Cryptocurrency, bitcoin, blockchain ... how does it work ? :

We hear a lot these days about cryptocurrency, like bitcoin, and the blockchain, a technology often presented as revolutionary. But how does it work ? Here are some basic explanations for shining in your Christmas parties.

Cryptocurrency ?

Dollars or euros are currencies regulated by central banks of countries. So these are so-called "legal" currencies. These currencies exist in physical form (coins and notes), but they are mainly traded electronically. Your bank account, for example, is obviously not a box filled with coins and notes, but as its name suggests, it is a piece of data resulting from the transactions (your inflow and outflow of money) that has been attributed to a holder (you) by an institution (the bank) which has associated different characteristics (current account, savings ...) under rules set by the States.


Even if this money is transacted in electronic form, it is different in the principle of a virtual currency, which has no legal status. If you occasionally play video games, you've probably already paid with a virtual currency specific to your game to unlock a level or equip your character with all kinds of gadgets. This virtual currency is said to be closed because it is only used in this game. A virtual currency can however be bought with real money: that's what you do, for example, when you buy an iTunes card with your credit card.

A cryptocurrency is a kind of virtual currency very particular. While an iTunes card is only used to buy an app or music from Apple, a cryptocurrency makes it possible to make purchases and sales with anyone, through a computer network.

Bitcoin, invented in 2009, is the oldest and most successful cryptocurrency. It is part of the trend of exchange systems (not necessarily virtuous ...) alternative to legal systems, such as Uber or Airbnb. For a cryptocurrency to work, you obviously need something to overcome the fact that no entity, such as a bank or a company like Apple, regulates the use of this currency. This thing is the encryption of information. It makes it impossible (at least not without great difficulty) to copy, duplicate or imitate a bitcoin.

Let's see how it works. Hold on, it's a little complicated. To access certain information online, you have probably had to copy a series of badly written letters and letters, called a Captcha: this system is based on the fact that the human brain is more able to decode these scribbles than software developed by hackers to force this security barrier. Typing a few keys on our keyboard is enough to secure the system.

Bitcoin also needs a system to deter attacks from hackers, but the one it uses works somehow upside down from Captcha: rather than requiring a simple action from a human to validate the transaction, it requires a very heavy validation to a computer, following the principle that computer scientists call the "proof of work".


Pay in bitcoin ?

Be careful, here it goes wrong ... To make a bitcoin transaction from a computer or a mobile phone, you must accept that it is part of the bitcoin network. If you decide, for example, to offer a bitcoin to someone for Christmas, your order is transmitted to the bitcoin network in the form of a "write", which will be intercepted by a "node" of the network consisting of computer of a particular member of the network, which is called a "minor". Your transaction, once made on the miner's computer, will be used to build a "block", which combines several transactions. This operation takes about ten minutes.

Form these blocks serves both to verify the information received (is it a transaction from a bitcoin member, he had enough bitcoin to spend the amount indicated? Etc.) and secure it so that it continues its path in the network. This mining operation involves heavy algorithms that cut and recompose the information of each transaction forming part of the block, according to a recipe specific to each block, but which also integrates the code associated with the previous block, built from the transactions that took place. before yours. This is where they have to provide the so-called "proof of work", which guarantees the system that they are minors and not hackers.

As verification / construction of blocks requires considerable computing power, miners are now grouped into cooperatives or companies that invest in monstrous groups of computers capable of passing the proof of work test. These are real "bitcoin factories" whose efforts are paid in the form of bitcoins, according to a calculation that is coded in each transaction they support. These bitcoins, like any virtual currency, can obviously be traded for legal money - even if their value fluctuates wildly ($ 16,000 for a bitcoin at the time of writing).


Chain of blocks ?

Once the block containing your transaction has been built and validated, it becomes part of the famous "block chain" consisting of all the transactions already performed on the network (which also prevents the same transaction is done twice, a problem that affected the ancestors of bitcoin). The blockchain thus constitutes a huge virtual register of all the transactions, bigger and bigger as the network records transactions. Your transaction can now be credited to the "wallet" of the person to whom you are sending this Christmas present.

Security comes from the fact that the encryption of information is distributed among several computers, and that it is reiterated. Nobody has control over all operations, and each link is designed to consider that any information that is brought to it must be verified. The system is also designed so that each new transaction is directed to the node where the greatest computing power is available.

This principle of the blockchain is considered very promising because it allows to secure and archive large amounts of transactions. Some see it as a technological revolution in accounting. It gave rise to the first computer systems that have nothing to do with bitcoin, like the one IBM offers. This new system architecture that enables a full virtual registry is of interest to large organizations who see it as a way to better interact with their suppliers and customers, or to secure data networks.
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