Bitcoin is a shared ledger that nobody runs

You will be able to explain how a bitcoin payment is signed, broadcast and added to the blockchain.

When you pay a friend S$50 by PayNow, two banks update their records. Your balance goes down, theirs goes up, and you both trust the banks to keep those records honest. Nobody checks the ledger themselves. The system works because there is someone in charge of it.

Bitcoin started from a different question: could people keep a shared record of who owns what without anyone in charge? The answer, set out in a 2008 paper published under the name Satoshi Nakamoto, was a blockchain: a ledger that thousands of computers each hold a full copy of, updated in batches called blocks, where each block is linked to the one before it so that changing an old entry would mean redoing all the work since.

Here is how a payment moves. You do not hold coins the way you hold notes in a wallet. The ledger records amounts against addresses, and you hold a private key, a long secret number that lets you sign a message saying move this amount from my address to that one. Anyone can check that the signature is valid without learning the key. Your signed instruction is broadcast to the network and waits with other pending payments.

Then someone has to add the waiting payments to the ledger. In bitcoin, computers called miners compete to do this. Each one bundles payments into a candidate block and tries to solve a puzzle that can only be solved by guessing, billions of times. The first to find an answer adds the block, and the others check it and move on to the next one. The winner earns newly created bitcoin plus the fees attached to the payments. The protocol adjusts the puzzle's difficulty so that blocks arrive roughly every ten minutes, however many machines join in.

Why go to all this trouble? Because the guessing costs real electricity and hardware. To rewrite history, an attacker would have to redo the work for the block they want to change and every block after it, faster than the rest of the network adds new ones. For a large network that is extremely expensive. That cost is what replaces the bank as the thing you trust.

Two other rules matter for investors. The protocol limits the total number of bitcoin that will ever exist to 21 million, released on a schedule that slows over time. And transactions, once buried under enough blocks, cannot be reversed. There is no customer service line. Send to the wrong address and the money is gone.

Notice what bitcoin does not have. It pays no interest or dividends. No company stands behind it with earnings you could value. Its price is whatever buyers will pay today, driven by how many people want to hold it and how much they believe others will want to later. That is why it can rise or fall by large amounts in weeks, and why this course treats it, and most other crypto assets, as speculative.

None of that makes it fake. The ledger works, and it has kept running for many years without a central operator. But a working technology and a sensible investment are separate questions, and most of the losses that hit Singapore investors in 2022 came from confusing the two, or from trusting a company that sat between them and the ledger. You will meet those companies in module 5.

Before you move on, try the idea in practice. Open any public bitcoin block explorer in your browser and look up the most recent block. Note how many transactions it holds, the total fees paid, and how long after the previous block it arrived. Then pick one transaction in it and find the sending and receiving addresses. You do not need an account or any coins to do this, because the whole ledger is public. Write down one thing that surprised you about what anyone can see.

Look up the latest block on a public bitcoin block explorer and record its transaction count, total fees and time since the previous block.

Course

• Crypto and alternative assets, with eyes open