By Eric Clark Su
If there was a topic that dominated the last few weeks of the holidays in social media or at family dinners, it was Bitcoin and cryptocurrency. On the surface, Bitcoin is really simple to explain around being a digital or virtual currency but once you go past that, it becomes very technical real fast. But fear not: Let us go through all the frequently asked questions I have answered over the last four years being a supporter of the technology and surprise your family and friends with your high tech knowledge at your next gathering!
What is Bitcoin?
Bitcoin is a virtual cryptographic currency that is native to computers and the internet. Unlike any other currency, it is not connected to any sovereign state and its value is based on the supply and demand of people wanting to own, trade, or use it instead of cash.
Bitcoins are digital so they aren’t going to appear as paper bills or metal coins. Instead, they are stored in Bitcoin wallets provided by applications such as Coins.ph or Bitbit.cash.
Unlike the Philippine peso where a single peso is made of 100 cents, a single Bitcoin is made of 100 million Satoshis, which are what the Bitcoin community calls their “cents.” One Bitcoin is 1.00000000. As of late December 2017, you can buy 14,000 Satoshis or 0.00014000 for P100!
Who or what company owns Bitcoin?
No one owns Bitcoin. The source code and the white paper, which is a technical document explaining how it works, were released to the public in January 2009 by an anonymous person under the pseudonym Satoshi Nakamoto. From there, volunteers decided to contribute their talent and electricity running the Bitcoin network and improving the Bitcoin code.
What are cryptocurrencies?
Cryptographic currencies or cryptocurrencies are the asset class or category in which Bitcoins belong. They are called that because these tokens or coins are made secure by a cryptography-based technology called Blockchain.
There are over 2,000 cryptocurrencies all over the world with their own features or focus but the most important one is Bitcoin so it is recommended to focus on it as the first step.
What is Blockchain?
The blockchain technology is a key invention on why it is now possible to have a digital currency without a central party or organization like a central bank or even a government.
Blockchain is basically a shared synchronized database or ledger maintained by numerous computers all around the world. All the sending and receiving of bitcoins are checked and grouped into a block with a proper ID number (called Hash) generated from a hash of the transactions included, plus the ID of the previous block. Any edit or malicious changes on any previous block will also change the succeeding blocks’ hash, making it easy to detect a false chain of blocks and reject it from being copied across the computers in the network.
Think of this as filling up a new page in a bank’s ledger book then having thousands of accountants copying any new page and throwing out any ledger that is not the same as the majority of the copies.
This explanation is simplified and you can go deeper by reading up the Bitcoin white paper.
How are new Bitcoins made?
Remember the computers maintaining the global ledger of transactions in the Bitcoin network? Well, they can’t all write the next block of transactions at the same time or else it will result to duplicates or chaotic updates.
To determine who makes the newest block, all these computers compete in solving a mathematical problem (the actual problem is not very important). When one of these computers comes up with the right answer, that computer wins the chance to create the next block. This is called Proof of Work.
That computer node alone would process the next block by selecting pending transactions from the memory pool where all transactions wait for inclusion. The node includes all validated transactions and writes them into the block it is creating. When the block’s data size grows to 1mb, the node signs it with the proper hash and links to the last block adding to the chain of blocks. The node then gets 12 new Bitcoins as a reward plus the fees attached to each of the transactions. This “winning” of new bitcoins and bitcoin fees is called Mining and that is why the computer nodes storing the global ledger are called Miners or Mining Rigs.
As you can imagine, this requires lots of electricity for each miner and you multiply that with some percentage of the 11,000 nodes.
Why is Bitcoin going up in value most of the time?
Basically, value is based on supply and demand. There are 16.7 million Bitcoins already given to miners as rewards. After the 21st million Bitcoin is mined, there will be no more.
This scarcity drives up the demand and the increasing number of people knowing more about Bitcoin and wanting to buy also drives the price up.
How can I buy Bitcoins?
There are a few companies authorized by Bangko Sentral ng Pilipinas to sell or exchange virtual currencies, those two companies sell through these apps or websites:
People can also sell their Bitcoins to you directly but that is riskier since there are cases where the sellers run away with the payment.
When is the best time to buy a Bitcoin?
A single Bitcoin is worth around P895,400 as of Dec. 29, 2017 but remember it has eight decimals as cents so you don’t have to buy a whole Bitcoin to get into it. Bitcoin’s all time highest value was P1,000,000 in early December but it could go down to R50,000 so I urge everyone to treat buying Bitcoin as buying stocks. Only put in what you can afford to lose.
How can I store my Bitcoins securely?
You store them with Bitcoin wallet apps on iOS, Android, Windows, or Macbooks where you can easily sell them or trade them. But if you plan to hold them for a long time, consider buying a Trezor or a Ledger Nano, which is a USB like wallet.
Any tips for my Bitcoin adventure?
Lots! This is a new technology not unlike when the Internet started getting adopted. The best way to avoid expensive mistakes is to just gain knowledge. Avoid middlemen you do not trust and do not buy Bitcoins with money you cannot afford to lose.
Eric Clark Su is the chief product officer of SCI Ventures Inc. makers of Buybitcoin.ph and Bitbit.cash. He believes cryptocurrencies shifts the power from institutions to individuals. He can be found at https://fb.com/ericzoo and emailed at [email protected]