Bitcoin: what they are and other things to know


Bitcoin is the first is more widespread among the so-called cryptocurrencies . It is a "value" agreed between the parties based on the "law of supply and demand". It is money, that is money that can be used to make purchases, but it is not a coin: there is not (at least for the moment) an object made of metal, plastic or paper on which a symbol is imprinted or printed (as in the case of $ for dollars or for euros) and a number (1, 5, 10 …).

From this point of view the images proposed by newspapers and TV are misleading, although inevitable: we also use them (it is enough to know that they are symbolic) and for convenience we will also use words like "currency".

Over time, in online transactions bitcoin has shown to have an extremely variable countervalue (in traditional currencies): for example, on 13 January 2017 a bitcoin was valued at around 777 euros, on 13 December 2017 it was valued at 14, 475 euros.

These variations (in this case of 1, 700% in less than a year) have fueled bitcoin fever and its entry into the futures market (where you bet on the future value of any asset, material such as oranges and wheat or intangible) like bitcoin: see how it works at the bottom of the page).

However, it must be said and it is never enough emphasized that bitcoin is not issued or guaranteed by a Central Bank. It is the result of specially programmed software : the bitcoin, in circulation since 2009, is "issued" (made available) based on the rules published by "Satoshi Nakamoto", a pseudonym behind which we still do not know who is there.

Bitcoin's founder, "Satoshi Nakamoto", finally found in California? Yes, no, maybe …

So here is what is important to know in order to disentangle the many news on the bitcoin phenomenon and to have the tools to decide if and how to use them.

bitcoin, cryptocurrency, digital currency, wallet, virtual currency In the last 12 months the value of bitcoin has increased by 1900% | Coinbase

1) How do bitcoins work?
The Bitcoin protocol, commonly indicated with the initial capital letter to distinguish it from the currency, uses a complex cryptographic system to manage the functional aspects of bitcoin, such as the generation of new currency or the attribution of property.

Bitcoin is based on peer-to-peer technology (P2P), the same used for the more or less legal exchange that is made in the network of music, film and software files. The cornerstone of the system is the transfer of currency between public accounts, called wallets, of users.

Each bitcoin transaction is public and stored in a distributed database, which is replicated in the computers of all those who own a wallet: if you have ever used or seen using software such as Gnutella, BitTorrent or eMule for file exchange, the system at cryptocurrency base is familiar to you.

bitcoin, cryptocurrency, digital currency, wallet, virtual currency Two systems in comparison (animation: click on the image to start it). Left: a network based on the client / server model, such as the Internet, for example, where one or more central computers provide information (pages) to the computers that connect. Right: a peer-to-peer network (P2P), where, thanks to special software, individual computers connect directly to one or more individual computers. | WikiMedia

2) Why "cryptocurrency"?
The crypto prefix indicates "hidden", as in cryptography. In fact, inside the wallet of each user there is a pair of cryptographic keys : the public key, that is, the address that serves as a point for sending or receiving payments, and the private key used to digitally sign and authorize transactions. To simplify, you can think of the public key as the IBAN of a current account, and the private key as the signature of the account holder.

The bitcoins inside a wallet can be spent only by those who have the related private key: if this is lost, the associated bitcoins can no longer be spent and the amount will become unavailable.

Just like cash, once a transaction has taken place it cannot be canceled.

3) How does a transaction take place?
When a "user A" transfers cryptocurrency to a "user B", through a direct connection from computer to computer (the peer-to-peer), he adds to his own coins the public key of B (ie the address of the recipient, the his "iban") and authorizes the transaction by signing it with his own private key (his "signature"). The transaction is sent over the peer-to-peer network, where it is checked and registered by all the nodes participating in the network.

The validation process takes place by solving, for each transaction, a complex set of mathematical operations that requires great computing power but which guarantees the validity and uniqueness of the operation.

The method defined and elaborated by "Satoshi Nakamoto" guarantees that A actually has the quantity it is transferring to B and that that same quantity has not already been used in other exchanges. When the validity of the transaction is confirmed, the information is added to the distributed database, called blockchain, ie chain of blocks: at this point each node of the peer-to-peer network becomes aware of the transaction that has occurred.

The blockchain contains all the movements of all the bitcoins generated starting from the public address of their creator up to the last owner. This allows to avoid that a quantity already spent can be used again by the same person: every point of the network knows everything about every single coin.

4) Who are the miner?
Miners are those who provide the computing power, that is, computers, which are used for transaction verification. The activity is particularly onerous in terms of computational capacity and energy needed to complete it: for this reason the miner is rewarded in cryptocurrency.

The cryptocurrency is generated and credited 6 times an hour automatically in the wallets of the users who contribute to the maintenance of the system with their work: mining is therefore an activity that allows those who practice it to generate cryptocurrency.

bitcoin, cryptocurrency, digital currency, wallet, virtual currency To learn more - Bitcoin mining: how much does it cost, in terms of energy? | Shutterstock

5) How many bitcoins are there?
The maximum number of bitcoins that the system is able to support and manage is 21 million: based on current trade estimates, this limit will be reached within around 130 years. The fact that no injections of money can be made by an external body, for example a Central Bank, is from a certain point of view a "guarantee of stability" and puts bitcoin away from the risk of inflation.

6) What is a satoshi?
It comes from "Satoshi Nakamoto": satoshi is the smallest fraction of bitcoin, equal to 1 hundred millionth of bitcoin (0.00000001 BTC).

7) Why (And how) do bitcoins guarantee anonymity?
In the peer-to-peer network, the address of a wallet does not contain information related to its owner: it is a 33-character long text string which, according to the protocol, always starts with 1 or by 3. Something like 3HJ938jdGHGlJmTqrvzn524PoaqYfAQVc.

The potential for transaction anonymity has made cryptocurrencies such as bitcoin (BTC or XBT), ethereum (ETH), monero (XMR) and others, the preferred currency also for illegal exchanges of money. For the same reason, any revenue is impossible to tax unless it is explicitly declared.

bitcoin, cryptocurrency, digital currency, wallet, virtual currency Infographics : the world debt by images. |

8) Who guarantees the functioning of the system?
The protocol, that is the software that allows access to the P2P network and contains the set of rules used for the management of the system, is public and is on the Net. Anyone with the tools and the capacity to do so can consult it at any time and check its correctness. In recent years, several attempts have been made to falsify bitcoins, but so far they have all failed.

The software is updated and maintained by the Bitcoin community, that is by enthusiasts and developers who with their work contribute to making the protocol ever more efficient.

9) What are the advantages of bitcoins?
Bitcoin, being issued in a natively digital form, is the ideal currency for electronic transaction management. Its value cannot be influenced by factors such as the rate of inflation, which is determined by the increase in the amount of currency in circulation: the number of bitcoins in circulation is in fact predictable and known in advance to all its users.

10) What determines the value of bitcoin?
Unlike conventional currencies, whose value is associated with the macroeconomic variables of the issuing state, the value of bitcoin depends exclusively on the expectations of those who exchange them. In other words, their value is determined exclusively by the law of supply and demand, a bit like the price of gold, diamonds and raw materials.

The clamor around the increase in the value of bitcoin that has been generated in recent months has triggered a rush to purchase, which in turn has contributed to increasing its value.

VIDEO - Bitcoin: the future of the economy?

11) Is investing in bitcoin risky?
In recent years the value of bitcoins has only risen: those who bought them in 2009, when they cost a few cents, and kept them until today, have accumulated a fortune.

The opinions on the future of bitcoins are, however, conflicting even among the experts. Jamie Dimon, managing director of JP Morgan and one of the most influential bankers on Wall Street, recently stated publicly that cryptocurrencies are a scam or, at most, an illegal system for exchanging money for criminal activities.

However, Dimon's statement was denied a few days ago by another manager of the same investment bank, who told Reuters the institute's growing interest in this currency.

Nouriel Roubini, professor of economics and international business at the Leonard N. Stern School of Business, who became famous for having predicted the 2008 financial crisis, said in an interview a few days ago that bitcoin is just another giant bubble, destined to burst and leave several new poor on the ground.

bitcoin, cryptocurrency, digital currency, wallet, virtual currency Green: can be used (there are no rules against the use of bitcoins).
Yellow: there are some restrictions.
Rosa: there are no explicit prohibitions, but the use is limited by the system of laws.
Red: partial or total prohibitions. | WikiMedia

12) How to get / buy bitcoins?
Unless you want to dedicate yourself to mining, the only alternative to get bitcoins is to buy them online on one of the many trading platforms that today treat them like equities, bonds and other financial instruments. A good way to start is to check all the possibilities on (also available in Italian).

13) Are they legal? Can they be used for shopping?
In many countries of the world (including Italy) there are no rules prohibiting the use of bitcoins, so yes, they are legal and can be used to make purchases … provided that the other party is willing to accept them.

Today, several chain stores, e-commerce sites and non-profit organizations, such as the Wikimedia Foundation, accept bitcoin payments and donations.

There are also credit cards issued by normal operators but supported by bitcoin wallets and, for some time even in Italy, there are ATMs from which it is possible to withdraw cash (in euros) from one's own cryptocurrency account or vice versa. One of the first, but no longer the only one, is in Milan, at one of the Talent Garden coworkings.

14) Is it true that now Bitcoins have arrived on the stock exchange?

It is not really so. From December 11, 2017, bitcoin-based futures can be exchanged on the Chicago stock exchange. For the first time, a security linked to a currency is traded on an official regulated market: it is not a question of bitcoins, but of futures.

As anyone who has seen An armchair for two knows, futures are contracts that allow investors to "bet" on the value of an underlying indicator, usually that of commodities.

For example, a fruit juice manufacturer can bet that at a certain point in the future - the time of harvest - the price of oranges will be higher than a certain level. If he wins his "bet" he will receive a prize that will serve to mitigate the losses he will suffer in the meantime because he is buying oranges at a price higher than usual. If his prediction turns out to be wrong, the loss will be mitigated by the fact that oranges continue to cost little. The futures, therefore, were born and are often used as a parachute to compensate for fluctuations in the prices of raw materials, coins and many other goods.

Obviously, it is not necessary to own bitcoins to buy futures based on their value.