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What is Bitcoin? How Bitcoin works in under 5 minutes.

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What is Bitcoin? How Bitcoin works in under 5 minutes.

  1. 1. What is Bitcoin? by Ryan Shea of onename.io the simplest way to learn how Bitcoin works (in under 5 min)
  2. 2. Let’s talk about Bitcoin
  3. 3. But rather than discuss what Bitcoin is...
  4. 4. Let’s independently design something that resembles Bitcoin
  5. 5. Yes, we’re going to re-invent Bitcoin
  6. 6. Here we go...
  7. 7. Let’s imagine we’re playing a board game like Monopoly
  8. 8. Where we have tradable assets (such as houses and hotels)
  9. 9. To trade effectively, we need mutually interchangeable tokens that we all agree have some value
  10. 10. In other words, we need a currency
  11. 11. Now, with this currency, we’ll want to easily trade in any denomination, as getting exact change can be a hassle
  12. 12. And we’ll also want it to be immune to counterfeiting
  13. 13. So, we’ll avoid paper bills
  14. 14. And instead, we’ll give ourselves “balances” and record them in a notebook
  15. 15. Ali Sam Trevor Arianna 100 tokens 100 tokens 100 tokens 100 tokens
  16. 16. We’ll refer to this list of balances as our ledger
  17. 17. A book or other collection of financial accounts of a particular type. ledg·er /’lejer/ noun e
  18. 18. This ledger is “law”
  19. 19. In other words, one’s balance is whatever the ledger says
  20. 20. And that’s final
  21. 21. But what if we have a large game with say 20 or 30 players?
  22. 22. Then who holds the ledger?
  23. 23. If only I have the ledger, I can increase my balance and cheat
  24. 24. So... we give everyone a notebook with a copy of the ledger
  25. 25. And when balances are updated, the changes are propagated
  26. 26. Ali Sam Trevor Arianna 100 tokens 100 tokens 100 tokens 100 tokens Ali Sam Trevor Arianna 100 tokens 100 tokens 100 tokens 100 tokens Ali Sam Trevor Arianna 100 tokens 100 tokens 100 tokens 100 tokens Ali Sam Trevor Arianna 100 tokens 100 tokens 100 tokens 100 tokens
  27. 27. Now, let’s say Ali sells something to Sam for 7.5 tokens
  28. 28. On Ali’s copy of the ledger, he decreases Sam’s balance by 7.5 and increases his by 7.5
  29. 29. Ali Sam Trevor Arianna 107.5 tokens 92.5 tokens 100.0 tokens 100.0 tokens
  30. 30. Then Ali shows everyone his copy and says “make these updates”
  31. 31. Ali Sam Trevor Arianna Ali Sam Trevor Arianna 107.5 tokens 92.5 tokens 100.0 tokens 100.0 tokens 107.5 tokens 92.5 tokens 100.0 tokens 100.0 tokens Ali Sam Trevor Arianna Ali Sam Trevor Arianna 107.5 tokens 92.5 tokens 100.0 tokens 100.0 tokens 107.5 tokens 92.5 tokens 100.0 tokens 100.0 tokens
  32. 32. But wait!
  33. 33. If Ali walks to Arianna to show her the update, how does she know that Sam consented to the exchange?
  34. 34. Well, Ali simply has Sam sign her paper to express approval of her balance going down
  35. 35. But there’s another issue
  36. 36. Relaying changes to 20-30 people every time an exchange occurs can be time-consuming and impractical
  37. 37. Further, what if we want to have even more players in the game?
  38. 38. And what if some of them are halfway around the world?
  39. 39. How do we synchronize all of these paper ledgers?
  40. 40. Well, we could just move from paper records to digital records
  41. 41. We’ll have some fancy software that does the ledger syncing for us
  42. 42. And fancy math to ensure that our digital signatures can’t be forged, & thus nobody can spend our money
  43. 43. 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)
  44. 44. With these modifications, our game will allow millions and even billions of people to transact and trade
  45. 45. Come to think of it, we could probably even use this system as a real world global currency and payment mechanism
  46. 46. Notice that with this system, nobody owns it or controls it
  47. 47. Just as with in-person cash transactions, only the sender and recipient are involved - there are no middle men
  48. 48. And because there are no middle men, no fees are required
  49. 49. So for the 1st time, you and I can trade directly online and from anywhere in the world
  50. 50. We just record a transaction amongst ourselves and broadcast it to the world, proving that it actually occurred
  51. 51. Our currency and payment system is powerful but simple, and we designed it together
  52. 52. And we’ll call it Bitcoin
  53. 53. Thank you Ryan Shea onename.io
  54. 54. P.S. To get started with Bitcoin, you can create a Bitcoin profile at onename.io
  55. 55. 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
  56. 56. Coming soon: “What is Bitcoin mining?”

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