What is Bitcoin? How Bitcoin works in under 5 minutes

What is Bitcoin?

by Ryan Shea of onename.io

the simplest way to learn how Bitcoin works(in under 5 min)

Let’s talk about Bitcoin

But rather than discuss whatBitcoin is...

Let’s independently designsomething that resembles Bitcoin

Yes,we’re going to re-invent Bitcoin

Here we go...

Let’s imagine we’re playing a board game like Monopoly

Where we have tradable assets(such as houses and hotels)

To trade effectively, we need mutually interchangeable tokens

that we all agree have some value

In other words, we need a currency

Now, with this currency, we’ll want to easily trade in any

denomination, as getting exact change can be a hassle

And we’ll also want it to beimmune to counterfeiting

So, we’ll avoid paper bills

And instead, we’ll give ourselves“balances” and record them in a

notebook

AliSam

Trevor Arianna

100 tokens100 tokens100 tokens100 tokens

We’ll refer to this list of balances as our ledger

A book or other collection of financial accounts of a particular type.

ledg·er/’lejer/noun

e

This ledger is “law”

In other words, one’s balance iswhatever the ledger says

And that’s final

But what if we have a large game with say 20 or 30 players?

Then who holds the ledger?

If only I have the ledger, I can increase my balance and cheat

So... we give everyone a notebook with a copy of the ledger

And when balances are updated, the changes are propagated

AliSam

TrevorArianna

100 tokens100 tokens100 tokens100 tokens

AliSam

TrevorArianna

100 tokens100 tokens100 tokens100 tokens

AliSam

TrevorArianna

100 tokens100 tokens100 tokens100 tokens

AliSam

TrevorArianna

100 tokens100 tokens100 tokens100 tokens

Now, let’s say Ali sells something to Sam for 7.5 tokens

On Ali’s copy of the ledger, he decreases Sam’s balance by 7.5

and increases his by 7.5

AliSam

TrevorArianna

107.5 tokens 92.5 tokens100.0 tokens100.0 tokens

Then Ali shows everyone his copy and says “make these updates”

AliSam

TrevorArianna

AliSam

TrevorArianna

107.5 tokens 92.5 tokens100.0 tokens100.0 tokens

107.5 tokens 92.5 tokens100.0 tokens100.0 tokens

AliSam

TrevorArianna

AliSam

TrevorArianna

107.5 tokens 92.5 tokens100.0 tokens100.0 tokens

107.5 tokens 92.5 tokens100.0 tokens100.0 tokens

But wait!

If Ali walks to Arianna to show her the update, how does she know that

Sam consented to the exchange?

Well, Ali simply has Sam sign herpaper to express approval of her

balance going down

But there’s another issue

Relaying changes to 20-30 peopleevery time an exchange occurs can be

time-consuming and impractical

Further, what if we want to have even more players in the game?

And what if some of them are halfway around the world?

How do we synchronize all of these paper ledgers?

Well, we could just move from paper records to digital records

We’ll have some fancy software that does the ledger syncing for us

And fancy math to ensure that ourdigital signatures can’t be forged, & thus nobody can spend our money

And... we’ll have balances listed next to account numbers instead of names

(our ledger needs unique lookup values, and names are not guaranteed to be unique)

With these modifications, our game will allow millions and even billions

of people to transact and trade

Come to think of it, we could probably even use this system as a real world global currency and

payment mechanism

Notice that with this system,nobody owns it or controls it

Just as with in-person cashtransactions, only the sender and

recipient are involved -there are no middle men

And because there are no middle men, no fees are required

So for the 1st time, you and I can trade directly online and from

anywhere in the world

We just record atransaction amongst ourselves and broadcast it to the world,

proving that it actually occurred

Our currency and payment system is powerful but simple, and we

designed it together

And we’ll call it Bitcoin

Thank you

Ryan Sheaonename.io

P.S. To get started with Bitcoin, you can create a Bitcoinprofile at onename.io

P.P.S. Remember that fancy sync-ing software we glossed over?

That’s actually a big part of what makes Bitcoin so innovative, and it’s made possible by a process

called Bitcoin mining

Coming soon:“What is Bitcoin mining?”