 years of existence. Not to mention that it can serve as a safe-haven cryptocurrency compared to lower-rated altcoins, even if its media exposure also plays on public opinion.
After the reluctance, the banks fund digital asset and blockchain storage projects. Even the states are doing it, especially China. This is an important moment for cryptocurrencies, as the Asian continent has a huge number of users of purchasing platforms.
Finally, the entire blockchain ecosystem is maturing. Many applications are tested outside of trade alone. The increasingly significant need for traceability of exchanges, productions and information, offers her a bright future. And the uses will multiply: certification of diplomas or insurance contracts, management of co-ownership trustees, establishment of the cadastre in certain countries such as in Africa, etc.