If you want to learn about Bitcoin, the digital currency, it’s not too hard, here are some basics.
Don’t worry about making it overly complex. Some of the videos on the web are great…some go into lots of detail about the behind the scenes of how mining works etc. — stuff that very few people need to know.
Keep it simple.
The basics are that Bitcoin is a new form of currency that is like the Internet or email for money. Main difference is that the Bitcoin programming publishes everything owned by everyone on one giant ledger / list….called the blockchain while also keeping everyone’s personal details private.
If I ask why couldn’t I email you $1000 twenty years ago when email came about, what is the answer?
How come I couldn’t just send a note that said “Hey buddy, here is $1000”?
The issue comes down to one of trust and verification. You may not know me. Even if you do know me, the note is useless for any transaction. You couldn’t forward the email to your car dealer and say “Here’s $1000, don’t worry I know Bruce is good for it”. No. You and I would need a trusted third party — such as a bank — to say “Yes, Bruce really has this money, yes, he is really transferring control to you, yes it’s really yours now and you really have it”. This, to this day is done by checks and wire transfers which are really just elaborate means of making accurate ledger entries in bank accounts to say who owns what.
Aside from a need for a trusted third party I also couldn’t simply email you the $1000 because we’d have no way to ensure that this email wasn’t copied or duplicated and sent multiple times.
Enter Bitcoin which solved the problems of needing a trusted third party and the problem of duplicating something….called a double spend.
The solution was made by publishing the list / ledger of what the values are publicly on something called the blockchain. I picture it like a modern version of a giant ledger book in the center of the town square where everyone can see who owns what…while also keeping private.
It would be like if all the major banks shared the value of all of the accounts on a large, open source, public list that showed values but kept identities private.
Since this is public and spread across many computers, it can’t be hacked or tampered with…
This all wasn’t possible until someone discovered a way to combine an open distributed list like this with encryption -that is a major invention — since Bitcoin is backed by encryption no one knows who’s Bitcoin address corresponds to which person …other than the person holding the private key, basically a super password that unlocks it….so it’s totally private.
It’s also instant to transfer from one person to another using a computer or one of many apps online. Basically an entry is made on this giant blockchain ledger that says XYZ address just sent 1 Bitcoin to ABC address which is then verified thousands of times by an independent network.
Bitcoin can also be used to buy products and is accepted as a form of payment by individuals and thousands of businesses including major companies like Overstock, Dell, Microsoft and others.
Other key points worth knowing are that Bitcoin is issued to the world not by a central bank or government but my a computer protocol — computers basically perform math based number crunching in what is called mining and have a proportionate chance of receiving Bitcoins based on how much computing power they use. Cool thing is that these miners also serve to verify the transactions – which makes the network stronger and makes the ledger a very solid example of a statement of truth….indeed it’s perhaps the world’s most reliable and accurate ledger.
In the early days, anyone could start mining on a laptop and earn thousands of Bitcoin — today we see huge industrial miners with warehouses full of specialized mining computers working on this.
The number of Bitcoin that will ever be issued is set in the hard code of the program at 21 million. They are infinitely divisible — so, unlike a currency where a central bank can simply issue new currency and devalue everyone else’s, Bitcoin has a fixed cap….if the overall currency becomes as valuable as even a tiny country then each Bitcoin would be very valuable and we’d see people deal in fractions of coins…perhaps all the way down to the single Satoshi, named for the creator which is one millionth of a Bitcoin and worth a fraction of a penny today.
No person or group controls Bitcoin. There is no CEO, no central authority. It is controlled by the laws of math and programming.
It is an interesting invention and tech which has potential to change the world.
(note to techies: this is an article for beginners, please excuse technical details or over simplifying)