What is bitcoin?
13 February 2018 (updated on 14 July 2021)
Bitcoin has been labelled a crypto-asset. But what actually is it and what does it mean for real currencies?
Essentially, it is a digital token that can be exchanged electronically. It does not exist in physical form. Bitcoins are created and kept track of by a network of computers using mathematical formulas, rather than by a single authority or organisation.
So virtual, yes, but currency, no. Why not?
No one is backing it
Bitcoin it is not issued by a central public authority. You cannot have the same level of confidence in it as you can in an official currency like the euro, which is backed by the central banks of the euro area. As guardians of the euro, we work to guarantee your right to pay with the euro and to preserve its value.
It is not a generally accepted form of payment
If bitcoin were a currency, you could expect to be able to use it widely. But, in fact, there are very few places where you can pay with bitcoin. And even where you can, transactions are slow and expensive.
Users are not protected
It is possible for hackers to steal bitcoin. If this happens you have no legal protection.
It is too volatile
A currency is a reliable store of value, so that you can be sure that the money you have will buy more or less the same amount of things today as it will tomorrow or this time next year. Bitcoin is not stable. Its value has both skyrocketed and tumbled dramatically within the space of just a few days.
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