how bitcoin works

In 2017, Bitcoin was the most searched Google term especially since it reached a peaking high exchange rate of $19,783 in December 17, 2017, but as at 23 April 2018, a bitcoin equalled $8,905.60. Regardless of the almost $11,000 drop since December, Bitcoin is still a hot topic, and many people do not really understand the dynamics of Bitcoin and how it works but this post is going to enlighten you about the Cryptocurrency that is Bitcoin and how bitcoin works.

Okay, let’s start with the basics to help you understand better…


Let’s break it into two: “Crypto” and “Currency” to help you understand better.


Crypto is a shorter way of saying “Cryptography” which is a computer technology used for securing and hiding information.


Currency is money that is currently in use which is valuable, portable and exchangeable. There was a time when cowries were used as currencies in exchange for goods before governments of different countries started introducing official currency to be used as means of exchange in different countries called ‘Fiat currencies’ such as the US ‘Dollars’, Japanese ‘Yen’ and Nigerian ‘Naira’.

These fiat currencies are just bills produced and authorized by governments as being legit and because people have faith in their governments and banks, they use this money and the worthless bills become ideas backed by confidence.

However, because the government creates these fiat currencies, it means that they also control it and if any country is in a state of emergency, the government can prevent citizens from accessing their money, just like the Greek government froze all banks allowing the country’s residents to withdraw a limited $67 per day from their own accounts.


Cryptocurrencies are just lines of code that hold monetary value and are created by electricity and high-performance computers.

In layman English, Cryptocurrencies are digital public money created by painstaking mathematical computations and policed by millions of computer users called ‘miners’. The technology used to make cryptocurrencies give them the same characteristics as regular, cold hard cash.

However, don’t just think that Cryptocurrencies are just electronic money created by technology out of thin air. Cryptocurrencies are made when people have their computers work many hours, expending massive amounts of electricity to mine the digital money while solving mathematical equations.

BITCOINS was the first cryptocurrency that was widely accepted and it was created in 2009 by Satoshi Nakamoto. Unfortunately, no one knows who Satoshi is, many people think it’s actually a group of people that gave themselves that name but it’s still uncertain especially since Satoshi disappeared before Bitcoin took off.

Anyway, the purpose behind Bitcoin is to allow people to store, send and receive money in a type of transaction called Peer-to-Peer. Therefore, Bitcoin allows Angel in Brazil to send money directly to Casey who lives anywhere in the world or just a street away, without using a trusted third party like the bank, PayPal or Payoneer to process the transaction.

But unlike US Dollars and other fiat currency which are usually produced on a timely basis (yearly, 2-year, etc basis), Bitcoin is limited to only 21 million that exists, and only 16.7 million Bitcoins are available. The rest are slowly created by users of Bitcoin mostly by mining.


Let’s just use the illustration of every Bitcoin transaction being publicly recorded in a notebook which every Bitcoin user has access to and all notebooks get constantly compared to make sure they match. All past approved Bitcoin transactions are stored permanently so that there is a record of where all the Bitcoins are and who owns them.

Blockchain is the technology that constantly compares the Bitcoin notebooks and compares them to ensure that they are all identical.


Well, according to Bitcoin experts, the Bitcoin public ledger is pretty bulletproof and this is because, according to them, changing the ledger requires a ton of computer power and it must be done in a very public place where thousands of other computers and users can see exactly what you’re doing.


Yes, there are a couple of companies that accept payments using Bitcoins but it’s not a generally accepted means of exchange. Japan even accepts it legally. Regardless, for people in countries like Nigeria, India, etc, it’s a good means of exchange but beware of the fact that it’s a fluctuating means of exchange whose value changes almost everyday.


Every Bitcoin transaction is recorded and verified on a public digital record which over seven thousand people use their computers to keep identical records of simultaneously to reduce the risk of any single person or groups falsifying the data. In other words, the records are kept public to provide transparency, security and ensure that Bitcoin transactions are permanent.

Mining of Bitcoins is the computer process of recording and verifying information on a digital record known as the Blockchain usually while solving a tough math problem. Bitcoin mining requires computer power and miners are paid with the money people pay when they send Bitcoins from their wallets to another wallet.


  1. Bitcoin is not controlled by any person, company or bank but rather by the community of its users.
  2. It’s a new type of investment, albeit volatile.
  3. It’s a UNIVERSAL currency and as such can be used by anyone, anywhere in the world.
  4. There are no counterfeit Bitcoins and criminals cannot create fake Bitcoins like they can create fake paper (fiat) currencies, credit cards, and checks.
  5. There is a limited supply of Bitcoins (21 million total Bitcoin in the world). Bitcoins were designed to be scarce so they increase in value over time.
  6. Bitcoin can be spent is smaller amounts called Satoshis all the way up to 8 decimal places.

(Satoshis are the smallest divisible unit of one bitcoin meaning that there are one hundred million satoshis in one bitcoin so 1 Satoshi= 0.0000001)

  1. Bitcoin uses cryptography to securely send payments and it has never been hacked.


  1. Bitcoins have been used by criminal traders especially from 2011-2013 to move money outside the eyes of law enforcement.
  2. There are many scams in the Cryptocurrency world used to steal hundreds or thousands of dollars from naive and savvy investors alike.

Even though Bitcoin was designed as an electronic currency, its lack of government control and fluctuating prices have caused most businesses to hesitate in accepting it as money but that hasn’t stopped tech-oriented businesses like Bitpay and Coingate from allowing online businesses to accept and store Bitcoin and convert it to Fiat currencies. There are other companies as well that accept Bitcoin as means of exchange and some even exchange Bitcoin for fiat currency, all you have to do is find a trusted company that can do that for you.


Bitcoins are stored in Wallets provided by secure storage services such as Coinbase, Blockchain, Bitpay and many others where users can access their money. The wallets each have unique addresses that you can use to send money and with which you receive money just like my bank account number.

Just like you sometimes need a signature to authorize transactions in the bank, sending Bitcoins from wallet to wallet involves the use of a password called Private key.

So when Luke wants to receive Bitcoins, he sends his Bitcoin wallet address to Jane Doe and Jane enters Luke’s Bitcoin address and the amount she wants to send to Luke and her wallet uses the Private key to authorize the transaction.

Once Jane hits the ‘Send’ button, her Bitcoin transaction is added to the blockchain for processing. Every transaction is processed when transactions within a time frame form a block which is added along with other blocks to form a Chain which is linked together with a complex cryptography whose extreme complexity protects the transactions from manipulation or falsification.

However, you should probably know that you’re responsible for your own Bitcoin and it’s security that’s why you need to create and remember a strong password and protect your email, phone, and computer security. If your Bitcoin is stolen, there is nobody to call to get it back.


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