Overview of Bitcoin
Hello people, saw it today in the news that China Is going head on against bit coin exchange by taking a decision to close down local bit coin exchanges. Today I would be providing more insights on the situation and its effect on Bitcoin. Before we proceed though, let’s have a look at what bit coin is. Bitcoin is a worldwide cyptocurrency and digital payment system where all transactions are strictly digital, and verified through the use of network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin does not have a central authority or bank, and the system is peer to peer where transactions take place directly between users without an intermediary. Bitcoin is known as the first truly digital currency and was developed by a group of programmers under the name Satoshi Nakamoto.
Bitcoin is accepted in many countries while it is termed illegal in some countries. Countries where Bitcoin is illegal include Bolivia, Ecuador, Kyrgyzstan, and Bangladesh. Countries with the Bitcoin ban are possible banning it to prevent losses to their citizens by trading Bitcoins as they are new and carry with them a high amount of risk. Risk you say, how does it even work? Ok Ok, calm down. Of course we would take a look at how Bitcoin transactions work.
The first word you would always come across in a Bitcoin transaction are Bitcoin wallets. Bitcoin wallets store private keys that are needed to access a Bitcoin address and spend your fund. So primarily, Bitcoin transactions are sent from and received to a Bitcoin wallet. Bitcoins like foreign exchange have rates, and speculators wait for the currency to rise in order to profit from it. So that aside, a Bitcoin transaction don’t deal in physical currencies, they are only records of transactions between different addresses called a Bitcoin address which is accessed using private keys. Every transaction that ever transpired is stored in a public ledger called the blockchain. To send Bitcoins, the sender goes to his bitcoin address and uses his private key to sign a message with the input (source transaction of the coins), amount to be sent and output which the receivers Bitcoin address. By performing the above, the sender sends coins, out from her Bitcoin wallet out to the wider Bitcoin network. Then Bitcoin miners verify the transaction, putting it into a transaction block and eventually solving it.
Complicated stuff right? Yes it is. This is why some governments even though have not made it illegal in their country warn against using bitcoins. Warren Buffet recently warned against using Bitcoin, stating that it’s a mirage and that the idea that Bitcoin has some form of huge intrinsic value is just a joke.
Waking up from slumber, China is reportedly trying to close down local bitcoin exchanges and since its announcement, Bitcoin has lost over US$100 in value. Bloomberg and WSJ also reported that the Chinese government is planning to shut down digital currency exchanges altogether. Prior to the announcement, Bitcoin also fell by US$1000 in three days. In January 2017, my country Nigeria issued a circular that all Nigerian banks that bank transactions in Bitcoin and other virtual currencies have been banned in Nigeria. They later clarified this circular stating explicitly that “Central bank cannot control or regulate Bitcoin. Central bank cannot control or regulate blockchain. Just the same way no one is going to control or regulate the Internet. We don’t own it”. This means that they haven’t termed it illegal, but trading in bitcoin in Nigeria is at your own risk as you can’t hold anyone responsible if it goes sour. The risk is well defined in a situation where you forget your private keys or it gets into the wrong hand, you stand the chance of loosing all your money.
My takeaway from the above is that like Warren Buffet rightly said in this interview, Bitcoin is just an effective way of transmitting money anonymously. A check is also a way of transmitting money but are checks worth a whole lot of money? No. Bitcoin then should not be because it is just a means of transmitting money and not an end. Warren Buffet says we should stay away from Bitcoin and I with the billionaire Investment Manager and Nobel Prize winning economist on this one.