What Is Bitcoin, How Does It Work & Should Singaporeans Buy It?

What Is Bitcoin, How Does It Work & Should Singaporeans Buy It?

Even if you don’t know a thing about cryptocurrency, surely you know about Bitcoin. As the OG crypto, Bitcoin has enjoyed a meteoric rise since its inception — though, also, a whole lot of instability in the past few months.

Now, the burning questions on your mind are probably “Why is Bitcoin so craaazy?” and maybe also, “Should I buy Bitcoin?” 

To get the answers you seek, it’s important to understand the fundamentals of Bitcoin.

Bitcoin’s price chart since inception

Bitcoin price chart from Coindesk

As you can see from this Bitcoin price chart, its value can get pretty damn turbulent.

This kind of volatility is by no means exclusive to Bitcoin. Like most cryptocurrencies, Bitcoin’s value is highly responsive to any kind of news or publicity.

Here’s an illustration of the recent rollercoaster ride:

On 4 May 2021, when we wrote this article about cryptocurrency basics, Bitcoin (BTC) was trading between US$50,000 to US$64,000, piggybacking off the news that PayPal and Tesla would be accepting BTC as a form of payment.

Two weeks later, Tesla reversed its stance on accepting BTC as payment, resulting in BTC’s value plunging to around US$30,000.

But just a few days later, BTC has rebounded back to around US$40,000, riding on the coattails of the news that Cathie Wood, head of Ark Invest, believes that Bitcoin is still the future

What is Bitcoin?

But underneath all that volatility, what is Bitcoin really?

To learn more about Bitcoin’s origin story, you have to read Bitcoin’s whitepaper. According to this document, Bitcoin is meant to be a robust, traceable and decentralised way to transact

This utopian currency didn’t just come out of nowhere. It’s a an attempt to address the many problems that come with traditional money systems, such as:

  1. Physical cash is practically untraceable once withdrawn from the bank
  2. For cashless payment, we have to rely on institutions like banks and card service providers like Visa and MasterCard
  3. In the event of a dispute, such as refunds or transfers, we again rely on the abovementioned institutions to mediate transactions

See how the power balance is stacked in favour of the instutions? Bitcoin is an attempt to change the status quo by decentralising power. It aims to allow two people to transact without having to go through a third party such as a bank.

Bitcoin isn’t merely Monopoly money — it’s also supposed to be a universal money system that’s open to all its users.

The idea is that everyone on this system will have access to all the transactions that have occurred, whilst still retaining anonymity. Bitcoin users can also reverse or amend transactions without needing to go through a big institution.

What about physical cash then?

So maybe you distrust The Man and already swear by cash transactions so the evil overlords can’t track you. But cash has its problems, too.

Example: let’s say you want to buy your favourite Neutrogena facial toner from your neighbourhood shop. Here’s what happens when you pay with physical cash:

  1. You first have to go to your bank’s ATM to withdraw cash 
  2. You hand over the cash to the cashier
  3. The cashier puts it in the register, and at the end of the day, they log the amount in that register 
  4. Then the cashier manually compares the cash float in the beginning vs the end of the day
  5. Finally, the cashier has to deposit the cash into the bank

Some problems have already popped up in this one simple transaction.

First, there’s no way to track the physical cash money you handed over into the shop’s bank account. If your note was a counterfeit, the whereabouts of that counterfeit are unknown.

Also, the process is surprisingly incredibly labour-intensive and prone to human error. It’s not just the cashier — bank employees have to sort through thousands or millions of transactions on their Excel spreadsheets or proprietary systems (that might differ between banks!).

And finally, you’ll realise that it all starts and ends with the bank (or banks) — that centralisation of power again.

How does Bitcoin work?

All these promises sound great, but how does Bitcoin actually deliver?

The answer is called proof-of-work (PoW) — an algorithm designed to eliminate “double spending” on the public blockchain records via a timestamp method, without actually needing someone else like a bank or government to verify that transaction.

Here’s a simplified explanation of how Bitcoin’s proof-of-work, works:

  1. When new Bitcoin transactions take place, they are lumped into blocks.
  2. These new blocks get announced to the always-online Bitcoin network, or the blockchain. At this point, they are not yet validated.
  3. To validate these new blocks as confirmed transactions, the user has to use computing power to generate unique, one-way-only cryptographic information called hashes.

Hashes are sort of a digital fingerprint and have to match the conditions set by the proof-of-work algorithm. Each hash requires a variable known as a “nonce” to make it completely unique.

This combination of using computing power to generate hashes, and variating hashes with different nonces creates a guessing game of sorts.

Players who participate in this guessing game are called miners, and miners get rewarded with Bitcoin for following the rules of the proof-of-work algorithm. If they fail to abide by the rules, they are instantly disqualified, and their future transactions will be blocked. 

Sounds like a lot of work…

Yes, Bitcoin’s proof-of-work does seem incredibly onerous. This is ironic since traditional cash is criticised for being too labour-intensive.

But it’s necessary to go through all this trouble because digital transactions are easily replicated and corrupted. So an extremely thorough validation process is needed to safeguard Bitcoin’s value as a currency.

By the way, if you thought the Bitcoin validation system was unnecessarily fussy, wait till you read about how card transactions get processed.

Bitcoin transactions take about 10 minutes to validate, which puts Visa and MasterCard’s 2 to 3 days to shame.

Is Bitcoin mining a good idea?

Mining Bitcoin was once lucrative, but now, the diminishing returns mean it’s no longer feasible for regular folks. So don’t quit your day job.

To understand what’s happening, we first need to look at the circulating supply and supply cap of Bitcoin. 

Cryptocurrency Price Market Cap Circulating Supply Supply Cap
Bitcoin (BTC) ~US$40,000  US$761.3 billion 18.7 million 21 million

These figures are correct as of 21 May 2021.

At the time of writing, there are 18.7 million Bitcoins circulating worldwide, but the supply cap is 21 million. That means there are only 3 million Bitcoins left to be mined.

Remember also that every Bitcoin needs to matched with the correct “nonce”. The more Bitcoins get mined, the fewer nonces there are left to work with. Right now, the chances of a match are so slim that Bitcoin mining now requires tremendous computational power.

To make things even more complicated, there is an event called “Bitcoin halving”. After every 210,000 blocks in the Bitcoin blockchain have been mined, the resulting reward for mining these blocks get halved.

Here is the table illustrating when Bitcoin halving has happened, what the rewards were halved to and when the projected halving will happen again:

Halving event

Date Blocks mined Block reward (BTC) How many blocks were mined in that period % mined
BTC launch 3 January 2009 0 50 10,500,00 50
Halving 1 28 November 2012 210,000 25 5,250,000 75
Halving 2 9 July 2016 420,000 12.5 2,625,000 87.5
Halving 3 11 May 2020 630,000 6.25 1,312,500 93.75
Halving 4 Expected 2024 840,000 3.125 656,250 96.875
Halving 5 Expected 2028 1,050,000 1.5625 328,125 98.4375
Halving 6 Expected 2032 1,260,000 0.78125 164,062.5 99.21875

Source: CMC Markets

What is Bitcoin’s environmental impact?

This large carbon footprint contributed by Bitcoin mining caused Tesla CEO Elon Musk to backpedal on his stance to accept Bitcoin as a mode of payment.

But what’s causing Bitcoin’s environmental impact?

We know from the previous that the more bitcoins get mined, the harder it is to mine new ones. As more bitcoins get mined, you need increasingly sophisticated equipment and more computational power.

  • In the beninnging, mining bitcoins only required the use of your computer’s central processing unit (CPU).
  • Over time, it has escalated to using gaming graphics processing units (GPU).
  • GPUs have then fallen out of favour compared to more advanced and efficient application specific integrated circuits (ASICs).
  • ASIC devices cost on average ~US$2,500 (~S$3,330) for the basic ones, and go up to US$10,000 (~S$14,000) for the most advanced and efficient models. 

Making these machines requires the Earth’s resources, whilst running them requires a lot of electricity — generating a large carbon footprint for Bitcoin. To this date, Bitcoin mining has generated 56.85 megatons of CO₂ — comparable to Portugal’s carbon footprint. More details about Bitcoin’s energy consumption below:

Bitcoin’s Energy Consumption

Time Carbon Footprint Electrical Consumption Electronic Waste Generated
Per Year 56.85 megatons of CO₂

Comparable to the carbon footprint of Portugal

119.68 TWh 

Comparable to the power consumption of the Netherlands

11.12 kilotons

Comparable to the e-waste generation of Luxembourg

Per Transaction ~571kg of CO₂

Equivalent to the carbon footprint of 1,263,405 VISA transactions or 95,007 hours of watching Youtube


Equivalent to the power consumption of an average U.S. household over 41.13 days


Equivalent to the weight of 1.72 ‘C’-size batteries or 2.43 golf balls

Source: Digiconomist

At this point, it’s pretty much impossible to mine Bitcoin with your own PC (though it was once possible!).

These days, most of the mining is done at specialised Bitcoin mining farms that have warehouses around the world with hundreds, if not thousands of ASIC devices mining Bitcoin blocks concurrently.

How to buy Bitcoin in Singapore

Unless you have a job offer from a Bitcoin farm, the easiest way to get your hands on Bitcoin would be through a cryptocurrency exchange.

But before you even get started buying and selling Bitcoin, there are things you need to know about how the cryptocurrency market works, and what are the basics you need to know. We’ve covered that topic and have broken it down in 7 summary points.

If — and only if — you’re comfortable with the risks and uncertainties associated with crypto, you can move on to comparing the best cryptocurrency exchanges in Singapore.

In that article, we explain how crypto exchanges work, what you should pay attention to, and untangle some of the complicated fee structures.

But… should you buy Bitcoin?

If you’ve made it this far, you should have a good idea of why Bitcoin isn’t for everyone. It’s especially not for people looking to grow their wealth reliably.

Despite Bitcoin nearly hitting its supply cap, the cryptocurrency market as a whole is still at its infancy compared to established markets like stocks, gold and bonds, which have been around for centuries.

Crypto is also fairly unregulated, with Senior Minister Tharman Shanmugaratnam deeming them “highly risky” and “not suitable for retail investors.”

Despite all these warnings, Bitcoin has captured the imagination of futurists, technophiles and speculators.

We’re not saying you can’t have your slice of the Bitcoin pizza, but it’s wise to invest modestly (maybe an amount that you can afford to lose) and make sure your portfolio is well-diversified with established products like stocks and ETFs.

Read our guide on how to start investing in Singapore, as well as tons of other, more advanced guides to get ahead.

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