Who knows bitcoin? What still passed for a normal question a year ago now seems absurd, as cryptocurrency has grown so wildly. In 2017, bitcoin exploded, increasing by more than 1,300% to approach $ 20,000 (16,600 euros), even if recent upheavals have brought its price back to around 8,000 dollars (6,500 euros).

Sign of this new notoriety, the number of investors in bitcoin, cryptocurrencies, and altcoins like FEG coins has exceeded 50 million, while several players in the financial world are starting to take the plunge. But where does this cryptocurrency that everyone is raving about come from, how does it work, can we use it as a means of payment? 10 questions to understand this new phenomenon.

1. Is Bitcoin or Cryptocurrency Really a Currency?

While investors and the general public alike readily refer to bitcoin as  “currency,  ” “virtual currency,” or  “2.0 currency, ” this one is none of those things. Because unlike traditional currencies like the euro and the dollar, bitcoin is not strictly speaking a currency, for a simple reason: it does not depend on any institution.

Bitcoin is a decentralized “cryptocurrency”, which is based on the computer program written in October 2008 by “Satoshi Nakamoto”. It does not depend on a state and a central bank, which could control its issuance and its value. This computer program, which automatically issues bitcoins, is the DNA of cryptocurrency. In particular, it defines the number of bitcoins that will be issued over the years, i.e. 21 million units on the network by 2140. Today, 16.6 million bitcoins are already in circulation.

The bitcoin computer program is secure and coded by the developer community, which numbers around 10,000. It can be changed by any developer who connects to the bitcoin network. With one caveat: for a chance to take place, the unanimity of the community, that is to say of all the active developers, is necessary.

 

2. Where Does Bitcoin Come From?

It all started almost ten years ago. In October 2008, a mysterious “Satoshi Nakamoto” (we do not know his identity – or that of the various people behind this pseudonym) announced the launch of the computer program of the first cryptocurrency in history, called “bitcoin”. The moment is not trivial. Lehman Brothers have just gone bankrupt, the markets are experiencing their worst financial crisis since 1929 and central banks are printing money.

3. How do the Tax Authorities Look at Cryptocurrencies?

In France, bitcoin is not considered security like a share. He cannot, therefore, benefit from the 30% “flat tax”, applicable on capital gains since the beginning of the year. For an individual, the taxation of capital gains on bitcoin will depend on whether or not the transactions are usual.

An individual may declare gains related to cryptocurrencies under the occasional regime, as long as they are not “usual”. It will then enter the non-commercial profits regime (BNC), which includes two different taxes around a threshold of 33,200 euros in annual turnover.

In the event that it is a professional, that is to say regular, sales activity, this income will fall under the category of industrial and commercial profits (BIC), with higher thresholds and different categories. Note that the definition between usual and occasional is at the sole discretion of the tax administration.

4-The crazy Count of Bitcoin

While mistrust of the financial system is total, Satoshi Nakamoto invents the bitcoin ecosystem. A year later, the first exchange rate was released: a bitcoin is worth $ 0.001. In January 2009, the first “block” was created on the network, and a first transaction took place between Nakamoto and Hal Finney, an American developer.

Before seeing its notoriety explode in 2017, cryptocurrency was for a long time confined to a small community of developers, mainly based in Asia and the United States. They wanted above all to have their own “currency” and not depend on the big banks.

5. How do cryptocurrencies work?

To understand how bitcoin and its network work on a global scale, we have to imagine the current financial system, but without banks, that is to say without an intermediary. To replace the role of banks, guarantors of the viability of the system and of exchanges, the bitcoin network works with blockchain technology.

This “blockchain” is a kind of giant digital account register, which records and secures all transactions carried out with bitcoins. All confirmed transactions on the bitcoin network are included in the blockchain.

Thanks to the blockchain, bitcoin wallets automatically calculate their balances. All transactions are broadcast between users. It usually takes ten minutes for a transaction to be confirmed by the network. This validation process is called “mining”.

5. How to Buy and Sell Cryptocurrencies like Bitcoin?

With the sharp rise in bitcoin, the points of buying and selling bitcoin have multiplied. Currently, the easiest way to buy cryptocurrency is to do so on specialized and protected platforms. These platforms, linked to bank accounts, take commissions of around 3% on each transaction, whether buying or selling.

A few large platforms have emerged in 2017. We are thinking in particular of the American Coinbase, which allows you to buy bitcoins, ethers,litecoins, and bitcoins cash. To create an account and exchange cryptocurrency, all you have to do is fill out an online form and send a photocopy of your identity document.

The other solution is to go to physical stores, such as the Maison du Bitcoin in Paris. If this type of structure has the advantage of offering physical contact, the commissions are higher, around 5%. And you need an electronic wallet to store your cryptocurrencies.

6. Who are Cryptocurrency Miners?

“Miners” are those who make the bitcoin network work by validating transactions. This validation is done using computers. Miners use the computing power of their machines to verify and validate bitcoin transactions, i.e. cryptocurrency purchases and sales. In exchange for this validation activity, they themselves receive remuneration in bitcoins.

Initially reserved for individuals, “mining”, which has become very lucrative with the exponential rise in the value of bitcoin in 2017, has been taken by storm by companies. Especially Asian. In China, companies built hangars and filled them with computers. These run 24 hours a day to validate all the transactions that take place daily on the blockchain. This activity allows them today to pocket tens of thousands of dollars of bitcoin per day.

7. Who are the Users of Cryptocurrencies or Bitcoin?

Bitcoin users fall into two main families. At one end of the chain, there are individuals. The majority of these tens of millions of users buy bitcoins to invest. In France, where there are at least 200,000, the majority have invested small amounts, of the order of a few hundred euros.

Other individuals, in the minority but more informed, have invested more heavily in bitcoin and cryptocurrencies. “These profiles” have placed between a few thousand and several tens of thousands of euros, with the hope of achieving significant capital gains in the short and long terms.

At the other end of the user chain, there are financial players, such as banks, stock market operators, and investment funds. They want above all to position themselves on a new financial asset.

The market is not yet stabilized for these players, but several initiatives are already underway. The Chicago Stock Exchange launched a bitcoin futures contract in December, while investment 

8. What Can You Buy with Cryptocurrencies and Bitcoins?

Currently, around 100,000 websites, such as Expedia or Showroomprivé, accept cryptocurrency. In most cases, the only bitcoin is accepted for the purchase of goods and services, and this remains a very marginal means of payment.

In 2018, bitcoin is above all a gateway to the world of cryptocurrencies. While many investors continue to buy cryptocurrency in the hope that it will continue to rise, a growing share of them are doing so to buy other cryptocurrencies, and in particular “altcoins”. These new cryptocurrencies are smaller and their names almost unknown to the general public.

In total, apart from the “Big Five” of cryptocurrencies, the others only weigh a few billion dollars, or even less. To buy it on platforms, especially Chinese, you must have bitcoins and ethers.

bank Goldman Sachs is preparing to create a cryptocurrency trading desk. In France, the Tobam ​​fund has already decided to offer its clients to invest in cryptocurrency.

9. Are the Transactions Confidential?

The principle of bitcoin and blockchain is to allow the circulation of value, regardless of the identity of the parties. Each bitcoin wallet holder is hidden behind an encrypted pseudonym and a 34 character alphanumeric address that can be changed.

On paper, it is therefore not possible to know the identity of the holders of bitcoins. But several studies have shown the limits of this principle. The blockchain makes it possible, with alphanumeric addresses, to know how bitcoins are exchanged and how they pass from one person to another.

Most bitcoin users go through platforms to buy or sell bitcoin. For the sake of credibility, most market players except some Asian platforms want to know who they are dealing with, especially as regulators ramp up on the issue.

10. Is Bitcoin Regulated in the World?

There are many countries that regulated the cryptocurrencies like France and the USA while some did not.

. As early as 2014, a report from Tracfin (Intelligence processing and action against clandestine financial circuits), Bercy’s anti-money laundering unit, recommended supervising them to avoid fraud and protect savers.

In its report, Tracfin put forward two avenues. On the one hand, the establishment of a ceiling for payments in bitcoin. On the other hand, the lifting of anonymity for holders of electronic wallets, when they cannot, in principle, be identified, except by their bank in the event of suspicious financial movements. Three years later, the Tracfin report has not been followed up.

At the end of 2017, the Minister of the Economy Bruno Le Maire reiterated his intention to  “regulate” bitcoin. And this within the framework of exchanges with the international community,  ”  with all the other member countries of the G20″. In the meantime, the government has just announced the creation of a cryptocurrency mission. 

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