Notionet

The whole concept of cryptocurrencies is simple to understand but for you to understand it, I will have to use the layman’s language.

What are cryptocurrencies?

The first thing to put in mind is that they are virtual money. They are fully online coins. They are soft money. So bitcoin is one of the cryptocurrencies and the strongest one too.  So, here we are talking about virtual money and to understand how virtual money works, we have to understand how our local currencies work.          Local currencies are just like the Kenyan shilling, the US dollar or the Chinese Yuan.

How our local currencies work.

Our local currencies for example the Kenyan shilling did not start with the paper money and silver coins we are using today. Instead, it started with barter trade which was exchange of real goods like you give me maize and I give you beans. So money was there even before the arrival of our colonisers. Other countries started trading with shells while others used things like beads as the currencies continued to evolve.

Our local currencies have evolved from goods and shells to coins and papers and from papers to cards like the credit and debit cards we are using today (Visa and MasterCard) so this is where we are today, the electronic money. What about the future? Now this is where cryptocurrencies come in, they are the future currencies, virtual money.

So, how do our local currencies work? Where does the money come from? Money is just figures printed on papers and coins. Some are high like 1000 while others are low like 100 or 1. When these figures are printed, they are released to the market through the central bank for free to be used for trading. So money is free but it has value that means for you to be the one who takes the highest share of the released money, you have to meet some conditions.

These conditions could be hard work through giving services or through selling goods. You see there is still some kind of exchange here. You give away what you have to collect this free money but the hard thing is that everyone is working hard to get the biggest share of this money. The demand is very high. People are many but the money is little. It is kind of a scramble where the one who can gives the highest gets the highest share.

This is how the rich are able to get the biggest share; they have big companies like airlines, hotels and networks among others. They sell a lot of goods and give a lot of services and by so doing, get the highest share. So the richest person is simply the one who has the largest share of this money.

How the bitcoin works

Now that we understand how our local currencies work, it is even simpler to understand the bitcoin. The bitcoins just like the paper money are just codes (numbers) released through something called the blockchain, the block chain works like the central bank, it releases the bitcoins to the market for trading.

The block chain unlike the central bank is not run by anyone neither is it controlled by the government. It is a computer program. Instead of using cashiers or bank managers who at the end of month need to be paid, the block chain uses a machine to release the money to the market for trading. The machine is called an antminer.

The machine is a hardware used to take the money from the blockchain. This act of collecting the released bitcoins is called mining. So as long as you have this device, you can collect the free bitcoins released from the blockchain.  Now, those who own these machines are called the miners. Anyone can become a miner as long as you own the device. One device goes for 50,000 Kenyan shillings that is equivalent to 500 US dollars.

Now, this seems quite simple, right? But this is where the hard work comes in. Just like the local currencies released through the central bank, everyone is working hard to get the largest share. In the case of the bitcoins, If you have the device you can get the free bitcoins released from the blockchain but there are people who have millions of these machines. The higher the number of machines (antminers) you have, the higher chances of getting the bitcoins you have.

Before you get discouraged that you have one machine competing with rich guys who have millions of this antminers, there is something you need to know. When the aspiring miners who could afford just some few machines realised how hard it is to compete with this rich guys, they decided to come together to form something called a Mining pool.

So, if you are about one million people each with one device, if you come together you will have a total of one million machines (antminers). With this, now you can easily compete with other rich individual who can afford many antminers. After successfully receiving the bitcoins, you share them among yourselves. The other question is, how do you join a mining pool?

There is only one public mining pool. It’s called the Bitclub network. To access the club, you need to visit the blockchain’s official website, www.blockchain.com. To register as a member of this club you need to pay 11,000 Kenyan shillings ($110) fee plus the antminer (the mining machine at $500).  The 500 dollars can buy only one machine. You can join the club with more than one machine and this will give you a chance of earning more than the other members.

What to do with the bitcoins

Now that you have received some bitcoins, you can choose to use them in different ways. First you need to create a wallet with blockchain.com to make selling and buying of your bitcoins possible.

You can decide to save/store the money to use it after it gains more value or you can just withdraw it using a bitcoin ATM. You can also trade your bitcoins by exchanging them with other currencies but it has it risks. The bitcoin is more of a long term investment. Just like the shares or real estate. The best way is to save your bitcoin, wait until it gains value, and then trade it by exchanging it with other currencies.

Why you may consider buying bitcoins?

One important thing to know is that there is only one bitcoin in the market and will remain that way until the next bitcoin will be released after many years. Today one bitcoin is worth 366,442.88 Kenyan shillings. This means that the bitcoin can be broken down into cents to make more bitcoins. For example, 0.50 bitcoin is equivalent to 180,778 Kenyan shillings.

Now this is what the blockchain does, as the demand for bitcoin goes up, the blockchain reduces the number of bitcoins it is releasing by a half after every 4 years. So, if the blockchains is releasing 7200 bitcoins everyday, after 4 years it will be releasing 3600

By doing this, the blockchain ensures that the bitcoin will never lose its value. The bitcoin possibility of gaining value is high as more people are buying it with the fear of their local currencies losing their value to the bitcoin.

How to buy bitcoins

First you need to visit blockchain.com to create a wallet or download a bitcoin wallet app for your phone. Then you can buy bitcoins with either of the below

• PayPal
• Credit/debit card
• Bank transfer
• Cash by using a bitcoin ATM

Visit  coinbase.com to sell or buy bitcoins. The site is user friendly and trusted by most of its users.

To know more about bitcoins and cryptocurrencies, visit investopedia.com or thestreet.com

NOTE: Every business has its pros and cons. The bitcoin is not accepted by all banks. it is also competing with other cryptocurrencies . Before you opt to buy or mine bitcoins, first weigh the benefits and disadvantages of this business and when you are fully informed, make the right choice for you.