Most everyone has heard of Bitcoin but they don’t really understand exactly what it is or how it works. It’s an idea that seems a little out there. And it’s true, Bitcoin is definitely a complicated financial concept. But just because it’s complicated, doesn’t mean it can’t be learned and understood.
After all, it wasn’t that long ago that very few people had any idea of what Bitcoins were or how they worked. But now, many of those very same people are using and investing in Bitcoin and other cryptocurrencies.
If you’re confused about Bitcoin, what it is and how it works, we’re going to simplify things for you. This way, you’ll have the knowledge to feel confident enough to decide if investing in Bitcoin is right for you as well.
Let’s dive into a betting game analogy to give you a better understanding of Bitcoin. Let’s say you and your friends are taking part in a betting game. Yet, none of you have any money on hand. In order to play the game you decide to use a ledger to record the wins and losses, the same way a business accountant might do.
But hey, people can be weird about money, right? So instead of one person keeping the ledger, multiple people keep a ledger at the same time. This way, you hope to cut down on cheating because when each game ends, everyone with a ledger can compare the ledgers to see if they match up.
With so many different people keeping a ledger, the information on it is made available to everyone at all times. You can view it, and add your own transactions to it by letting the ledger keepers know about them. How much or little you pay in order to do this is up to you.
Keeping the ledgers is hard work. Your friends that do this job get compensated for it just like most jobs, by receiving money. Since no one has money on hand for the betting game, the money will come from a separate external source. This source could be a vault that has a limited amount of money.
Originally, the money in the vault was not available for the betting game. But once it’s paid to the ledger keepers it becomes available.
This analogy may sound strange. After all, who plays a betting game without money? However, this process is basically how Bitcoin works. Sure, it’s more complicated than that but this does convey the basic idea.
Bitcoin itself is run on a global computer network. Every individual transaction is recorded and compiled by the ledger keepers into new ‘blocks.’ These blocks are then connected to the very last block on what is known as a blockchain.
Remember those ledger keepers? They are the Bitcoin miners that do the hard work necessary to record the transactions of mining all those bitcoins.