What is Bitcoin? Will it be a currency of the future

What is Bitcoin how does it Work

As of today 1 Bitcoin is valued @61,329.70 Zambian Kwacha which is an equivalent of $6,128.32USD. This is not a joke. I remember last year in February my Server was hit by a Ransomware and the hackers wanted only 5 Bitcoins.

The bitcoin value then was $350, so i only needed 15,000 Kwacha to recover the server and get the data back.

That was only last year but see today’s equivalent of 5 Bitcoin is way up the investment. Bitcoin is a bit hard to understand because it is new not only to people in Zambia. What is Bitcoin?

 

How does Bitcoin work

Conventional Banking system

Conventional banking system depend on a third party to transact. If i want to transfer money to Maliko these are the  steps i will follow

Firstly, i have to check my bank balance to see what i have in my account. Then i decide the share i need to throw over to Maliko. How do i do it?

I will walk-in into my bank or simply write a cheque. If am technologically privileged i will do a bank transfer through mobile internet banking or online banking.

The bank will check availability of funds before authorizing the credit to Maliko’s Account (Books). The bank will also check to see if it’s indeed me who is initiating the transaction before they ensure the money is going to the correct account (Maliko’s) as i want.

On the national level the commercial bank as mandated by the government will also have to ensure the transaction is clean and free of money laundering.

 

So, in other words, apart from keeping the money for me the bank also secures that money as well as ensure my transactions are clean. They keep the checks and balance in shape that go on explain the financial system and its economy.

 

The Bitcoin

On this hand, Bitcoin is not similar to the way currency is operated in the conventional banking system, here is the catch.

Bitcoin eliminates the third party which is the commercial bank and there is no readily cash. Though due to demand of Bitcoin and the restriction of 7 transactions per second, compared to Visa’s peak capacity of 56,000, Bitcoin Cash was introduced.

Bitcoin Cash increases the size of blocks, allowing more transactions to be processed and was only introduced in August 2017.

As a result Bitcoin has come to be  defined as;

a worldwide cryptocurrency and digital payment system called the first decentralized digital currency, as the system works without a central repository or single administrator.

 

Remember the money i wanted to send to Maliko that it had to go through the bank. It is my money but the bank handle it in some way before it is delivered to Maliko. And on top of handling i have to pay a commission for the transaction done. This is where the bank and other charges come from. Now with Bitcoin things happens in a different way.

 

Bitcoin depends on the Mining and Blockchain

To understand Bitcoin, we need to understand two concepts; Mining and Blockchain

Mining

Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure. Bitcoin miners help keep the Bitcoin network secure by approving transactions.

Mining is a record-keeping service done through the use of computer processing power

Blockchain

Blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. Source

 

So here is what happens now. Through that processing power the computers create and store online copies of blockchain like Litecoin or Bitcoin. These privately held computers do the mining and they produce bitcoins every 10 minutes by solving complex math problems.

 

Once mined the Bitcoin is sent to the receipt anywhere in the world in the digital form. It is impossible to know the Wallet (Account) where the Bitcoin is sent but the transaction is kept faithful by assigning a number to it. The posted transaction is then verified on a public open source ledger called a blockchain.

Why you can’t know the Name of the Wallet is because publicly the Wallet is anonymous and only represented by a string of text. Places like coinbase.com can keep your full record of names and bank account and only link to your Bitcoin string or Wallet.

 

This means everybody in the network will own and keep an updated ledger for the last transaction. So, if i decide to send 20 Bitcoin to Maliko the miners here acting like commercial banks will verify what i have in my ledger and post the transaction;

Debit/Reduce Funashi’s ledger with 20 Bitcoins | credit/increase Maliko’s ledger with 20 Bitcoins

Maliko’s ledger will increase and my ledger will reduce and the blockchain will be updated to all in the network about this transaction.

 

How can you trust the bitcoin miners-the machines and individual doing mining?

See the link for What is Bitcoin and Mining

 

Post Author: Funashi Mwamba

Funashi Mwamba is a Blogger and Founder at Lensesview. Other blogging activities include the profiled https://zedsoccer.com and askzambiajobs.com Mainly the social media presence is @funashi on twitter and https://www.facebook.com/funashi.mwamba. Am interested in Internet Security, Mobile gadgets and hobbies include photography and football. Online presence and achievements include been a mentor at Coursera and been a Utester

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