Imagine you were on the furthest corner of this world, enjoying your holiday. Then you receive a WhatsApp message from your mum back in Kenya.
“Honey, I need some money for an emergency. Mind topping me up a little?”
You tell her to give you a minute, get your wallet and pull out some notes, sing some mantra, and the money magically teleports from your hands to your mum’s hands. She thanks you and goes on with her business.
That is bitcoin in a nutshell.
The same way instant messaging took over the world with a storm, Bitcoin and other cryptocurrencies revolutionize financial transactions.
So what is bitcoin?
Bitcoin is a form of digital currency. It is actual money in digital form. It was engineered to replace cash and make it instantly, securely, and cheaply movable worldwide.
Bitcoin was developed by an anonymous person or group under the pseudonym Satoshi Nakamoto and launched in January 2009.
Various ideas form the basis of bitcoin; peer to peer technology, a network of individuals, and software-driven cryptography, which ensures privacy of communication.
Satoshi combined the three concepts to develop a digital currency founded on code rather than items of value or trust in governments and central authorities.
Bitcoin is decentralized. It cannot be controlled by a single entity, making it secure from influence by individuals or powerful bodies with selfish interests.
A revolutionary technology known as blockchain had to be created to achieve decentralization. A blockchain is simply a public ledger or database of a physical library.
However, you can access this database from anywhere in the world. Anyone can have a copy of it. Any changes on the ledger have to be approved by everybody in the world with a copy of the database.
Thus you cannot hack the blockchain unless you have enough computing power than all other computers in the blockchain, which is highly unlikely. Not even Google’s total computing power can come close.
How does bitcoin work?
Essentially, a bitcoin is a file in a computer stored in a digital wallet; software designed to mimic a physical wallet. Bitcoin and Ethereum have digital wallets that function differently but achieve the same purpose.
People can send these bitcoins from their digital wallets and receive them, in the same manner, using private keys linked with the wallets.
These transactions, either sending or receiving, are recorded in the immutable public ledger known as a blockchain and stored in blocks connected with previous blocks.
This linkage of blocks makes it incorruptible because if you try to change any previously recorded data through hacking, the blockchain will reject.
Also, it enables tracking of the previous transactions to prevent people from spending coins they do not own.
How can you own some bitcoins?
You can easily get hold of some bitcoins by
- Buying from cryptocurrency exchange platforms or peer to peer platforms
- Sell products or services and receive them in cryptocurrency.
- Through mining bitcoin
How are bitcoins mined?
For the bitcoin system to function, a lot of computing power has to be used to process people’s transactions.
Miners can invest in these robust computing systems that solve complicated mathematical sums and ensure the Bitcoin system stays afloat. In return, these miners are rewarded by the blockchain in bitcoins for their investment.
As of 2020, it is tough to become a new miner. The investments required to set up mining systems run into billions of shillings, and it might take long before you can earn a bitcoin since there exist established and powerful bitcoin miners.
Why is Bitcoin’s value increasing?
Many people from the mainstream world are discovering the advantages bitcoins have over traditional banking systems and thus investing more. This creates an increase in demand resulting from an increase in its value.
Is Bitcoin really the future?
A time when money can be moved around the world instantly and at a minimal cost is inevitable, and bitcoin already provides this solution besides other advantages.
With bitcoin, you can pay anybody for services rendered or products without using centralized institutions like banks, which heavily charge for their money transfer services.
Also, with bitcoin, money is in your hands. You have complete control of your money, unlike bank accounts that can be frozen for some reason best known to the government.
Bitcoin gives power, freedom, privacy, independence, and security.