By Gabriel Onyango
Bitcoin is like a piece of art, whose beauty is only as good as the perspective of the person seeing it. Stripped of all the technological and econometric terms used to describe it, bitcoin shines as a beautiful phenomenon, demonstrating the human struggle to solve the problems around us.
To understand bitcoin, we first have to understand what motivated its invention. The cryptocurrency (bitcoin) is the brainchild of ‘Satoshi Nakamoto’ an alias for the person whose identity to date, is yet to be confirmed-beyond reasonable doubt. Satoshi was inspired by the global financial crisis in 2008, to create a financial system, that would be unaffected by unpredictable monetary policies, bankers or politicians.
Basics of bitcoin
Before we get to the meat of bitcoin, we first have to understand the following terms:
A bitcoin is as the name suggests; a coin, only that it is computer-generated with a fluctuating value attached to it. Just like how the dollar (which really is just a piece of paper) could have different monetary values on different days, depending on market conditions.
- Bitcoin mining
This is how bitcoins are availed to the public and it is done by bitcoin miners, think of their role like that of banks, getting money from the central bank to distribute to you. The only difference is that bitcoin miners are not institutions, but supercomputers that compete with each other to look for bitcoins in the internet.
- Bitcoin wallet
This is a place to store your bitcoins after buying them; you can use either an online wallet or your computer with the help of a special software to secure the bitcoins. Online wallets like Belfrics and Copay are comparable to a mobile money or bank account under the control of the individual companies.
- Bitcoin exchange
The function of a bitcoin exchange is to convert bitcoins into money, valued as per the current bitcoin exchange rate. However, bitcoin prices greatly fluctuate, for instance, in December the value of bitcoin hit a historical high of $17,203 (sh1, 776,381) per bitcoin, days later, the value had decreased by $3,000 (sh309, 780).
How it all works
Satoshi Nakamoto – the bitcoin inventor, created a software that would release into the internet, a certain number of bitcoins about every 10 minutes. Just as how a rock star at a concert, would throw a few T-shirts to the crowd and people would scramble for them; bitcoin works the same way.
The software releases bitcoins and bitcoin miners-using supercomputers compete for them, the fastest computers win. The miners then sell their hard won bitcoins to the public with the help of bitcoin exchanges.
The market grows when more people buy bitcoins and when miners dedicate more supercomputers to compete for the released bitcoin. Currently, many people buy bitcoins for speculative purposes and not for transaction. However, the trend is gradually changing as more traders accept it as a means of payment.
Bitcoin is a phenomenon that holds a lot of potential but like any other innovation in history, it has plenty of risks too. In addition to the volatile prices, it is widely used for criminal dealings because the identity of those transacting is anonymous. Bitcoin has received praise and condemnation in equal measure as such explore it but do so responsibly.