You might have heard of Bitcoin and have a Coins.ph account. But what is it really? Can we actually use Bitcoin to buy anything? Why is the price so volatile? In this article let me try to simplify things and explain Bitcoin and how to convert your funds in GCash into Bitcoin and vice versa.
What is Bitcoin?
If you want a really short, easy explanation, you can read this article by the BBC and skip this section. Otherwise, if you want a deeper but not-too-technical read, continue on.
To explain it simply, Bitcoin (BTC) is a digital currency that isn’t backed by any government or any central authority. The main difference with the digital currency we have in GCash is that in GCash, we transact in Philippine Pesos. And what amount you have in your wallet, it has an equivalent amount in actual pesos. The Philippine Peso is fully backed by the Philippine government, through the Bangko Sentral ng Pilipinas.
In contrast, Bitcoin is basically virtual data in a digital wallet. Since it isn’t backed by any person or institution, it is decentralized. But how does it gain its value when no one is backing it? It gains and retains value because people can use it to trade for goods and services. In a similar way, our paper money is simply just paper if Filipinos deem it worthless. It is not surprising that in some countries where inflation cannot be controlled, Bitcoin is used to retain purchasing power.
Another quality that gives Bitcoin its value is its relative anonymity. When you send Bitcoins (BTC) to someone, you actually send it to a digital wallet via an address that is 35 alphanumeric characters long. And since getting an address is easy due to it being decentralized, you can generate lots of secret wallet addresses if you want to. However, this anonymity makes it also not user-friendly — wallet addresses are complicated and any typos can make you lose your Bitcoin.
So how does a digital currency that isn’t managed by anyone work? How do you prevent double-spending and maintain transaction security? By using math and a bit of ingenuity.
What is a blockchain?
All BTC transactions are recorded in a ledger called a blockchain. This ledger is public and decentralized so that anyone can see all past and current transactions. Because of this visibility, it makes it extremely hard to make BTCs out of nothing or to put in false transactions, since you would need to modify the ledger while everyone is keeping track.
What is a block? What is a chain?
A block records a set of transactions. Think of it as a page in a ledger. Each block has a set size and contains details of transactions.
Why the blockchain is named so, is due to the fact that each block is connected by a cryptographic hash algorithm to the block that precedes it, and it goes on and so forth, until the very first block (the Genesis block). This means that if you take any arbitrary block in the middle of the chain, you can replay all historical records of the chain by computing it backward using the algorithm. This is the secret sauce of how Bitcoin works. If you like to read more about this, try looking up Merkle Trees.
Another implication of this is before you can try to modify any block in the middle of the blockchain you will be altering the future of the block from that point onward. This doesn’t actually happen because of the huge number of validators maintaining the blockchain. You would need to control the majority of them to be able to change it the way you want it to (which is called a 51% attack).
This blockchain network consists of many computers or nodes having a copy of the blockchain/ledger. The more nodes that have a copy of the blockchain, the more secure the blockchain is from changes. Some nodes are passive, but some are active — the active ones process the transactions that come in and are called “miners”. These miners follow a system called “Proof of Work” which rewards them for the actual effort in processing the transactions.
What kind of work do miners do?
Basically for each transaction, these miners are given a very complex problem to find a solution to. The objective is to find the solution using brute force. Hence, this becomes a race between all miners to find the solution. The result of this solution is to confirm that a transaction is legitimate and once confirmed, add a block at the end of the blockchain. The reward to the successful miner of this solution is a certain predetermined amount of Bitcoin.
As you can imagine, the more computing power you have, the better chance you can gain Bitcoin. This is why many companies employ mining farms just so that they can have their share of Bitcoin. However, as more and more miners join, the solution becomes more difficult while he rewards become smaller and smaller as well.
Other Practical Applications of Blockchains
Bitcoin may not be that mainstream, but blockchain technology is now on the rise because of it. A very practical property that a blockchain has is its immutability (cannot be changed). We have seen that it can be used as a ledger for financial transactions using BTC as a currency.
This immutable database has also other useful applications like tracking any item in a supply chain (ex. warehouse logistics, food deliveries, freight management), keeping public data public (ex. land registration, tax information, climate data), and even use it for elections (keeping track of who voted and what he voted).
If you are interested in deeper reading, you can look up blockchains.
What’s the difference between Bitcoin and other virtual currencies?
Since the technology behind Bitcoin is open source, there is no stopping anyone who wants to roll out their own implementation of a virtual currency out there. There are actually lots more different types of alternative coins or “altcoins” out there — as of Feb 2020, there are around 5000 altcoins recorded.
Some of the altcoins supported by Coins.ph are Ethereum (ETH), Ripple (XRP), and Bitcoin Cash (BCH).
Ethereum (ETH) is popular because you can enforce smart contracts (meaning contracts that do not need human intervention) and create decentralized applications using their blockchain.
Ripple (XRP) is a digital currency focused on payments. Mainly they leverage the ease of payments for crossborder (crossing the border, ex., country-to-country) transactions. They pride themselves to be really fast, compared to the other virtual coins.
Bitcoin Cash (BCH) is a fork (or a different implementation) of Bitcoin. Since Bitcoin implementation is open source, this also means that if the community splits up due to competing philosophies, two different versions can come out of it. Each is supported by its own faction of developers and miners.
This was what happened. The split was because of the disagreement of changing the block size to a bigger one, among other changes. Currently in terms of value, BCH is lower, but in terms of speed they are faster than BTC.
This is also not the first time Bitcoin has split.
Why is the Bitcoin value so volatile?
This is because the market for Bitcoin (and altcoins in general) is small so any speculation can trigger a change. Also, since there are some people or groups of people that possess so much Bitcoin (the so-called whales), any movement they cause affects the price. Since the law of supply and demand also apply, when Bitcoin gets on the news, lots more people buy, which also drives the price up.
How do I gain Bitcoin?
You can do three things — you can either buy Bitcoin using actual money, sell things and get Bitcoin as payment, or gain some by becoming a miner.
The easiest way is to buy Bitcoin and that’s why we have local altcoin exchanges, like Coins Pro (which is operated by Coins.ph) to help us buy some.
Can I mine my own Bitcoin?
Right now, Bitcoin has been existing for more than 10 years. Before, you could mine with just your PC, but as time went on, the difficulty to mine has gone up. There are currently a lot of companies that specialize in mining and they use specialized hardware to mine Bitcoin on a daily basis. Currently, you should just focus on buying, instead of mining to gain Bitcoin.
That said, there are also lots of altcoins out there that are just starting and they will definitely need miners. You can contribute to those coins if you want to. But keep in mind, the majority of altcoins are not worth mining because they don’t have any value.
However given that, there are also altcoins that have value and are being mined by nonspecialized hardware. You can set up using their software, or you can also use traders (like Nicehash) that trade your PC mining power for some virtual coins.
What do I do with my Bitcoin once I buy it?
Since it is a currency, you can use it just like money as it is its intended purpose. But since it has big swings in value, many people use it as a speculative investment than money.
How to Buy Bitcoins using GCash
Fortunately, the Bangko Sentral ng Pilipinas has opted not to regulate virtual currencies like Bitcoin, but decided instead to be strict on exchanges instead to prevent money laundering to happen. This is a progressive stance, compared with other countries that downright make cryptocurrencies illegal like China, Russia, India, Vietnam, and others.
Since GCash is a digital wallet holding virtual Philippine Pesos (PHP), we need to find an exchange that converts PHP to Bitcoins (BTC). Fortunately, we have a couple of well-known ones – one is via PDAX and another is via Coins.ph.
How do I put funds into my GCash account?
What virtual currencies are supported by PDAX and Coins.ph?
PDAX supports BTC, ETH, XRP, BCH and LTC. Coins.ph supports the same, except LTC.
How can I cash-in to my PDAX account using GCash?
There are several ways of cashing in, but you can opt to use the GCash option (via Paymongo). Once you’ve cashed in, you can now buy any virtual currencies they offer.
Can I just cash-in directly into my Coins.ph account?
Yes, however almost all of the cash-in options of Coins.ph involve a payment method fee. GCash to Coins.ph transfers are currently free. Also, you can leverage the different free cash-in options GCash has to minimize fees.
How do I transfer money to Coins.ph?
You can use Bank Transfer to transfer to your Coins.ph account. The bank name is Coins.ph (DCPay) and the account number is your mobile number in your Coins account.
Once done, you should get your funds immediately in your Coins.ph account, under PHP Wallet.
As a side note, you can also do a bank transfer from Paymaya to Coins.ph as well.
How do I convert my PHP to BTC?
Within the Coins.ph app, you need to press convert and change the currency type to BTC. If you wish to convert it to other virtual currencies, then you can also do so. Note that the rate constantly changes, so check the rate before you convert. Once done, your BTC balance will update.
Why are the BTCs I receive seem so low?
BTC can be divided into really small amounts. This is because inflation is built into the currency, meaning eventually 1 BTC will rise in value as time moves on. For BTC, we have eight decimal places. Currently, 1 BTC is around 500k PHP, and 100 PHP can seem a small amount (0.000199 BTC).
Can I convert my BTC back to PHP?
Yes, and sometimes it is a good idea too since BTC is so volatile. You may need to convert it to PHP so that you can control the price which you buy or sell. For example, since the Halving event for BTC is coming this month (May 2020), it is a good idea to buy more BTC because after the event, the supply of BTC will decrease and prices will rise.
Can I send my funds from Coins.ph back to GCash?
Yes you can send it via Instapay to G-XChange Inc., however there is a Php 10 fee. Your account number is your GCash mobile number.
Is it a good idea to also buy other altcoins like ETH, XRP, BCH?
It depends on your risk appetite. If you actively follow a certain altcoin’s development, then go for it. If you believe what a certain altcoin is representing, then it would be good to own some of those altcoins.
Can I convert my cryptocurrency in Coins.ph to other altcoins?
Yes, you can open an account to other public exchanges (ex. Kraken, Poloniex, Binance, Bittrex, etc) and send your BTC to the exchange account of your choice. Once your BTC is there, you can convert it to any altcoin the exchange is supporting. Since there are a lot of different altcoins, not all exchanges support the same altcoin.
Also, keep in mind that exchange wallets have been hacked before. So I would recommend you transfer your altcoin to your personal wallet once you’ve converted it from BTC.
I talked in length all about Bitcoin (BTC) — what it does, how it works, why it’s valuable and at the same time volatile. I talked about how Bitcoin utilizes its blockchain to maintain its data integrity and transaction security and I also talked about how Bitcoin has led to the development of alternative coins (altcoins).
You can buy Bitcoin using GCash by transferring money to Coins.ph. Once the money is in Coins, you can then convert it to BTC or to any supported Coins supported altcoin (ETH, XRP, BCH). You can also transfer money back from Coins to GCash the same way.
If you’d like to learn more about GCash, I created a how-to on the basics of GCash.
Here is a list of links if you’re interested in the main GCash functions:
- Cash in or Cash out
- GCash Scams
- Send Money
- Bank Transfer
- Payment via QR
- GCash Mastercard
- AMEX Virtual Pay
- Pay Bills
- Request Money
- Buy Load
- GCash Forest
- Book Movies
- GCash via USSD (*143#)
- Receiving Remittances
If you are also interested in knowing what resources I used to make this blog happen, please look at my resources page.
How do you like the tutorial? Did I miss anything? Please add your comments and suggestions below!