What is Bitcoin and how does it really work?

What is bitcoin how it works

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.

“My sweetie, I need some extra capital to launch my business, do you mind topping me up a little?”

You tell her to give you a minute, get your wallet and pull out some notes, then sing some mantra then the money magically teleports from your hands to your mum’s hands. She thanks you and goes on to launch her business.

That is bitcoin in a nutshell.

Imagine that? It is beyond anybody’s imagination.

The same way instant messaging took over the world with a storm, so will 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 money and make it movable around the world instantly, securely and at a very small cost.

Bitcoin was developed by an anonymous person or group of people 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.

These three concepts were combined to come up with a digital currency founded on code rather than items of value, or trust in governments and central authorities.

Therefore, bitcoin achieves the characteristic of being decentralized; not controlled by a single entity. This makes it secure from influence by individuals or powerful bodies with selfish interests.

To achieve decentralization, a revolutionary technology known as blockchain had to be created. A blockchain is simply a public ledger or database just like to one you find in a library.

However, this database can be accessed anywhere from the world, anybody can have a copy of it and any changes done on the ledger has to be approved by everybody in the world with a copy of the database.

This in short means 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 entire 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 is essentially what 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

  1. Buying from cryptocurrency exchange platforms or peer to peer platforms
  2. Sell products or services and receive them in cryptocurrency.
  3. 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 are people who can invest in these powerful computing systems which solve very difficult mathematical sums and ensure the Bitcoin system stays afloat.

In return, these miners are rewarded by the blockchain in form of bitcoins for their investment.

As of 2020, it is incredibly hard 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 very 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 and thus result to increase in its value.

Is Bitcoin really the future?

A world where 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 having to use centralized institutions like banks which cut a heavy commission for their money transfer services.

Also with bitcoin, money is on your hands. You have full control of your money. Not like in banks where it can be hacked, or your bank account, frozen for some stupid reasons or if the government doesn’t like you.

Bitcoin gives power, freedom, privacy, independence, and security.

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