Whether you’ve spent the last year or two stranded on an island in the middle of the Pacific Ocean, or just generally avoiding that one guy you know who won’t stop talking about Bitcoin, you may have decided it’s time to catch up with the rest of the world to find out what all the excitement is over this so-called “Bitcoin”, luckily we here at coinhub network are ready to help you along.
A quick Google search of Bitcoin will return a lot more information than can be easily digested by most people. Page after page interwoven with a vast amount of technical terms and complex concepts can be found on the subject, which can make a seemingly simple question feel overwhelming very quickly. Here is your one-and-done response in the shortest complete answer:
Bitcoin is a cryptographic digital currency and trustless network of value transfer without any issuer or governing body, in which miners work to find and complete blocks for rewards, afterward adding completed blocks to the Blockchain.
Unfortunately this definition raises far more questions than it answers. In more general and understandable terms, Bitcoin is digital money. It’s often referred to in as a sort of ‘digital gold’, but its potential applications and implications go much deeper than that. It is presented in a format that revolutionizes how we handle the transfer of value in the same way e-mail revolutionized communication between two geographically separated people. The concepts underlying Bitcoin are as significant and far-reaching as the invention of the internet itself.
We know Bitcoin is a tough subject to tackle if you’re new to the idea, but before we break down the definition into more readable pieces, let’s take a moment to look at why Bitcoin exists, because you may have a difficult time understanding why this technology was created if you don’t yet understand the problem is was created to solve.
Consider for a moment, if you will, the methods used today to transfer cash value from one person to another without directly involving paper money. Debit and credit cards, paper checks, online bill pay, PayPal, Western Union, Venmo, and an abundance of other avenues exist to accomplish this task today. Most are relatively fast, convenient, and cheap to use. However, all of these avenues have something in common that Bitcoin does not have, which is “People in Charge”.
Something you may not think about when sliding your credit card at the gas pump or making an online purchase with Paypal is that between you and the person you are trying to transact with stands an invisible third party: the company mediating the transaction, and thereby controlling it. They act as an absolute authority on what you can and cannot purchase- and with your own money, no less. Proponents of the Bitcoin cause may be inclined to ask: ”Whose money is it really, if they may choose what you can buy while you cannot?”.
Bitcoin exists to solve this problem. For the entire world, not just the privileged elite with access to relatively fair banking and regulatory laws which protect them from abuse of responsibility in mediating. Its code was written by the person or persons under the alias “Satoshi Nakamoto” (and released publicly as open source software in 2009) with the singular purpose of removing this all-powerful third party, to allow people to transact peer to peer without an intermediary required. Bitcoin’s purpose, is to make money free.
Now that you’ve got an idea of the why, we can move on to the what. Let’s revisit the introductory definition, piece by piece, and break it down into simpler terms.
Bitcoin is a cryptographic digital currency
Bitcoin has no physical form. There are no official coins, notes, or other representations that exist, barring community-created novelty items and paper wallets. A Bitcoin is nothing more than a string of seemingly random letters and numbers. The same is true of the public and private ‘keys’ to your Bitcoin wallet (The former to receive transactions with, the latter to control the funds within the wallet). It uses SHA-256 cryptography, which is a subset of SHA-2(Secure Hash Algorithm 2), defined as a “set of cryptographic hash functions designed by the United States National Security Agency (NSA)”. In more practical terms, Bitcoin is designed in a way such that it cannot be forged and a wallet cannot be hacked.
…and trustless network of value transfer
Bitcoin, like the internet, is a vast network of connected computers controlled by a wide variety of people. The term ‘trustless’ in this context means that without a trusted third party to mediate the transaction, both parties have to assume the other is untrustworthy, but they still must communicate to perform the transaction. This conundrum is what’s known as the “Byzantine Generals” problem. Bitcoin solves this problem in part by leaning on its decentralized network of Bitcoin miners (see below).
…without any issuer or governing body,
This is one of the more difficult to conceptualize ideas behind open Blockchains. Bitcoin expert and author Andreas Antonopoulos describes this system as “Rules without rulers”. It is a system in which any changes to the protocol must be made with overwhelming consensus by the majority of Bitcoin mining nodes, which includes everybody who wishes to participate- even a child with nothing more than an old laptop can have a voice in the decision.
Another important note this system due to its lack of a singular owner or leadership is that Bitcoin cannot be turned off. No cease and desist can be issued by any courthouse, and no person on Earth can be corrupted into shutting it down by lure of bribery or under threat of death, because no one person on Earth has the power to do so
…in which miners work to find and complete blocks for rewards,
Miners are the engine that runs the Bitcoin machine. Their job is twofold: Use a [relatively powerful] computer to find blocks in a competitive ‘game’ which is both electric bill and mathematics intensive, and to validate transactions of users in an impartial manner. Miners do not consider details of payments; they only see ‘valid’ and ‘invalid’ transactions.
The game between miners is played by computers against other computers, competing to find the correct combination of characters to solve the cryptographic puzzle. It’s comparable to an extremely difficult Sudoku puzzle, because although a Sudoku can take a fairly long time to complete, the answers can be verified by as valid very quickly. The winner of each block receives a reward of several Bitcoin upon submission of a valid completed block.
…afterward adding completed blocks to the Blockchain.
You may have heard the term ‘Public Distributed Ledger’ in reference to Bitcoin or Blockchain. This is it. The Blocks mentioned above are in fact nothing more than a list of validated transactions. Once all transactions in a block are validated, the signed block is itself validated by the network and, if valid, irreversibly added to (or “chained to”) the previous block. In this way, the entirety of everything that’s ever happened on the Bitcoin network is permanently etched into the Blockchain which continues to grow larger in a linear fashion, one block at a time