Bitcoin is a shared ledger that nobody runs

Explain how a bitcoin payment is signed, broadcast and added to the blockchain.

When you send a friend S$50 through PayNow (an invented example), your bank lowers your balance and your friend's bank raises theirs. You both rely on those banks to record the transfer correctly. Neither of you looks at their books, because the banks are the ones responsible for keeping them.

Bitcoin starts by removing that responsible party. The question behind it was whether people could keep one shared list of who owns what, with nobody running it. A paper released in 2008 under the name Satoshi Nakamoto proposed a way to do it. The record it describes is a blockchain: a ledger with a complete copy kept on each of thousands of computers. New entries are added in batches called blocks, and each block carries a link to the block before it. Because of those links, altering an entry far back in the chain means redoing all the work that has gone into every block since.

Owning bitcoin works differently from carrying cash. Nothing sits in a wallet. The ledger lists amounts next to addresses. What gives you control is a private key, a long secret number. With it you can sign a message saying a certain amount should go from your address to someone else's. Anyone can confirm the signature is genuine, and checking it does not reveal your key to them.

Suppose you use your key to sign a payment. Your signed instruction is sent out across the network and joins a pool of payments that have not yet been recorded. Machines known as miners race to record them. Each one gathers pending payments into a candidate block and works on a puzzle that has no shortcut: the only method is to guess, billions of times. When one miner finds a correct answer, its block is added to the chain, and the rest of the network checks that block and starts on the next one. The winning miner collects newly created bitcoin along with the fees attached to the payments it included. The protocol raises or lowers the puzzle's difficulty so that a new block appears about every ten minutes, no matter how much computing power is taking part. Each block stacked on top of the one holding your payment makes it harder to undo, until in practice it cannot be undone.

All that guessing uses real electricity and real hardware. Someone trying to change a past record would need to redo the work on the block they want to alter and on every later block, and do it faster than the rest of the network keeps adding new blocks. On a network of this size, the bill for that is enormous. In the PayNow case you trusted a bank; with bitcoin, that cost is what you rely on instead.

For an investor, a few rules come out of this design. The protocol limits the supply of bitcoin to 21 million in total, and new coins are released on a schedule that gets slower over time. A transaction with enough blocks on top of it is permanent. No helpline exists to reverse a mistake, so bitcoin sent to the wrong address is lost.

Bitcoin also produces no income: no interest and no dividends. There is no company behind it whose earnings you could study and put a value on. Its price is what buyers are willing to pay at the moment, and that depends on how many people want to own it and how strongly they expect others to want it in future. Those expectations can change fast, so the price can climb or drop sharply over a few weeks. This course treats bitcoin, like most other crypto assets, as speculative.

Speculative is not the same as fake. The ledger does what it was designed to do, and it has kept running for many years with no central operator. Whether the technology works and whether buying it is a sensible investment are separate questions. Most of the money Singapore investors lost in 2022 went because they mixed up those two questions, or because they relied on a company that stood between them and the ledger. Module 5 introduces those companies.

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.

Open a public bitcoin block explorer, find the latest block, and write down its transaction count, total fees and the time since the block before it.

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