Bitcoin can seem like a financial concept made in a parallel universe to most people. Yes, it’s a complex and complicated concept, but it doesn’t mean it’s impossible to learn.
Many people started investing in Bitcoin without any understanding of how the blockchain worked. If you were to track them down you would probably see they are trading in various other cryptocurrencies like pros. They may also be profiting very nicely now that they have a better understanding. In this article, I will try to simply explain the process using a betting analogy.
Bitcoin Explained In Simplicity
Let’s pretend that you want to play a betting game with some friends but no one has any money on hand. You decide that everyone will keep a ledger so that you can track winnings and losses. You don’t want to put your trust in one friend to record everything, so many of you decide to make a ledger simultaneously.
This way, at the end of each game, those who kept ledgers can compare
their records to see if it all evens out. By multiple people keeping up with ledgers it would be virtually impossible to cheat the system. Each ledger contains its own record of the betting game with the wins and losses.
The Ledger is Public
The ledger is not hidden or exclusive to the ledger keepers; you can view it anytime you want. To add your transactions to the ledger, all you have to do is broadcast your transactions to the ledger keepers, and you pay as little or as much as you want to make sure they put your name down on that ledger as soon as possible.
Your friends who keep the ledgers up to date will receive compensation for their hard work with a reward in the form of money. This money comes from an external source—say, a vault with a limited amount of money. The money in the vault wasn’t part of the money circulating in the betting pool, but it became so once it was acquired by your ledger-keeper friends.
This simple analogy is exactly how Bitcoin operates, albeit on a much more complicated level. Bitcoin runs on a global computer network, and each transaction is compiled into new blocks, which are then connected to the last block on the blockchain. And the bitcoin miners are the ledger-keepers who work hard to record transactions and mine those precious bitcoins.
How Bitcoin Works Conclusion
I hope that this post helps you to have a better understanding of how Bitcoin works and gets you started before the mass adoption.