Bitcoins & Blockchain
Bitcoin is a digital currency that was created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.
Bitcoin is a type of cryptocurrency. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to. All bitcoin transactions are verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it not being legal tender, Bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly abbreviated as “BTC.”
Wallets
A Bitcoin wallet is a software program in which Bitcoins are stored. Technically, Bitcoins are not stored anywhere. For every individual who has a balance in a Bitcoin wallet, there is a private key (secret number) corresponding to the Bitcoin address of that wallet. Bitcoin wallets facilitate the sending and receiving of Bitcoins and give ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms. The four main types are desktop, mobile, web, and hardware.
International Remittances
Two firms — Bitpesa and Kipochi — are targeting remittance payments sent from foreign countries to users of the popular M-Pesa service in Kenya. A market opportunity exists because M-Pesa’s famous money transfer service is only for domestic use.
Another opportunity exists to provide interoperability between competing mobile money systems within Kenya.
Bitpesa’s CEO Elizabeth Rossiello tells me about the attraction of Bitcoin to her start-up. “It all comes down to avoiding the fees the international banking system imposes”. The currency can do this because “it goes outside the system,” she explained.
Pelle Braendgaard, the co-founder of rival Kipochi, likens the potential impact on the traditional payment system to what VoIP services did to traditional fixed telephony in the 1990s and 2000s.
Another analogy he uses is with the ubiquitous coverage offering by the global system of roaming agreements in the mobile industry. “In the case of M-Pesa, Bitcoin allows someone to set up and plug in with anyone so long as they too are plugged into Bitcoin.”
He predicts that in two years’ time a corner shop in Kenya will be able to offer its local customers a service for sending and receiving cash in competition with the likes of Western Union and Moneygram. I approached Western Union for a comment but no one from the company was available to comment ahead of its forthcoming earnings announcement.
Essentially, Bitcoin can offer a long-distance network with which national mobile money services can interconnect at either end.
Blockchain
Blockchain seems complicated, and it definitely can be, but its core concept is really quite simple. A blockchain is a type of database. To be able to understand blockchain, it helps to first understand what a database actually is.
A database is a collection of information that is stored electronically on a computer system. Information, or data, in databases is typically structured in table format to allow for easier searching and filtering for specific information. What is the difference between someone using a spreadsheet to store information rather than a database?
Spreadsheets are designed for one person, or a small group of people, to store and access limited amounts of information. In contrast, a database is designed to house significantly larger amounts of information that can be accessed, filtered, and manipulated quickly and easily by any number of users at once.
Large databases achieve this by housing data on servers that are made of powerful computers. These servers can sometimes be built using hundreds or thousands of computers in order to have the computational power and storage capacity necessary for many users to access the database simultaneously. While a spreadsheet or database may be accessible to any number of people, it is often owned by a business and managed by an appointed individual that has complete control over how it works and the data within it.
