Bitcoin and the blockchain: understanding the fundamentals
Bitcoin is not just a speculative asset: it is the technological and monetary culmination of a long reflection on individual sovereignty.
With a degree in corporate finance and management, Christopher Brenier is passionate about economics and the history of money. He has no professional activity related to the crypto-asset sector.
Bitcoin is not simply a digital asset whose price fluctuates; it is the product of decades of theoretical thinking, economic crises and a technological revolution. For newcomers, understanding the origins and workings of the blockchain is key to finding your way around it.
The beginnings: a vision of individual sovereignty
Long before Bitcoin was born, the idea of a decentralised currency was already on people's minds. In the 1990s, as the internet began to reach the general public, a fundamental realisation was emerging among certain thinkers of economic freedom.
In 1997, The Sovereign Individual, by James Dale Davidson and Lord William Rees-Mogg, laid the theoretical foundations for what would become Bitcoin. The authors foresaw the advent of an era in which the economic power of states would be eroded by technology. They anticipated the emergence of a digital 'cybercurrency' that would be non-state, anonymous and tamper-proof, capable of transferring economic sovereignty from the state to the individual. In their view, fiat money, controlled by central bankers, would gradually be replaced by digital assets beyond the control of governments.
The Nobel laureate in economics Milton Friedman had also predicted the possibility of an electronic currency that would free transactions from state constraints, arguing that technology would eventually make it possible to create competing private currencies.
The cypherpunk era, the 2008 financial crisis and Satoshi Nakamoto
It was in this fertile intellectual climate, but also amid economic turmoil, that Bitcoin was officially born. On 4 January 2009, an individual (or group) using the pseudonym Satoshi Nakamoto published the white paper entitled 'Bitcoin: A Peer-to-Peer Electronic Cash System'. The timing was no coincidence: the system was launched at the height of the subprime crisis, which exposed the deep flaws of a centralised monetary system.
Satoshi Nakamoto drew directly on the legacy of the Austrian school of economics, criticising monetary inflation and the manipulation of interest rates by central banks. His major innovation was to solve the 'double-spending' problem (the possibility of spending the same digital money twice) without relying on a trusted central third party, thanks to a technology called the blockchain.
Even before Bitcoin was launched, the cypherpunk community was campaigning for the use of cryptography to protect privacy and enable free transactions. Bitcoin was the concrete realisation of their theoretical dreams.
Bitcoin was first adopted by enthusiasts. The most famous anecdote from that time dates back to 12 May 2010, the famous 'Bitcoin Pizza Day'. A developer named Laszlo Hanyecz paid 10,000 BTC for the delivery of two pizzas. At the time, it was a curiosity; today, those 10,000 BTC are worth hundreds of millions of dollars. The event marks the first real use of Bitcoin as a means of exchange and the birth of its market value.
The blockchain: the technical innovation
But how does Bitcoin work technically? For a newcomer, the explanation may seem complex, but the principle is simple.
Imagine a large public ledger, kept by thousands of computers around the world. This ledger is the blockchain (a chain of blocks). Each block contains a list of recent transactions. Once full, the block is sealed with a unique cryptographic code and linked to the previous block, forming a chain.
The key points to remember are:
- Decentralisation: No central server and no bank controls the ledger. It is replicated on thousands of computers (nodes) all over the world.
- Immutability: Once a transaction has been recorded and validated (which takes around 10 minutes for Bitcoin), it can no longer be changed or deleted. To falsify it, you would have to alter the versions of the ledger on more than 50% of the computers in the network simultaneously, which is technically impossible with current computing power.
- Transparency: Anyone can see the transactions, but users' identities are pseudonymous (represented by alphanumeric addresses), which guarantees a degree of privacy.
Thanks to this mechanism, Bitcoin makes it possible to transfer value from one person to another, without an intermediary, 24/7, for minimal fees and irreversibly.
A concrete reality
For a European or an American with a reliable bank account, the technology may seem abstract, or even pointless. The traditional banking system works well, doesn't it? The answer is: it depends on your geographical and political situation.
In many developing countries, millions of people are excluded from the banking system. Without a bank account, they cannot save, invest or access credit. For them, Bitcoin offers a gateway to global finance, accessible from a simple mobile phone.
Take the example of Venezuela, where hyperinflation is destroying the local currency (the bolívar) day after day. Entire families have seen their savings evaporate within hours because of the devaluation of the peso. For these citizens, Bitcoin is not a 'speculative bet'; it is a lifeline. It allows them to preserve the fruit of their labour and to send money abroad without submitting to government capital controls.
Similarly, in Russia, millions of citizens find themselves unable to transfer their funds abroad or withdraw their savings. For them, Bitcoin is a way to get around geopolitical barriers and escape the financial grip of their state.
For these populations, Bitcoin's value proposition is well understood. It does not lie in its price in dollars or euros, but in the ability to preserve one's wealth and exercise one's economic sovereignty in the face of oppressive regimes or disastrous monetary policies.
Beyond Bitcoin: the cryptocurrency ecosystem
It is important to note that Bitcoin has opened the door to a far broader revolution. Today, there are thousands of cryptocurrencies (known as 'altcoins'), created to meet specific needs that Bitcoin does not cover.
Some, such as Monero or Zcash, focus on complete anonymity and transaction privacy.
Others, such as Ethereum, have introduced smart contracts, which make it possible to programme financial agreements that execute automatically.
Others still, such as Stellar, aim to facilitate microtransactions at almost no cost.
This rapidly expanding ecosystem shows that blockchain technology is the foundation of a new Internet of Value*.
Conclusion
Understanding Bitcoin is not just about understanding a technology; it is about understanding a philosophy: one of distributed trust, individual freedom and resilience in the face of crises. In the next part, we will look at why this asset has become the best-performing in history and how to make it a concrete part of your portfolio.
Further reading:
Author: Saifedean Ammous
Why read it: the definitive reference for understanding monetary history and why Bitcoin represents a major economic break in the face of inflation.
Author: Andreas M. Antonopoulos
Why read it: the accessible technical bible for understanding how the blockchain and cryptography work, without needing to be a developer.
Author: Ludovic Lars
Why read it: a philosophical and accessible approach, ideal for grasping what is at stake in terms of monetary freedom and individual sovereignty.
Authors: James Dale Davidson and Lord William Rees-Mogg
Why read it: the prophetic book that inspired the creation of Bitcoin, essential for understanding the libertarian vision of money and individual sovereignty.
5. Bitcoin: The Future of Money?
Author: Dominic Frisby
Why read it: a humorous and punchy introduction to the failure of the traditional banking system and the emergence of a decentralised alternative.
- Editor's note: Crypto projects have identifiable issuers and creators who can arbitrarily change the rules of governance and consensus. This is not the case with Bitcoin, a project whose creators have no influence over it and whose rules require the consensus of a majority of the network's users. This article does not constitute investment advice. ↩
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