How Bitcoin and Blockchain Works

How Bitcoin And Blockchain Works


Bitcoin has become a household name over the past few years. Many people speak of it, yet a great number still do not understand it. They do not understand where it comes from, or how it has any value at all. As such, many people keep far away from trading in Bitcoin and other such crypto currencies because of ignorance. 

For others, with a bit more education on the subject, they have managed to perform great trades and often times increase their wealth. Even businesses are becoming crypto-friendly, including various retail chains and even online casinos! Now, we are not saying that crypto currency trades are a must for the informed, but abstention for lack of knowledge should not be a cause. 

The way of the world is the digital way. Breakthroughs in technology must be embraced to advance, rather than be shunned and discarded. Blockchain is the way of the future, not only in monetary transactions, but in the recording of various types of data. 


Crypto currency is a form of virtual currency that is decentralised and not tied in to regular fiat currency at all. Stocks, bonds, capital assets, and other traditional market changing conditions, such as political climate, etc, do not affect the value of crypto currency. Rather, the value of crypto currency is determined by its popularity. As such, it can be very volatile at times; either climb in value super quickly, or depreciating tremendously within days. 

Though crypto currency can be bought at crypto exchanges online, the raw currency is mined off of the internet. Mining rigs, called ASICs or FPGAs make use of complex computer coding to search and mine selective algorithms online. These are then harvested and traded at the exchanges. The sheer demand for the virtual coins gives it currency. 

There are over 4,000 crypto currencies in existence. Bitcoin was the first fully implemented one, but since then other influential coins, such as Etherium, Litecoin, and Ripple (XRP) have done very well at the exchanges. 

Crypto currency has become quite appealing, because the currency is not tied to your personal identity like fiat funds are but is rather tied to a unique set of keys or addresses registered on a blockchain registry. This means that people can transact anonymously online, much to the frustration of many governmental authorities wanting to curb money laundering and corruption. 


We will never fully understand the nature of crypto currency such as Bitcoin, if we do not have a working knowledge of what blockchain is. It is a rather ingenious invention that was produced by a group of people known by the pseudonym, “Satashi Nakamoto”. 

Don and Alex Tapscott define blockchain in the simplest of terms in their 2016 book, “Blockchain Revolution”. 

It is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions, but virtually everything of value.” 

This ledger is continually reconciled and updated to keep the database records in real time. Any transaction done via the blockchain (through a digital crypto wallet) makes immediate updates to the blockchain. If you make a payment to a casino, your data is debited and the casino data is credited at the very same time. 

The decentralisation of the database means that hackers cannot corrupt it, as there is no one main server. The blockchain is rather stored on millions of computers around the world simultaneously. Any change to the chain is immediately recorded at the same time for immediate transaction times. Simply put, it is a shared document that can be altered by all parties, at once. 


In the past, most traditional banking transactions required you to literally go down to your local bank branch to carry out a specific task, such as making a cash deposit into a recipient’s account. You would manually fill in a form that would be submitted to the teller/cashier, instructing them to make payment from your bank account to the recipient’s bank. 

Your bank and the recipient’s bank have two separate databases. Your bank would then alter their database by debiting your account and then request that the other bank alter their database and credit their customer’s account by the stipulated amount. Once the receiving bank acknowledged the funds transfer, the paying bank would then finally submit the payment. This entailed multiple steps of authentication and database manipulation on both sides. 

The era of online banking kept the same concept, but just sped up the process by doing away with the need travel into the branch. It also circumvents the intervention of tellers or cashiers needing to access your account. 

Internet banking allows you to alter your own database through the automated system. But, there are still two databases needing changing. Often the amount is cleared from your account straight away, but the recipient bank has a delay, because the transaction has not been credited on the database on that side yet. With modern automation, the transactions very rarely take longer than 24 to 48 hours. 

Blockchain is far, far faster than conventional banking transactions, because the data on both the payer and recipient’s side are altered simultaneously, because they are on the same decentralised database. The algorithm debits one key while crediting the other one in the same stroke, thereby making trade transactions super-fast and efficient. 

The security is maintained throughout in the same way that the bank secures your money. In some instances you can insure your transactions with certain exchanges. Multi-level SSL encryption is a standard feature in funds transfer on every level in the digital world, today. The only drawback, is that it is very difficult to regulate virtual currency, as the state does not clearly define it as money, and therefore is often times helpless in helping you recover funds from less than honest crypto ‘exchanges’. 


In a world where instant gratification is a necessary feature, blockchain delivers far more efficiently than conventional centralised banking systems. Methods of regulation are being rapidly worked on, which will pave the way for a future decentralised fiat banking system to perhaps be birthed, putting to bed the conventional and snail-paced banking model we see today… Who knows?