Explain it Like I am Five: What is Bitcoin?
Notes from the video ‘Diffusion Academy| Grammar |Explain it Like I am Five: What is Bitcoin?‘ :
What is bitcoin?
Let’s assume I have an apple with me. Now I pass it to you.
You now have an apple and I have zero.
That was simple, right?
We don’t need a third person to help us to confirm the transfer.
Since the apple has left my possession, you can do whatever you want with it. You can pass to another friend and he can pass it to his friend and so on.
This is what an in-person exchange looks like.
But what happens if I have a digital apple instead?
Now, if I passed you my digital apple, how would you know this (emphasized) digital apple is now yours, and yours alone?
Think about that for a second.
How would you know if I didn’t save that digital apple on my computer or send it to someone else?
Ah, now you see that sending digital apples is quite different from sending physical apples.
Hmmm… …so how do we keep track of these digital apples?
Maybe we could just create a digital ledger where a third party like a bank can just track all our transactions?
We could…but there are certain problems with that:
First, what if someone created more digital apples? He could add them to his balance whenever he wants.
Second, if someone was keeping the digital ledger, that would mean that we have to go through a third party for all digital transactions.
But what if we gave this ledger to everyone? Now the ledger will live on everyone’s computers. In this way, you can’t cheat the system since it wouldn’t sync up with everyone in the system.
Since the system is not controlled by one or a few individuals, no one can give himself more digital apples. Furthermore, the rules and the codes are open-source, so smart people like you can maintain, check and improve the system.
If you help update the ledger, you could get more digital apples in the system as a form of reward.
And you know what? This system actually exists! It’s called the Bitcoin protocol. These “digital apples” are also called “bitcoins” in this system.
In summary, what does the public ledger enable?
Firstly, we know the exact number of apples that exist since the ledger is open-source.
Secondly, when I pass you the apple, it will be updated and verified by the ledger. Now, we can say that the apple belongs to you only.
Thirdly, because it’s a public ledger, we don’t need a third party for our transactions.
Finally, we can exchange digital apples like physical apples!
And you know what’s more?
There’s no upper or lower limit to how many apples we can deal. And we can send the apples with just a click to any part of the world. How awesome is that!