What Exactly Are Bitcoins and How Do They Work?

What are bitcoins? This question came up prominently in Kenya recently after reports of international computer hackers who were demanding ransom in terms of bitcoins. Many people around the country appeared not to know what bitcoins are and what they are all about except a few in the financial sector.

Bitcoins, unlike other currencies, are currencies that are banked virtually on the internet. Bitcoins, therefore, are not found in the banks but transacted and stored on the internet. They are electronic in nature. For you to understand bitcoins, you must have some knowledge about mining. This is because those who take part in the transaction of using bitcoins are called miners. The coins are transacted across computers using the internet in an encrypted form known as cryptocurrency that is transacted digitally. This is simply electricity converted into some codes that are accorded with money value.

Many people have misunderstood the use of bitcoins and millions of people are not aware of their existence either. Many forces, especially from the banking sector are against the use of bitcoins simply because the transaction takes away the power of making, transacting and handling money from all the legal federal banks around the world and give them to the people in public. Many financial institutions are against the use of bitcoins because they see them as a threat, a force that if left to roam freely in the market is likely to bring them down and shape them out of the money business.

There is also the question of whether the question of whether bitcoins are legal, where they come from and whether they can be regulated. Many criminals around the world who would not like their financial records tracked have been using bitcoins. The practice has been rampant since early 2011 and the most recent one is that of global computer hackers who have been demanding huge amounts from their victims in form of bitcoins.

The fact is bitcoins have been demonized, made to be seen as evil and a threat to the economy. Nobody has bothered to drum for them or create awareness for them. There is even a rumor that some of those who have tried to push for the use of the bitcoins have been eliminated from the face of the earth by some economic powerful forces. But, even with the resistance, the bitcoins sector is making billions and billions of profits. One thing about bitcoins is that they can be converted into any form of currency and moved to any part of the world without any restriction.

How can one use bitcoins?

Before learning how to use bitcoins, one should first understand that bitcoins are not tangible currency. They are virtual. They are electronic codes that have been valued in terms of money. They cannot be stored in banks and they move via the internet.

Let us take bitcoins in terms of gold. Gold is not a currency but it possesses a currency value. Owning a bitcoin is just like having a piece of gold in your possession. What this simply means that you do not have money but you have something that has been valued in terms of money. Bitcoins are used in purchasing of goods and services via the internet. The interesting thing about them is they can be reserved just like shares and their value varies with time.

How are bitcoins transacted and stored?

As mentioned earlier, bitcoins are completely virtual and can only be transacted via the internet. They cannot be cashed out into hard cash but they possess the value of real cash. They are stored in computer drives in what is known as ‘wallets’. Wallets can be in terms of apps on either a computer or a mobile phone whose major purpose is to keep the bitcoins for the use when the need arises. Some people fear the use of bitcoins because they think that they can easily be manipulated. Bitcoins are more secure than the real currency because it is not easy to make fake bitcoins. Making fake bitcoins has no value and so nobody bothers to waste time trying to make something that will be valueless.

Are bitcoins valuable?

As mentioned above earlier, bitcoins are such flexible that they can be turned into any currency. For instance, they can be turned into Dollars, Euros or shillings depending on the needs. The value of a single bitcoin varies in value with time. According to financial experts, more than ten million bitcoins are in circulation and being used by various people.

Who regulates the bitcoins?

Bitcoins are completely unregulated. No one has a claim of bitcoins and no one can claim to be regulating them. Bitcoins are not tied to anything. They are not tied to any currency either. They are like the free wind that can turn to any direction. We can say that the regulator of a bitcoin is the bitcoin itself. It decides its own value and can be changed into any form and no one can change it.

Advantages of using bitcoins

There are many advantages of using bitcoins in transactions, purchase of goods and services. the economic world is changing and however much people may resist change, it keeps on happening. The advantages include the following:

1. There are no transaction fees while using bitcoins. Remember that bitcoins are not prone to regulations and cannot be levied by banks. There are no banks involved but individuals using the internet. The fee available is very little in terms of cents by the mining pools you join. The owners of a mining pool determine the transaction fee (cents) every time you transact using the bitcoins.
2. Bitcoins can be owned by anyone in the public and there are no restrictions on ownership. They only require a strong computer or smartphone and all will be done. According to financial experts, only 21 million bitcoins will ever be ‘mined’ and this is prone to be achieved by 2040. Already, about 11 million bitcoins are in circulation.
3. Transaction by bitcoins is convenient. It only needs a computer that is strong enough to work and one is set to start earning.
4. Bitcoins are secure. They are stored in an electronic wallet and one only needs to back up the wallet for security. The only risk of bitcoins is from hacking which rarely occurs.