A friend wrote to me asking me about Bitcoin. She wanted me to explain it to her as though she were an older person.
I'm sure she didn't say "explain it to me like I'm 5", because a 5 year old might actually understand the technology better.
Lucky for my friend, I had already been doing my own research into Bitcoin. I thought others would be able to benefit from understanding the rudimentary, entry-level, beginner's version of Bitcoin. So here you go:
Bitcoin can get pretty technical, but it's a simple concept.
Here are the important terms:
- Bitcoin Block
- Bitcoin Wallet
I'll try breaking down those terms into something we're already familiar with, which is U.S. currency.
- Bitcoin Block - A gold bar (remember the good old days of the gold standard? I don't.)
- Bitcoin - A piece of the gold bar (specific amounts of money - $1, a nickel, a penny.)
- Bitcoin Wallet - ah duh, a wallet :)
So what starts the process?
A whole bunch of computers band together to do some really technical stuff (heavy mathematical calculations) in order to mine Bitcoin blocks (gold bars). The 49'ers of the modern world. Would that make them the... 13'ers? Remind me, I have to trademark that.
James Wilson Marshall: Discovers gold in the American River and then does a mic drop.
All computers involved in the calculations will receive Bitcoins (pieces of the gold bar).
The people running those computers will place those Bitcoins into a Bitcoin Wallet.
Finally, transactions are made by people sending Bitcoins from one wallet to another by swapping the long cryptographic keys associated with each Bitcoin.
Then why the HECK are people BUYING Bitcoins??
It is getting harder and harder to mine Bitcoins, so people have turned to buying them outright. The appeal of Bitcoin is that it is unregulated. People are now able to buy a bunch of Bitcoins and trade with each other without needing to pay transaction costs, taxes, or be tracked by governments.
For what reason?
I have nooOOOoo idea. (Say that in the most sarcastic way possible.)
The short of it:
Bitcoin is an unregulated, decentralized, cryptographic digital currency. Not so short, really.
I hope that helped. If you want to send me Bitcoin for this awesome intro to Bitcoin explanation, here are my wallet addresses:
Or send me a cup of coffee... my favorite!