What is Bitcoin
The Bitcoin is a virtual currency also identified by BTC or XBT acronyms. Conventionally the word is written with a capital letter when referring to the system in its complexity and with the initial small letter when referring to the currency.
Although it is only one among many, Bitcoin is actually a true synonym of cryptocurrency since historically it was the first and most famous of the virtual currencies that captured the attention of public opinion. In itself it had all the ingredients for this incredible success: the advance on the times, the mystery of the origins and finally the great speculation that led to incredible values. A big hype has surrounded the name “Bitcoin” of a magical aura that has made it popular all over the world, entering the dreams of glory of many investors.
In itself Bitcoin is a currency that is conventionally defined as virtual, that is, without physicality. However, this definition is per se misleading, since virtual is often understood to be “non-real”, but the reality of Bitcoin is not to be doubted. If anything, we need to think in terms of materiality and immateriality: Bitcoin is therefore an immaterial currency, as it has no physical entity to act as a value-added tool.
As a cryptocurrency, Bitcoin is established by the EU Directive 2018/843 as a regulated entity and therefore recognized by the European Union. This directive describes cryptocurrencies within a text designed as a legal basis for the fight against money laundering and terrorist financing:
” Virtual currencies “: a representation of digital value that is not issued or guaranteed by a central bank or a public body, is not necessarily linked to a legally established currency, does not have the legal status of currency or currency, but is accepted by natural and legal persons as a medium of exchange and can be transferred, stored and exchanged electronically
Each material currency has two types of values: an intrinsic value , given by the cost of production of the object that “contains” the real value of the currency itself, and a nominal value , ie the value established by convention. A 1 euro coin therefore has an intrinsic minimum value, equal to the cost of the metal used and the minting procedures, but has a nominal value exactly equal to what is printed on the coin. For Bitcoin the discourse is partially different: the intrinsic value is theoretically equal to zero, while the nominal value is fixed: 1 Bitcoin and its fractions.
However the real situation imposes some further considerations: although the production cost of Bitcon is theoretically equal to zero since in production no raw material is used, in reality mining (ie the set of activities that regulate the birth and management of Bitcoin) has considerable costs in terms of instrumentation and energy consumption. In reality, therefore, the management of Bitcoins has a considerable cost despite the fact that the “virtual” currency has no body or physicality.
The cost of Bitcoin therefore escapes a direct comparison with traditional currencies because its nature is different: dematerialisation transforms the currency into a service, to be judged, weighed, regulated and managed in ways that are completely different from what money is for how one has learned how to imagine it.
How much is it worth?
The value of Bitcoin is regulated by two well-known dynamics in the world of economics: supply and demand. However, these are two different lines:
- demand is governed by the desire to invest in money and is therefore influenced by cryptocurrency news, growth hopes, perceived potential and other dynamics. This is a non-constant flow and is not easily predictable;
- the offer is a growing parabola which however has a predetermined asymptote, a mathematical limit set in the very nature of the project: the Bitcoin generation algorithm predicts that there will be a total of 21 million within the next century, with a production that it will progressively slow down.
From the intersection between demand (growing, but slowing) and supply (very high at the end of 2017, falling sharply in 2018) the value of Bitcoin is established at a given moment based on the transactions in progress. The highly variable exchange rate therefore excludes Bitcoin from the category of normal payment systems as it makes it much more similar to assets such as gold – whose value is strictly dictated by demand and by the discontinued gold reserves. Too simplistic, however, were the analyzes that hastened to see Bitcoin as a new gold standard: the economy has much slower dynamics in adapting to new developments and virtual currencies have still done very little to guarantee the trust of the people, companies and banking / financial institutions.
Bitcoin went from $ 250 in 2015 to $ 400 in 2016, starting from $ 750 in January 2017 to almost reach the incredible $ 19,000 in December 2017 . The fall was therefore gradual and in mid-2018 the value is around 6000 dollars. What are the prospects? Once again, the most diverse: there are those who are ready to bet on a future surge even stronger and more solid than in 2017, until the definitive affirmation of the cryptocurrency and the technology that underlies it, but there are also those who wait the definitive fall of Bitcoin as the inevitable end of a bubble destined to explode.
The value is destined to be controlled for a long time by speculation, waiting for the future to be defined by the regulation of cryptocurrencies and the possible capacity of Bitcoin to adapt to that economic world in which it aspired to build a revolution based on the Blockchain.
The Wallet is the structure within which it is possible to conserve one’s bitcoins: a wallet, therefore, in every way.
If bitcoin does not have a physicality, what is it and how can it be kept? The doubt is legitimate since exactly in this aspect the cryptocurrencies differ from the traditional ones. The difference is in fact in the physicality and therefore in the conservation methods.
Historically the birth of the coins has represented the generation of a conventional element that has improved the barter rules: if a guy sells three apples in exchange for 10 coins and with the same coins he buys four pears, here is that the coin has facilitated and speeded up the exchange . In a second phase the currency was virtualized thanks to banking institutions that certify the possession of a certain amount of money to people, obtaining in exchange the possibility to manage and keep this sum. In this third great evolution the currency loses all physicality and simply becomes an entity algorithmically regulated by a large trade register called “Blockchain”.
The Portfolio is the address from which a bitcoin is credited. The management of these addresses regulates transactions and individual portfolios.
Starting from the EU Directive 2018/843 the Wallets are defined within the European regulations by virtue of their central role in the management of cryptocurrency flows. The Portfolio manager, in fact, the Directive requires identity certification measures (in order to reduce the anonymity of transactions) and the burden of reporting any suspicious maneuvers managed on their servers. The EU thus defines the Wallets for the purposes of regulation that member states have a duty to implement by 10 January 2020:
a subject that provides services to safeguard private cryptographic keys on behalf of its clients, in order to hold, store and transfer virtual currencies
The Blockchain is a public and decentralized register in which each actor of the network is functional to the validation of the other actors and of the intervening transactions. According to many, the Blockchain is the true protagonist of the Bitcoin revolution and will also survive the eventual death of the Bitcoin itself. It is not by chance that the deflation of the cryptocurrency “bubble” shows Blockchain technology as the true value of the phenomenon.
As a registry, the Blockchain represents a large set of data to which everyone can access in reading and which, each for its own block, can be modified in writing. The decentralized consent ensures the goodness of the individual changes to the register, transforming the register itself into a certifying body without the need for any centralized entity. Everything revolves around cryptography and hash keys , systems that can guarantee the security of the entire system for a reasonable number of years.
The Blockchain is today an imperfect technology and not sufficiently regulated, but it has shown its potential both in terms of cryptocurrency payments and in enabling the traceability of products on the market. Many people have found it very useful in their application in specific areas and numerous experiments are taking place all over the world. It is not clear whether or not the Blockchain could be the revolution that promises to be – there are still many doubts about it – but it still has the merit of embodying a different model that can put into question the centripetal practices adopted to date. The value lies in the fact that it is demonstrated how a decentralized structure can work, even offering high-level guarantees.
Bitcoin has therefore been a great showcase for the Blockchain world, but the destinies of the two realities seem to be still separate and unrelated: the cryptocurrency will have to overcome its challenge in the institutional sphere, the Blockchain must instead still convince from the technological point of view before definitely marry the creativity of innovators.
The mining is the computational activities that support the creation of bitcoin and transaction logging. With the growth of transactions and the number of bitcoins in circulation, the firepower needed to support the important processing effort required is also increasing.
Every single operation is in fact an attempt at “brute force” based on the rules with which the implemented security system was built, a mechanism that requires a very high number of operations in the shortest possible time. Mining activities are therefore particularly onerous in terms of both hardware development and energy consumption.
Mining is an activity that has gradually required increasing skills as it has seen progressively reduced the achievable profit margin and has at the same time requested ever greater powers of calculation to be able to compete on a market that has suddenly become feverish. The peak in bitcoins has in fact led to a rapid increase in the price of GPUs on the market, has encouraged the miners to organize themselves into batteries and has generated a real professionalisation of the sector.
Mining has also become a source of income for ill-intentioned people: there are many malicious codes identified in extensions for browsers or smartphone apps where the computing power of other people’s devices has been exploited for their own benefit: thus the crackers have managed to scrape together the power of calculation at no cost, undermining with other people’s devices to gain direct profit.
How they are preserved
Just as the protection of a banknote can be certified by the physical control of the banknote itself or of the wallet that contains it, in the same way a bitcoin is safe when it is reasonably certain that no one can appropriate the Portfolio that holds it. While we are all sufficiently educated in the protection of money (paying attention to thefts, keeping them in banking institutions and protecting them in safes), few have the necessary precautions and the slightest useful notion to adequately protect a Bitcoin Wallet.
First of all, you need to choose whether your Bitcoin should be stored by a software system or a hardware system: while the first is guaranteed by encryption, backup and other security measures, the second is completely comparable to the management of banknotes in a safe. The physical preservation of a hardware, called “cold storage”, implies in fact the management of a Portfolio through tools such as special USB keys or dedicated hard disks, whose physicality must therefore be physically protected within secure structures. If you intend to opt for a smarter system, you can instead choose a software portfolio (for desktop or mobile) or a cloud system that allows remote management.
Insecurity is just around the corner anyway: there have been several cases of online wallet theft following server cracker invasions; at the same time various cases of bitcoins were lost due to problems with the hard disks that contained them. Investing in bitcoin therefore requires full awareness of the consequent risks, since knowing that large amounts of money can be hidden inside a key or behind a password means understanding how many steps need to be taken to avoid losing so much value due to carelessness, carelessness or incompetence.
Transparency, anonymity and pseudo-anonymity
The Bitcoin system guarantees the anonymity of the users who use it. However, it is necessary to understand specifically what is meant by ” anonymity “. Thanks to the Blockchain it is in fact possible to know in a transparent way how many Bitcoins retain any address (which is equivalent to knowing how much money there is on a bank’s current accounts); at the same time it is not possible to know who is referring to a single address, which means in fact that it is not possible to know who the cryptocurrencies belong to. Anonymity is therefore guaranteed by this system.
What is known is that few addresses retain very large amounts of Bitcoin (so much so as to lead to the hypothesis of very heavy speculative activities on the value of cryptocurrency), but at the same time no one knows to whom these great agglomerates of value refer.
Today, however, the regulations have restricted the conditions for access to Bitcoins, forcing the large platforms to adapt to an EU directive (n. 2015/849) which requires the identification of the user who is trading with cryptocurrencies. This means that, if anonymity is guaranteed within the Bitcoin system, at the same time on the perimeter of access to the same system an identification takes place which allows the tracking of any activities. In doing so, the authorities are planning to limit the possibilities of money laundering or investment in illegal activities: the risk was to have a recognized and expendable cryptocurrency, but at the same time a privileged freeway for the underworld. Today this risk is absolutely not circumvented,
Specific services have also been created to confuse the traces and to avoid that the transactions can allow the reconstruction of specific operations backwards. These operations are specifically designed to confuse the waters on the Blockchain so that its monitoring does not allow to understand what specific addresses are doing, to where they are hijacking their bitcoins and for what purposes.
Starting from 2018, however, something has started to change with respect to the original approach: according to a European anti-money laundering directive , in fact, every operation with cryptocurrency managed on the continental territory will have to certify the identity of the user and this aspect is full responsibility for the exchange that enables it. The transposition of the directive by member countries will in fact prohibit the pseudo-anonymity that lies behind cryptocurrency transactions, homologating real currencies with virtual ones to approve the regulations. Once the anonymity has been broken down, the EU hopes, money flows can be controlled to prevent cryptocurrencies like Bitcoin from becoming privileged channels for money laundering and terrorist cell financing.
Bitcoins according to the Revenue Agency
Bitcoin is a type of “virtual” currency, or rather “cryptocurrency”, used as an “currency” as an alternative to the traditional currency with legal tender issued by a monetary authority.
This consideration makes bitcoin transactions not subject to VAT because they pertain to the currency market.
Who invented Bitcoins
Bitcoin was invented by Satoshi Nakamoto . The problem is, if anything, in the fact that nobody knows who Satoshi Nakamoto is, which therefore appears not as an authentic name, but as a pseudonym. Over time various theories have emerged and various suspects have been pointed out to be the founders of Bitcoin. Also Elon Musk (before his curt denial) was among the candidates. The truth is that to date no one knows for sure who Nakamoto is, thus adding a further aura of mystical mystery around the origins of what has been a multi-billion euro economic phenomenon.
But if the birthplace of Bitcoin lurks behind the legendary shadow of a mysterious genesis, it risks reverberating dangerously on the present. In fact, a few large “whales” hold a large percentage of the total value of the virtual currency created up to now: no one knows who is behind it, many suspect even coordinated speculative maneuvers, and there is no way of knowing whether these large portfolios could be also that of the founder. In short, behind the legendary aura of Satoshi Nakamoto, there is the risk that large interests may be hidden and this does not help to the necessary transparency of the plant that the Bitcoin system is asked for in many parts to be definitively integrated and institutionalized as an accepted reality , shared and destined to last over time.