Bitcoin Explained Simply
Here is a simple explanation of Bitcoin: Bitcoin is digital money on the internet. It works like online banking without a bank.
You can use Bitcoin for anything money is used for as long as the other entity accepts Bitcoin. In other words, Bitcoin is a way to transfer value between any two entities for any reason.
All Bitcoin transactions are sent between Bitcoin addresses stored in Bitcoin wallets and are recorded on a public digital ledger called a “blockchain.”
Anyone can host a copy of the blockchain on their computer. People who run computers that add transaction to the blockchain are called “miners.”
Any one can run the software and contribute to the Bitcoin network.
The software and transactions use a lot of encryption. This is why Bitcoin is called a “crypto” “currency”… get it?
For the average person, using Bitcoin is as simple as this:
- Get a digital wallet to store bitcoin.
- Create a “bitcoin address” to receive bitcoins.
- Transfer funds in or out of your wallet using bitcoin addresses.
That said, Coinbase is an all-in-one platform that lets you do all 3 steps above in one place.
Coinbase aside, there are a number of different wallets you can use, exchanges you can trade on, and other cryptocurrencies you can buy with Bitcoin.
It is useful to understand that Bitcoin is distributed and decentralized. In other words, it isn’t controlled by a central entity like a bank or government, it is controlled by computer algorithms running on computers across the world (everyone who hosts the blockchain hosts the program).
Because Bitcoin is based on code and is distributed and decentralized it creates a “trustless” system (where any two people can do a secure financial transaction without having to trust each other or a intermediary).
Bitcoin and blockchain were created by Satoshi Nakamoto (an anonymous group/person) in 2008. It was officially released in 2009.
Bitcoin began trading in 2010.
In the early days Bitcoin traded for as little as a penny, but it was very hard to access.
Over time Bitcoin has become more and more popular, and the price has gradually risen over time in a volatile pattern full of quick rises and big falls.
Some people hold Bitcoin as an investment, but the market is VERY volatile and quick paced.
If we think of Bitcoin as the Amazon of cryptocurrency, then we can say Bitcoin has gone through at least 5 tech bubbles since 2010 when Bitcoin trading began.
There is no need to take on much risk if you use Bitcoin as a currency and covert it back to dollars regularly (via Coinbase for example), but if you invest in Bitcoin… make sure to familiarize yourself with the risks and invest responsibly.
Bottomline: Bitcoin is a distributed, decentralized, and trustless blockchain-based financial system that you can use as digital money on the internet. You can run a copy of the software and play round with apps, or you can make your life easy by using Coinbase. But remember, if you invest in it, be careful and consider the risks.
That is all, feel free to ask follow up questions below or to thumb through our site for more information.