If you think bitcoin is confusing, you’re not alone. Many Filipinos also want to know what bitcoin is, where to buy bitcoin, and how it works. While the mechanics behind bitcoin are quite complex, it can be used as you would any traditional currency like the Philippine peso.
Reading: How bitcoin works in coins.ph
Bitcoin, like standard money, is a medium of exchange. it has value, can be converted to pesos, and can be used to purchase goods and services from merchants. Bitcoin is not controlled by a single government or organization, although companies that operate Bitcoin services are regulated in the Philippines by the Bangkok Sentral.
To get a general understanding of how bitcoin works, it’s helpful to compare it to a bank transaction.
how banks send money to each other
Sending money from one bank to another is a more complicated process than you think. consider the following scenarios:
case 1: send money locally
You owe a friend p1,000, who asked you to deposit it into her bank account. each of you have savings accounts in different major banks in the philippines.
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Then, the $1,000 comes out of your bank account and your bank sends it to the central bank. when major banks in the philippines transact with each other, they do so through bangko sentral’s database, which is known as an automated clearing house (ach). the ach processes a large number of debit and credit transactions between banks.
once ach processes your transaction, the p1,000 goes to your friend’s bank, who then deposits it into your account.
Scenario 2: Send money abroad
The process gets a little more complicated when you send money abroad. That’s because there is no such thing as a global pain for international transactions. Instead, domestic banks send money internationally through correspondent banks, which process transactions on their behalf.
now let’s say you work in singapore and want to send money to your parents in the philippines. The infographic below illustrates what a typical international wire transfer would look like when she sends money from her Singapore bank to a bank based in the Philippines.
In this example, your Singapore bank has no presence in the Philippines. so your bank would have to send the money to standard chartered, its national correspondent bank. This example assumes that Standard Chartered does not conduct retail banking in the Philippines.
Standard Chartered then sends the money to its Philippine correspondent bank, HSBC. HSBC then withdraws the funds from Standard Chartered’s account and sends them to his parents’ Philippine bank. but then another bank handles the currency conversion between sgd and php.
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all of these banks send international messages to each other about the transaction using swift (society for global interbank financial telecommunications) codes.
Is your head spinning already? this is actually a simplified representation of what happens when you transfer money through banks. the reality is much more complex and involves parent companies and central banks. there are also additional complications, such as having cut-off times, clearing times, different rates for different amounts transferred, and currency exchange rates.
how a bitcoin transaction works
Unlike banking, a bitcoin transaction is simpler. To send bitcoins, you need a bitcoin wallet, which allows you to store bitcoins, send bitcoins, or receive bitcoins. you also need your recipient’s bitcoin wallet address.
Now, let’s say you want to send bitcoins to a friend. To initiate a bitcoin transaction, simply copy or scan your friend’s bitcoin wallet address into your bitcoin wallet’s send interface, then enter the amount you want to send. Once you hit the “send” button, your wallet creates the transaction and transmits it to the bitcoin network, where it undergoes confirmation for security and integrity of the transaction. the process is so regardless of the location of the sender and recipient.
Once your transaction is verified, bitcoin miners group it with other transactions into a “block” and add this block to the bitcoin “block chain,” a shared public record of all bitcoin transactions that take place. have been made. once your transaction has been added to the block, your wallet will send you a confirmation. the recipient then gets bitcoin in their wallet.
with bitcoin, there is generally no need for correspondent banking. every bitcoin user is under the same network. transactions are possible through blockchains, which metaphorically speaking, play the role of regulator, insurer, organizer, communicator, and registrar.
Disclaimer: Trading bitcoin and other virtual currencies carries a high level of risk and may not be suitable for everyone. Please read the full bsp notice to understand the risks of buying, holding or trading cryptocurrencies.
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