What is Bitcoin? What you need to know about the digital currency making headlines

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A lot of questions have been raised personally to myself and I am sure many are wondering what Bitcoin could be all about since for the last couple of months business news all over the world have been focusing on how this currency has been appreciating in value exponentially a surprising phenomenon which has never happened to the other commonly known currencies such as the Dollar and the Sterling Pound.

Each and every country in the world has their own currency which is used in day to day transactions. In Kenya we have the Shilling, South Africans have the Rand, Nigerians have the Naira and the United States have the might Dollar which is widely used all over the world in many transactions including forex. We exchange money in banks or other specialized foreign exchanges platforms, transfer it worldwide either through making purchases online or even invest it.

It is now interesting to see the rise of what we now call a digital currency such as Bitcoin or Etherum. Interest has grown over the past years because of the significant increase in value of the currency which is quite “abnormal” to understand.

Origin of Bitcoin

So where did this currency come from? This is probably the question you are asking yourself right now. Well, I may not have the exact answer to your question but it is believed in 2009, an unknown programmer called Satoshi Nakamoto came up with the proposal of creating a digital currency different from the ‘normal’ currencies popularly to be known as cryptocurrency.

This currency functions in almost the same way as the regular currencies since it has the ability to be a store of a value and can be used as a means of exchange. Just like the other currencies, cryptocurrencies have a market price and also has demand.

The only major difference a cryptocurrency has to a regular currency is that it intangible. There are no bank issued notes or papers meaning that it is impossible to use them in hand-to-hand transactions like buying of groceries in our local open air markets or kiosks.

How Bitcoins work

Bitcoins are normally stored and exchanged digitally within a network. Unlike the commonly used currencies where when funds are being transferred from one account to another a middleman is required i.e. banks to be specific, Bitcoins operate differently  in that no intermediary is needed to make these transactions possible.

The issue, value and fiscal policy is normally controlled by the centralized authority such as the Central Bank of a country which builds trust but it is a different story with Bitcoin since the trust comes from the forces of cryptology.

Because of the lack of a central issuing body, Bitcoins are therefore created and transferred with the help of a unique process called ‘mining’ The mining process requires a powerful computer and a specific mining machine that work out the complex and technical cryptological functions which are billions of calculations.

Strengths and Weaknesses of Bitcoin

Bitcoin being the first digital currency which actually is uncontrolled, the currency is created at a fixed and predetermined rate meaning that it is immune from inflation. Another unique property of Bitcoin is that despite its transactions made public through the blockchain, all the actors involved in a transaction are only identified by their bitcoin wallet.

Lost? A Bitcoin wallet is just like the normal wallet people use to keep their money but it contains a unique address that enables a user to transact with another user thus a user stays anonymous.

Bitcoin is also unique in the way that it creates other strengths from the users perspective- its digital nature makes it highly divisible and the lack of a central body to regulate it ensures the transactions fees are not available.

Its nature and lack of the central regulatory body also shapes out its weaknesses as lost Bitcoins are non recoverable meaning if you loose your private key or the hard drive with your wallet then the coins are lost for good.

Bitcoin and the Future

The future of Bitcoin is not clear at the moment because of the restrictions imposed by governments in different countries and also its unstable exchange rates. However, current users are embracing it as an innovative concept and are contributing to establishing a global bitcoin economy.