The geeks have now given us a digital currency called Bitcoin

Opensource Technology has this way of bringing out such radical ideas that make you wonder what technology will happen next.

Ever heard of Bitcoin? Do you know what it does, and why it is significant? Probably not, but you cannot be faulted for that, seeing how quickly technology ideas come and go.

Bitcoin is a digital currency that is not regulated by any single authority or organization. It is based on a peer-to-peer Internet Protocol, ideally similar to the M-Pesa system. A mouthful?

It is an alternative currency with general equality globally. It is transferred among holders via computers and smartphones.

Since it is not regulated by an entity, it relies on being shared among users without limits like borders or taxes. The currency is divided like ordinary money. A single Bitcoin is divided into smaller units called Satoshis. A million of these units form one single Bitcoin.

Invented in 2009, Bitcoin has been actively growing and might now be facing its true prime test, entering the financial markets of Africa. Bitcoins are generated at the rate of 25 every 10 minutes each day.

The appeal for Bitcoins is almost immediate. They are probably the most portable currency in the world. Already in the United States, Brazil and Russia, BitInstant, a service that allows you to transfer money into your online exchange account, has opened 700,000 locations to trade Bitcoins.

Due to the level of cryptography, ideally, they cannot be duplicated or forged as happens with normal currency, but whether this will remain so is yet to be confirmed.

The growth of Bitcoin is remarkable, especially seeing that they are not considered legal tender and are not backed by anything tangible as currencies should normally be, but they are growing. And ironically, their value really cannot be manipulated as one would expect.

Despite being criticised as unusable and volatile, the exchange value of the Bitcoin to the Dollar tends to seesaw, especially when the underlying network they are traded on crashes. It all sounds trivial, and to be honest it is. So, how exactly are they made?

In geek speak, it comes down to this. Bitcoins are mined. New transaction are broadcast to all the existing nodes in the network.

“Nodes” are servers that keep a log of Bitcoins and are spread across the world. When this happens, the nodes collect all the new transactions into a block. Then each node works on finding a difficult proof-of-work for its own block.

A “proof-of-work” is data that is difficult, costly and time consuming to produce, and, in essence, it’s nature requires it to be that way so as to meet certain requirements. Security is one such requirement.

When the proof-of-work is finally found, it is then announced to the rest of the nodes, and thus Bitcoins are collected or mined by the receiving node, which originally finds the proof-of-work.

To prevent fraud or duplication of transactions, nodes are designed to accept the block, only if the transactions are valid and not spent, and acceptance of the block is simply recognised by beginning to generate the next block in the chain and the process is repeated over and over again.

So why is this very difficult to understand but clearly attractive idea good for Africa?

One primary weakness Africa has is that there is no centralised banking system across the continent. When you look at mobile banking, the different approaches by different governments on how they are regulated and taxed, you realise that they are generally incompatible.

So here comes Bitcoins being paid at a fixed rate, at next to no cost. You receive Bitcoins and you can then simply walk into an exchange and exchange them for your local currency at practically the same value that the sender used?

See the immediate gains? Coupled to an SMS platform, sending $100 from Kenya to say Tanzania would involve a process of literally sending on SMS without having to involve numerous parties and the cost of sending that money would be next to negligible. Since the platform is built with instant transactions in mind, and with worldwide payments, the picture changes rapidly.

To be honest, it is a huge struggle to understand the underlying structure, technology and process of Bitcoin. Demystifying it requires a bit of reading and learning.

Does Bitcoin have a space in Africa? Yes, in essence, Bitcoin can circumnavigate Africa’s interoperability issues when it comes to payment systems.

Can it work? If properly implemented, Bitcoin becomes very attractive for growing online transactions on the continent, and its flexibility means there isn’t a single task it cannot perform better than ordinary currency, but ideally, it will work in collaboration with pre-existing currencies.

It acts like gold. It’s an asset that on can invest in with a $2 billion cap as of now. The best part is that the economy that relies on Bitcoin is growing slowly and steadily.