How does bitcoin work

How Bitcoin works – The Most Effortless Explanation

This is how Bitcoin works

Bitcoin works like any digital currency system except there are no middle men such as banks or wire transfer services .Bitcoin is a network as well as a cryptocurrency and this network is called the Blockchain. Blockchain Technology is a type distributed ledger system and bitcoin is the first successful use case of the this technology. This technology was chosen because once information is entered, it can not be modified nor double spending.

Sending and Receiving Bitcoins

You can store your Bitcoin in a cryptocurrency wallet.

(I recommend Exodus for beginners).

All you need to do is enter the amount of Bitcoin and the recipient’s wallet address to send out Bitcoin.

This is also called the Private Key.

How a transaction with bitcoin works?

Each time a user sends Bitcoin to another user, the transaction gets sent to the Bitcoin Blockchain.

Other users all around the world who are on the network then validate the transaction.

The network then approves the transaction and the recipient receives the Bitcoin.

The transactions get registered on the Blockchain.

Once added to the blochain, it is very difficult to modify.

Decentralization Explained

Bitcoin is decentralized meaning you can send and receive Bitcoin to anyone around the world within minutes.

You can also send large amounts of Bitcoin anonymously without any fiscal limitations.

And the transactions may costs only a few cents in some cases.

Consequently, transfers are cheaper as well as faster as because there is no middleman.

How does bitcoin work

Why is it called CRYPTO currency anyway?

Crypto stands for cryptography which is the technology to encrypt the transactions.

The BlOCK in blockchain

Each time time a user sends bitcoin to another person, the transactions are bundled and encrypted into blocks.

This encryption is known as the hash.

how does bitcoin works on the blockchain
2668 Transactions are bundled together in this block (source:


The transactions are split to be verified by users throughout the network.

how does bitcoin work
Transactions are verified by computers from all around the world (source:

The transactions are then rebundled together.

Each ‘block’ of transaction is added to the existing chain of blocks.

How does bitcoin work- how does blockchain work
Validated blocks are added to the existing blocks

How is bitcoin priced?

Market supply and demand are the main factors which determine the price of bitcoin.

The government can not influence the price Bitcoin..

Who are the people selling Bitcoin?

The people selling Bitcoin are miners and cryptocurrency traders.

how does bitcoin work

Miners are the ones who create new bitcoins.

How are bitcoins created?

Remember how I was explaining how bitcoin transactions are processed?

Well, each time a block of transactions is verified, the miners receive bitcoin as an incentive

This is also what powers the blockchain.

Here is a more indepth explanation of how cryptocurrency mining works

Why is everyone saying Bitcoin mining is a waste of Energy?

Bitcoin uses an encryption algorithm called SHA-256 hash.

In very simple words, Sha-256 is a proof-of-work algorithm.

This simply means that the miners have to ‘work’ to confirm a transaction.

The Bitcoin Mining Process

The job of the miner is to decrypt and validate a transaction.

What they do exactly is they  guesses until someone finds the correct answer.

The first user to find the answer gets the bitcoin as reward.

However, the competition to earn the Bitcoins first increases as more users enter the network.

As a results, the miners invest in more powerful and energy hungry computers to process transactions.

The Energy Waste

There powerful computers are know as ASICS and require a lot of energy.

As a result many governments have banned cryptocurrency mining due to their impact on local energy costs.

Can’t they just use another Algorithm?


These are called Altcoins.

Popular altcoins include Litecoin, Dogecoin and Potcoin.


As mentioned above, bitcoin uses an algorithm called SHA-256 which also uses a lot of energy.

Many programmers see the proof-of-work not only as a waste of energy.

But they also believe that they can increase the speed of transactions.

Thus began the quest for the fastest and cheapest Altcoin.

This resulted in software updates also known as forks.

New software updates sometimes require new infrastructure which is why sometimes there are free coins and other times not.

Are there other ways to get Bitcoin?

Yes, you can buy Bitcoin on cryptocurrency exchanges.

Some exchanges such as Coinmama, allow you to buy Bitcoin instantly with a Debit or credit card.

Coinmama is very user friendly unlike many other exchanges, so feel free to create a free Coinmama account to check it out or you can check out my Coinmama Review

How do I store my bitcoin?

A cryptocurrency wallet is where you store your Bitcoin

The difference between cryptocurrency wallets versus traditional digital wallets is the fact that there is no middle men.

So this means that you are responsible for the security of your bitcoin.

I recommend using Exodus which a desktop based multi cryptocurrency wallet.

It takes only a few minutes to install and it is completely free.

How do I secure my bitcoin?

To secure your bitcoin wallet you need to create a hard copy or “paper wallet” so you can recover your password in case your computer crashes.

As cryptocurrency exchanges are hackers favorite targets, it is therefor not advisable not to keep your cryptocurrency on an online exchange.

To find the best cryptocurrency wallet suited for you, check out my article on the 5 Cryptocurrency Wallets Everyone ought to know about.

Protip: Never ever give your private key to anyone – Your private key is like an login integrated with a password.

What does a Bitcoin look like?

In fact, a bitcoin looks like a transaction attached to a person.

how does bitcoin work- how does blockchain work
What a Bitcoin REALLY looks like (source:

In other words, Bitcoin is the transfer of value from one person to another

Why don’t banks like Bitcoin?

The main reason banks don’t like Bitcoin is because they usually have very strict regulations to follow.

Also,they can not do business with certain countries.

The problem for government and banks is anybody can send or receive bitcoin to countries which were inaccessible to receive money such as Iran, North Korea due to sanctions.

Bitcoin allows people to bypass these trade sanctions among countries.

That being said, many banks are investing in blockchain technology because of the security it brings as well as the cost saving potential.

Final Thoughts

The only way to truly understand Bitcoin and decentralization, you will need to buy your first BTC.

Let me know if this info was helpful for you đŸ˜‰

Founder of Satoshi Library

Owner of SatoshiLibrary


Thank you for visiting!

And also, if you feel comfortable enough to give me your email, just enter it below and I just might send you an email one of these days 😉

Disclaimer: I am not a financial advisor and the information provided does not replace professional advice. Cryptocurrency prices are highly volatile as well as evolving very quickly. This post may contain inaccuracies, so please do your own research before placing money in any website. Thanks!


why do initial coin offerings fail?

3 Major Mistakes ICOs continue to make

 3 Major Mistakes which cause ICOs to fail

Not all ICOs are scams.

There are some very interesting blockchain projects.

The Initial Coin offering is first crucial milestone of a blockchain start up as this will allow them to raise the capital to fund the company and the project for the next few years.

ICOs may last anywhere from a few days to a few months.

I am going to explain why the crowdfundraising event specifically fails rather than company itself.

reasons why icos fail

Softcap vs Hardcap

The minimum they have to raise to fund the project is the softcap.

The softcap is the basic minimum to carry out the project.

However, most ICOs aim to reach the hardcap which includes an additional budget for contingency plan.

Because ICOs are usually hosted in countries where cryptocurrencies are not regulated, it is important to choose ICOs is to remember that the start up is under NO LEGAL obligation to refund the money to the investors.

So it is important to spot the red flags before jumping in:

1.Too complicated product

If a project is too complicated or the problem or the problem ‘it solves’ is too complicated, even if the project is a game-changer, it might not have a market to to be sold to once it is ready.

Though innovation is very important, products that are too complex are likely to have a hard time to get investors.

2. Lack of Business Managers

Most blockchain startups are founded by software engineers.

However, there are more in and outs to managing a business and money.

Especially one which won’t be making profits for the next 2-3 years.

If investors notice that the team does not have strong enough players, they are likely not to invest in the ICO.

3.Lack of hype

Hype can be defined as the excitement around a project.

The more the hype, the more popular discussion the project is likely to be.

This is essential to get investors interested in the project as well as give the event momentum.

Hype also allows for the project to reach a wider audience as well as a maximum investors.

My Thoughts:

The Initial Coin Offering is just the beginning of the start-up’s journey.

The next step is delivering what they promised in their whitepapers.

With so many companies running ICOs, the competition to attract the investor’s attention has become more cut  throat than ever.

The odds of a start-up surviving the first 2 years

Let me know if this info was helpful for you 😉
Founder of Satoshi Library

Owner of SatoshiLibrary

Thank you for visiting!
And also, if you feel comfortable enough to give me your email, just enter it below and I just might send you an email one of these days 😉

Disclaimer: I am not a financial advisor and the information provided does not replace professional advice. Cryptocurrency prices are highly volatile as well as evolving very quickly. This post may contain inaccuracies, so please do your own research before placing money in any website. Thanks!

Why banks are very interested in Blockchain technology

Blockchain Technology in banking- Why banks are investing

Banks and Blockchain Technology

The term ‘Blockchain Technology’ attracted a lot of interest after the success of Bitcoin.In simple terms, Bitcoin is a digital currency which uses blockchain’s distributed ledger to transfer value this is just like a regular bank.

But unlike banks, it does not have a middleman because it is decentralized.

Blockchain allows peer-to-peer transfer which means that you can send money directly to anyone around the world instantaneously.

Brief History

Blockchain has been around since the late nineties.

Satoshi Nakamoto was the first to use the blockchain technology with Bitcoin in 2009.


How blockchain will allow you to save a lot of money in banking fees

The current problem with bank and wire transfers.

Depending on where you live, a typical bank transfer of $100 can cost up to $30 and take 5-10 business days.

Though Western Union and Moneygram have made forex transfer faster, they are extremely expensive in some countries.

It is also impossible to send cash instantaneously to an employee or loved one who uses another bank in another country.

Paypal and Skrill introduced the idea of peer-to-peer, however, they do not support all countries.

And unfortunately for users, Paypal has increased its transaction fees in April 2018.

Why are banks so interested?


Cutting out the middlemen will not only save time but will help both the customers and the bank save a lot of money in transaction fees.

Now, let that sink in

Blockchain in Banking

Using Blockchain Teachnology for Business Identity and Compliance

Banks have to adhere to strict regulations and anti-money laundering guidelines.

This is also known as KYC (Know Your Customer).

Therefore the ability for businesses to prove their identity more efficiently and accurately, is extremely attractive to banks.

This will make safer and easier for businesses to access customers’ accounts for payment gateways.

Secondly, blockchain will also give customers control over their private data and information.

This will in turn make identity verification easier because all the information will be from one source.

The experience can be compared to posting a letter at the post office and sending an email.

What’s the future of block technology in banking?

Despite blockchain technology having been around since 1991,  blockchain is still considered at its early stages.

The good news is that in 2017, Accenture did a survey involving 32 banking professionals and they found out that 9 out of 10 banks were exploring block chain.

So to conclude, let’s remember that Internet started development in the 1960.

Whereas the world wide web was invented in the 1980s.

And just like the internet, blockchain technology stills needs to grow and evolve a lot more before gaining mass adoption.

What are smart contracts

What are Smart Contracts? A Non-Tech Explanation

Smart Contracts

What are Smart Contracts?

Smart Contracts are a “way to create complex transactions between untrusted individuals”, Mark Pascall, during a presentation in New Zealand.

How do they work?

They work a lot like vending machines except they can do a lot more.

  • The vending machine accepts the coins in exchange for the product.
  • It returns change to the customers.
  • Also any body can buy products from a vending machine.
  • The vending machine has several mechanisms to protect the coins from thieves.

The concept of smart contracts was created by Nick Szabo in 1996 who was also the founder of BitGold.

Ethereum smart contracts


Ethereum Explained

Ethereum is a decentralized blockchain network which runs the smart applications.

The Ethereum Blockchain needs ether to power the smart contracts.

Developpers use a software called solidity to create smart contracts.

Vitalik Butaren introduced the ethereum project in 2014 as a two-in-one decentralized. software development platform and mining network

Ethereum Cryptocurrency

Cryptocurrency Ethereum vs Ether (Gas)

Ether is both a cryptocurrency as well as the ‘gas’ which powers the smart contracts.

Ethereum (ETH) is the 2nd most popular cryptocurrency after Bitcoin.

DApps (Decentralized Applications)

DApps are often confused with smart contracts.

Simply put, dapps are the ‘infrustructure’ that run the smart contracts.

We could also compare them to the vending machine manufacturer.


In simple terms, Erc20 is like a template for developpers.

ICOs prefer using ERC20 tokens for their ICOS (Initrial Coin Offerings) because everything has already been created for the developpers which makes it easier to set up.

Other Blochain platforms which have smart contract features are:

The Future

Unfortunately at this time, smart contracts are not used to their maximum potential.

Smart contrast are mostly used for Initial Coin Offerings which just once of their functionalities.

Nevertheless, many companies are very keen on the idea of digital asset transfer.

Let me know if this info was helpful for you đŸ˜‰


Marie Founder of Satoshi Library

Owner of SatoshiLibrary


Thank you for visiting!

And also, if you feel comfortable enough to give me your email, just enter it below and I just might send you an email one of these days 😉

 Disclaimer: I am not a financial advisor and the information provided does not replace professional advice. Cryptocurrency prices are highly volatile as well as evolving very quickly. This post may contain inaccuracies, so please do your own research before placing money in any website. Thanks!


Cryptocurrency crowdfunding

ICO vs IPO vs VCI – What’s the difference?

What’s the difference between:

  • ICO – Initial Coin Offering

  • IPO – Initial Public Offering

  • VCI – Venture Capital Investments (Angel Investors)




The Cryptocurrency IPO without the Venture Capitalist Investment delay.

An initial coin offering is a crypto crowfunding solution for start up blockchain companies.

How it works:


  • The ICO company keeps full ownership of the company.
  • The founders raise capital quickly for operation cost.
  • The ICO investors can quickly flip the crypto token on the cryptocurrency exchanges without waiting years.


No Country Restrictions:

  • Crypto-currencies are Peer to peer-  ICOs are available to anyone around of the world to invest in.
  • These equity crypto tokens can be sent and traded to anyone with the internet and from any country.


ICOs are extremely high risk investments:

  1. They are not covered by any regulations
  2. The ICO company can disappear with the money at any time.
  3. These are start ups – They have been in business for less than 2 years


Initial Public Offering – The word ‘ Public’ redefined.

Established companies run an IPO to finance expansions.


These private companies have been in business for have been in business for the several years.

  • They have an existing track record of good business.
  • They need to adhere to all local financial regulations.
  • IPOs require a lot of paperwork

IPO investing is considered low risk compared Blockchain ICO investing

The dark side

wallstreetUnfortunately IPO investment  is reserved for the elite of the country.

Only a closed circle of investors or high profile investors qualify to participate in an IPO

Smaller investors can purchase only stocks after they reach the stock exchanges.

VCI -Venture Capitalist Investment

Angel investors /the business angel/private investor/angel under/seed investor

Venture Capitalist Investors are elite investors  who invest in high risk projects in exchange for company equity.

  • The start up companies give up ownership in exchange of the investment.
  • Angel Investors need to wait years before they see their ROI
  • Venture Capitalist lose a lot of money with failed investments.


ICOs are the best both worlds.

So much so, that Angel Investors have started investing ICOs.

What is an initial coin offering

What is an ICO? The Easy Version

What’s an Initial Coin Offering

The Basics:

  • An Initial Coin Offering or ICO or token sale is a crowdsale system which blockchain startups use to fund their projects.
  • An investor is offered a digital token in exchange for his investment usually more liquid cryptocurrencies like Bitcoin or Ethereum.
  • The investor can trade their tokens at the end of the ICO on a cryptocurrency exchange instead of waiting years.
  • Banks and financial institutions decline funding applications by tech start up companies because they are considered high risk.

Why are businesses opting to run Initial Coin Offerings?

The advantages of ICOs:

  • Running a token sale is a way, and in most cases, the only way for blockchain startups to raise enough the capital to get started.
  • This is also the fastest way to raise large sums of money.
  • The higher the capital raised during the ICO, the more likely the project will make it to the market.

 Why not go to banks instead?

Firstly, startups struggle to get funding from traditional sources because the decision makers simply do not understand the technology.

And secondly, banks and financial Institutions invest only in what they can measure. Tech is a highly competitive industry as well as a high risk.

ICOs are solving this problem for these startups.

Why are there so many of them?

Though Crowdfunding has been around for decades, it is the internet which had actually brought crowdfunding to the world.

Thanks to platforms such as, or even, smaller investors can support their favorite projects.

Because initial coin offerings are  peer-to-peer, investors from all over the world can participate in an Initial Coin Offering without an intermediary.

The soar in Bitcoin and other cryptocurrency prices in 2017 was also played a big part in the hype.

The blockchain start ups are instantly getting access to millions of investors worldwide in a short period of time when it was previously impossible.

ICO failure rate

Why does regulation even matter?

The Wild Wild West 

ICOs are raising billions of dollars from around the world and everyone wants a piece of the pie.

However, without regulations, the companies can do whatever they want with the funds.

Many start ups have disappeared overnight with millions of dollars after the ICOs leaving investors hanging.

Many dishonest people, also are taking advantage of the lack of regulations to launder money.

Let’s get technical:

So if an investor is offered a token in exchange for his or her investment to raise capital, it becomes a share – 

Therefore shouldn’t  they have the same rights of shareholders of public companies?

Is it a currency or a security?

The decentralized nature of the tokens make it even more difficult to control.


Blockchain technology gives these tokens more functionality that traditional stocks because you can transfer these digital assets directly to anyone around the world without going through a financial institution which is currently impossible in the current system.

Unfortunately, ICO’s are currently associated to scams due to all the people disappeared.

Even legimate projects are treated as scams.

The cryptocurrency market is very new and the same goes for the projects, the fouders