Cryptocurrencies. We talk about it all over the place, and for good reason: with Bitcoin as a proud representative covering a colossal unit amount, and the other digital currencies that are racing daily, there is enough to crystallize attention around the subject. However, beyond the speculation and sometimes sensationalist headlines in the media, what really are Bitcoin, Ethereum and other Litecoin? Decryption.
Before launching into a fairly detailed explanation of cryptocurrencies, we offer you in the next few lines a summary, so that you can get a first idea without necessarily delving into the full article.
To understand cryptocurrencies, it is essential to understand the concept of blockchain. Under this obscure term hides an operation in fact quite simple. The blockchain is a sort of gigantic digital book of accounts. This account book is heavily secured. As a result, each time someone wants to consult a transaction it contains, it has to be decrypted, which requires electrical and IT resources. Decentralization requires, it is the users who are called upon to validate transactions. They are called “minors”. However, any work deserving of pay, these users had to be paid. This is the reason Bitcoin was created. Miners are therefore paid in Bitcoins for the work they do, i.e. decryption of the blockchain.
So much for the main lines. Obviously, this explanation barely touches the subject. If you want to dig it a bit deeper, the lines below will give you more details about what the phenomenon is.
Where do cryptocurrencies come from?
It is impossible to talk about cryptocurrencies without mentioning their starting point. It all started in 2008 with a certain Satoshi Nakamoto, whose real identity is still unknown, so much so that it is not known whether it is a person or an entire corporation.
A complicated reading if it is for those who are not really versed in somewhat technical digital practices, but who present and describe the principle of operation of the blockchain. A bad word that is not really one, because it is on this famous blockchain that we now hear all the sauces that a large number of current cryptocurrencies are based. But we’ll come back to that later.
The idea of cryptocurrencies is to be able to serve decentralized applications. That is, applications that do not depend on a third party that will govern operations and other transactions (for example, an application that will manage file storage, or car races, financial transactions, etc.). It is sort of a new model for creating, funding and operating software services, but decentralized – a very important word in the concept of cryptocurrency.
Besides Satoshi Nakamoto, the ideology also dates back to the existence of crypto-anarchists who, like anarchists, seek to shed existing authority and rules, but online. Because as is often recalled by a certain number of specialists in the field, such as Adam Back or Charlie Lee, that decentralized applications are often much less efficient than their centralized counterparts, with a third party who governs their rules and operation.
The decentralization of applications and thus the emergence of cryptocurrencies mainly serve something that others cannot offer: resistance to censorship, but also data encryption. Some cryptocurrencies (Dash, Monero, etc.) even promise total anonymity. So many characteristics that turn out to be more interesting put into perspective with events that may have affected a section of the population. One thinks of the Snowden affair, which highlighted US surveillance on its population or even on communications around the world.
Rather than a currency that is used in everyday transactions (for Bitcoin, as for other cryptocurrencies), cryptocurrencies as a medium of transaction are currently more about darknet and ransomware. Some platforms that could use Bitcoin as a payment are also starting to back down from the volatility of value, which is the case of the video game distribution service Steam, for example.
If the use ultimately remains that of a niche, one factor has made the phenomenon extremely high profile. This is of course the current speculation around the price of different cryptocurrencies. Although volatile, cryptocurrencies remain a long-term investment, which depends essentially on changes in uses and practices (or not). Still, this is a market that currently weighs in at $ 525 billion as of this writing. This has something to generate an undeniable interest for the public, speculation enthusiasts, or the world of finance as a whole.
What exactly is blockchain?
The imagery most frequently used to talk about blockchain, in the case of Bitcoin for example is that of a gigantic account book that traces the history of all transactions that have taken place between two parties. Each transaction is filled in, with a date, details and a special identifier that allows it to be found and traced. Everything is made public on this great book. It is not the names of the people who participate that are entered, but other identifiers that characterize them.
A bit more technically, it’s a blockchain (the literal translation speaks for itself) that takes root on a public peer-to-peer network, where every transaction is publicly announced on the chain, with the aforementioned details. For the system to work, someone needs to validate transactions and thus prevent fraudulent manipulation, such as a user who spends the same amount of cryptocurrency twice. However, if we aggregate a third party, or a specific organization for this validation, we return to a centralized system all that is more traditional and the interest of the system is lost.
In the case of the blockchain, it is a certain number of the members of the peer-to-peer network who compete to validate the transactions and thus be able to generate a new block in the blockchain, using appropriate open-source software ( Bitcoin Core in the case of Bitcoin). These are the so-called minors. By validating a transaction and adding a block to the chain, they are rewarded with transaction fees, in addition to creating a little extra change. Mining does represent a cost: that of the energy and time (it seems to be money) spent to solve the mathematical problem posed by the system to generate a block.
Everything is obviously open to any user in open-source in order to democratize the network, but also because it is in a way the strength of the model. In theory, for it to be truly threatened, it is necessary to own 51% of the CPU (processor) power of the entire network, the larger it is, the more resources a malicious user or miner will have to have to modify the blockchain. Roughly speaking, the very construction of the blockchain, where each block is a transaction, which also contains information from the previous transaction (and so on) requires that an attacker will also have to change information from all previous blocks (to whoever interests him), but also following, so that the system believes in a manipulation. In short, each node (or computer) in the system is a protection on its own.
Those who feel they are growing wings by reading these few lines and discovering a vocation as Bitcoin miners can, on the other hand, revise their ambitions downwards. The state of the cryptocurrency mining market is such that it is now very difficult to find a place for potential profits. Kinds of “mining factories” are already democratized, aligning optimized configurations to validate transactions. Moreover, not all cryptocurrencies are equal in the face of this optimization: some use more CPU (processor) calculation, others GPU calculation (graphics cards), while others are more suited to ASIC chips (circuit literally app-specific built-in). This can sometimes explain the great difficulty in getting their hands on specific GPU models, or a significant rise in prices, for gamers.
Cryptocurrencies, there are plenty: here are some of their great families
Bitcoin
The most famous cryptocurrency, also the one was born with the invention of the blockchain. It remains based on this operating model without any real modification for the moment, which is not really the case with all cryptocurrencies. Bitcoin is therefore decentralized, without the intervention of a third party, with the history of all past transactions recorded in the blockchain.
Bitcoin is widely talked about for its continued progression and its current value, against the dollar. At the time of writing, a single Bitcoin represents US $ 16,517.90, which is not insignificant when we know those four years ago; it barely used to be the 100 dollars. . Like some currencies based on the blockchain principle, Bitcoin has a stopped number of possible units, which should be reached by 2140. There is still time to see it coming and to see it fluctuate, therefore.
Next to “very simple” Bitcoin, there are also forks. Technological splits that have notably given rise to other virtual currencies. We can cite Bitcoin Cash, a variant that works globally on the same model, but adding storage space in each block (from 1 to 8 MB), which was not retained in the Bitcoin model. Basic this followed the increase in transaction costs due to a huge evolving number of transactions in the period 2013-2014.
Bitcoin Gold is also a fork. The basic premise was to ensure a little more equity in the distribution of resources, and to allow mining on a GPU basis, rather than relying on chips for specialized use (ASIC), via a function Equihash hash rather than SHA256 (for those who want to dig a little deeper into the subject).
