What is Bitcoin?

The past few years have recorded technological advancement across the globe. One of such significant changes in the financial market is the introduction of digital currencies, which eliminates the challenges that occur when completing transactions with fiat currencies such as dollars, yen, pounds, naira and many more.  One of such preeminent digital currencies is Bitcoin.

Bitcoin is a digital currency that is created, distributed and stored on the public decentralised ledger known as the blockchain. The blockchain uses peer-to-peer technology to connect thousands of computers around the world to operate seamlessly. You can think of bitcoin as a form of electronic money except that, unlike the types of money we are familiar with, bitcoin is fully digital and operates out of the control of any central governing authority.

Because bitcoin is digital, decentralised and encrypted, it has fast become a preferred medium of exchange around the world. And as its adoption increases, more people keep finding new ways to use bitcoin and simplify their everyday transactions.

Before we get into why bitcoin is so special, let’s take a quick look at the history of the world’s foremost cryptocurrency.

Since bitcoin gained popularity and its benefits have become apparent to both financial experts and regular individuals, many have wondered why it took so long for someone to come up with the brilliant idea that birthed bitcoin. However, while bitcoin was indeed the first implemented cryptocurrency, the likes of Bit Gold and B-money were proposed years before bitcoin but never implemented. Some of these ideas, though, were useful in the creation of Bitcoin. 

And since its launch, Bitcoin set a precedence for other currencies because of its revolutionary nature and its ability to cover loopholes that other proposed digital currencies had missed. 

Bitcoin was introduced by Satoshi Nakamoto, an alias of a person or group of persons.  To date, no one knows the real identity of Nakamoto. And if you were wondering who the mysterious person could be and what led to the creation of Bitcoin, we discussed that in Who created Bitcoin?

For the purpose of this lesson, here’s a brief history of Bitcoin:

Aug. 8, 2008

The domain name bitcoin.org is registered. Today, this domain is "WhoisGuard Protected," meaning the identity of the person who registered it is not public information.

Oct. 31, 2008

An unknown person or group of people with the pseudonym Satoshi Nakamoto publishes the Bitcoin whitepaper on the cryptography mailing list at metzdowd.com. The paper was titled, “Bitcoin: A Peer-to-Peer Electronic Cash System” and is now available at https://bitcoin.org/bitcoin.pdf. It serves as a guide for how Bitcoin operates today.

Jan. 3, 2009

The first Bitcoin block, Block 0, is mined. This is also known as the Genesis Block and it contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". It is assumed that this was added as proof that the block was mined on or after that day and perhaps also as a relevant political commentary.

Jan. 8, 2009

The first version of the Bitcoin software is announced on The Cryptography Mailing List.

Jan 9, 2009

Block 1 is mined.

There are certain features that set Bitcoin apart from fiat currencies; they include: 

What this means is that when people make transactions using bitcoin, the wallet addresses involved have no visible identifier and personal information cannot be linked to them. But these transactions can be tracked on the bitcoin blockchain as everything is transparent, showing fully what transpired and at what time.

Bitcoin is not regulated by any central authority like a government, a central bank or any committee. Rather, people with powerful computers (known as nodes) connect to the Bitcoin network from all over the world and are all in charge of keeping the network online. This means that before any changes can be made on the network, the participants on the network must reach a consensus.

The implication is that no one person has the power to make changes on the Bitcoin network, and all transactions do not need to go through one central point before they can be completed.

Bitcoin offers a reliable platform to complete transactions with low transaction fees. One of the notable features of Bitcoin is that it is non-refundable. This eliminates the possibility of you getting defrauded with a fake transaction because once a transaction is completed on the Bitcoin network and is confirmed on the blockchain, it is locked in. For a confirmed transaction to be altered, it would take altering every transaction that is confirmed after it - which is virtually impossible for any person to do.

We are well familiar with delays with transactions while completing payment with physical currencies, even when operating cashless. Transactions on the Bitcoin network are almost instant. It takes merely a few minutes to complete a transaction, and you do not have to worry about delayed transactions.

Bitcoin transactions aren't the same as with fiat currencies like dollars or pounds. Bitcoin transactions take place on an open ledger known as the blockchain. The Blockchain contains the details of all transactions made on the network.

For example, if you want to transfer $1,000 worth of Bitcoin to a friend, it follows this process:

Bitcoin miners are very important to the working of the Bitcoin Network. Without miners to confirm and add transactions, the whole network doesn’t work because then, we would experience issues like double spending where one person can spend the same bitcoin twice - it is like duplicating a digital file and sending it to two different devices. Issues like this compromise the Bitcoin Network and is why miners are necessary.

Even though bitcoin is said to be mined, the mining process is very much different. While gold miners need to dig deep into the ground, Bitcoin miners can find Bitcoin in the protocol’s design. 

The Bitcoin protocol is designed in such a way that only twenty-one (21) million BTC can exist. And the only way new bitcoins are obtained is when new blocks are added to the blockchain.

For the Bitcoin network to work, there has to be a way to ensure that the integrity of the network is maintained. This would make sure that there are no issues of double-spend or the addition of fake blocks of transactions to the blockchain, amongst other things. This is why miners exist -- to keep the network operating as it should. But for them to want to do this, they have to be incentivised. The creation of new bitcoins (mining) is how these miners are incentivised.

Scalability centres on the ability of a system to expand and accommodates its increasing demand. For instance, to improve a website's efficiency to accommodate its growing users, it needs to be scaled by including more servers. Bitcoin scalability centres on improving the Bitcoin network such that it can accommodate and process an increased number of transactions.

It is important for Bitcoin to scale because of its increasing number of users and the need to meet their daily demands. However, because of the Bitcoin protocol design, there is a limit to the number of transactions that miners can process per block.

Presently, the Bitcoin network can only manage to process about five transactions per second, which is relatively lower than most centralised exchange solutions.

A Bitcoin upgrade that could allow about ten thousand (10,000) transactions per second may be included in the system, but that might essentially threaten its decentralised nature. In this regard, Bitcoin experts recommend that effective scaling needs to be attained for the network's efficiency. This contributed to the fork in Bitcoin’s network that resulted in the creation of Bitcoin Cash.

Every system has its pros and cons and so does Bitcoin. Lets’ briefly consider these.

Bitcoin is a valuable asset that is decentralised, secured, faster, and free from governing authorities' control, allowing its users' freedom to complete their transactions securely. These features have made it valuable to its many users across the globe. Individuals are able to conduct international transactions with minimal transaction fees.

However, this isn't the only reason why bitcoin is so valuable. Investors have found a nest in bitcoin as a form of digital gold. This is why many, rather than use it for only transactions, prefer hodling it. Bitcoin is seen as a scarce commodity with a limited supply that can be profitable when stored up.

Bitcoin can neither be printed nor handled physically. It can only be accessed through mining or buying from someone who already owns it. However, only 21 million bitcoins can exist and once all 21 million bitcoins have been mined, one would only be able to get bitcoin from those who already own it.

The easiest way to access bitcoin is to buy from other people or from exchange platforms. You can buy bitcoin with cash, bank transfers, debit or credit cards, or other cryptocurrencies. But you need a Bitcoin wallet to hold bitcoin.

Bitcoin Wallet

The Bitcoin wallet is a digital software program that enables you to buy, sell, or hold Bitcoin. This wallet contains a unique set of keys that are needed to complete transactions on the BTC network. The key provided in the wallet corresponds to your Bitcoin address. There are four types of Bitcoin wallet that is the desktop, hardware, mobile, and web.

Yellow Card wallet allows you to trade Bitcoin and offers an offline wallet where you can hold your Bitcoins. You will need a cryptocurrency wallet if you want to trade Crypto because the wallet holds the unique key combination to enable transactions on the network.

You can buy bitcoin using cash, credit, or debit card or exchange other Cryptocurrencies for some BTC. The steps to purchasing Bitcoins include:

You can use the same avenue implemented in purchasing your bitcoin also to sell them. However, while you can buy bitcoin through Bitcoin ATMs in some places, not all Bitcoin ATMs allow you to exchange bitcoin for cash. You can sell bitcoin on: 

You can easily access, buy and sell Bitcoins using these platforms with no hitch. However, it is best to be well informed about your options before buying or selling on the selected platform to prevent any glitches.

Bitcoin isn't controlled by a centralised authority. No one person, entity or organisation determines the price, economic growth, and inflation except the open market and the general public. And how do they do that? Via the following: