Is it a bubble? A revolution? The future? Nobody really knows. But we will try to help you see it all the same more clearly
It’s a technological revolution, a new form of gold, a financial bubble or a scam. Bitcoin can be all of this, or none of it depends on who defines it. One thing is certain, this is the technical and financial phenomenon of the year. Answers to existential questions posed by bitcoin.
Well, bitcoin, what is it exactly?
A virtual currency created on the basis of a working document published in 2008 and in general indifference by Satoshi Nakamoto, a pseudonym behind which hides an individual or individuals never identified until then. Bitcoin is based on a decentralized network of computers that verify transactions between two parties, as would a bank or a central authority. Each new operation is added in a tamper-proof register, the blockchain. To hold bitcoin is to have a secret key proving to any network user that this bitcoin is held.
The total number of bitcoins to be released is limited to 21 million units, of which 17 million have already been created. The price of this unregulated cryptocurrency has exploded by 1700% this year, to approach $ 19,000 on December 7th. Many observers think it is a bubble. Unlike traditional currencies or other financial assets, it is impossible to determine the intrinsic value of bitcoin.
But can we become a billionaire in bitcoins?
Absolutely, but for the moment, it’s better to measure 1.96 meters, weigh 100 kg and claim to have been stolen by Mark Zuckerberg. These are the characteristics of the first official billionaires in bitcoins, the Winklevoss twins. After receiving $ 65 million to settle their litigation around the paternity of the social network, they bought in 2013 for $ 11 million of bitcoins, while cryptocurrency was still little known and even less valued. Some 4 years later, the wealth of these visionaries is in the billions thanks to the soaring bitcoin.
This success is a dream for current buyers of bitcoins, who are mainly driven by the FOMO syndrome – for “Fear of missing out”, a form of social anxiety that makes someone worry excessively about the risk of missing an opportunity. Last detail: the Winklevoss have just predicted that the course of bitcoin would be multiplied by ten or twenty. Others, including many bankers, feel it has no value.
Who owns bitcoins?
It is estimated that about 40% of the bitcoins in circulation are held by a thousand users, according to several experts interviewed by Bloomberg. They are called “whales”, the name used in financial circles to describe dominant investors in a market. It is likely that these crypto-cetaceans know each other and communicate with each other, in order to influence the course of bitcoin through concerted operations. It would not be illegal, since bitcoin is not an action or an obligation, which are subject to restrictions.
As far as the general public is concerned, it has been written a lot that Monsieur and Madame Tout-le-monde had started bitcoin when its price exceeded $ 10,000 on November 28th. We can doubt strongly. Sweden is one of the most familiar countries with this motto. It is possible to invest easily in bitcoin. Some 30,000 Swedes would have adopted it, 50 times more than a year ago. But these precursors still represent only about 0.3% of the population. A simple test: how many people around you have bitcoins?
Yes, but how do you get bitcoins?
There are two methods. The simplest: exchange traditional currencies against bitcoins (or fractions of bitcoin) on a trading platform like Bitfinex or, in Switzerland, Bity. The most complex: “mine” bitcoins, that is to say produce with a computer. Or rather with computer batteries whose computing power is pooled to ensure transactions and solve extremely complex mathematical problems. In exchange for their contribution, “minors” are paid in bitcoins.
The complexity of the calculations explains that a transaction in bitcoins consumes as much energy as a US household for a week and that the entire bitcoin network emits as much carbon dioxide as Ecuador. In the long run, it is estimated that this network will consume as much energy as Japan.
Should we “mine” bitcoins with its Tesla?
This is what the owner of an electric racing car produced by Elon Musk’s company tried to do. With a simple reasoning: since it takes a lot of energy to produce bitcoins, take it as much as it is free. For example in Tesla charging stations, which supply the brand vehicles for free for life. You can see on the Internet pictures of the trunk of his car, filled with batteries and computer equipment.
Experts are not sure, however, that this crypto-driver has actually mined bitcoins in his vehicle. But its approach is not unique: the search for cheap electricity has pushed Chinese “miners” to use hydropower, while in Europe wind is sometimes preferred, still experimentally.
How can we spend bitcoins?
The simplest is to make online purchases on sites that accept cryptocurrencies. The operation is more delicate in traditional businesses, since the verification of a transaction can take up to 10 minutes. It is also possible to invest bitcoins in ICOs for “Initial Coin Offerings”.
These cryptocurrency fundraisers help finance companies that do not yet exist, but have a promising technology project. Four of the top ten ICOs in 2017 were launched from Switzerland, particularly in the canton of Zug, which has specialized in this sector to the point of being renamed the “Crypto Valley”. The most famous is Tezos, which raised the equivalent of $ 232 million last summer. The sum is blocked because of a conflict between the different leaders involved. This has not stopped it from tripling since, thanks to the rise of bitcoin and other cryptocurrencies.
Is it necessary to send its bitcoins in space?
That’s what ConnectX, a start-up that plans to host bitcoins in a network of small satellites. This ambitious project would protect hackers bitcoins stored on platforms like Coinbase or in virtual portfolios, called “wallets”. These also have the disadvantage of operating with “keys” (a 52-digit password) that can always be forgotten or lost (but not recover …). Just as we can misplace the mobile phone that can connect to these wallets.
Remains the third option of storing virtual currencies: the “hardware wallet”, a kind of USB key on which one loads his bitcoins and that one disconnects from Internet. The hackers are powerless, but the risks are this time of losing or being robbed this piggy bank. Piggy bank that would be safe from most climbers if one prefers to risk sending it space with ConnectX.
And, so: how to stop this mad flight of bitcoin?
By allowing to bet on its decline, via a short sale. The Chicago Stock Exchange has been doing it since December 10 on bitcoin. As a result, its price rose 26% during the first session, which was interrupted twice in the morning, to calm the market. Other market operators will launch similar products in the coming weeks.
And what will happen if bitcoin is regulated?
One possible regulation might be to require bitcoin buyers to register with a financial supervisory authority (Finma in Switzerland or the US SEC) and report their transactions. Their potential gains would then be taxed, which is a strong incentive for countries to regulate the market. The attractiveness of cryptocurrency would also be weakened.
Last question: should we talk about bitcoin at the Christmas meal?
The subject is likely to feature on the menu of traditional family logomachies. Especially if one of the guests has invested, earned money and decides to let it know. To others who would still like to shine around the Christmas turkey, Le Temps launches a challenge: to say something other than “The blockchain is a fascinating technology, which opens unlimited possibilities, but concerning bitcoin I am more reserved.” C is the most heard phrase of 2017 – after this one: “Bitcoin has made further progress!”