Bitcoin Explained #1 - The Very Basics

For those of us who browse Steemit every day, cryptocurrencies are the bread and butter of our world. Yet despite that, I found myself wondering exactly how much I know about this new technology which has shaken things up tremendously since it first showed up on the scene in 2009.

The answer was simple, though I didn’t like it – I actually didn’t know much more than the basics. So I decided to flesh it all out. And since I was looking for ideas on what to post here on Steemit, I guess I might as well kill two birds with one stone, and post about my latest discoveries right here!

I had done articles on this subject before, but I and some other people thought they weren’t very well fleshed out, and that this subject deserved a careful revisit in the future – so here I am fulfilling it, and digging deeper into the topic!

I will now start a series about the inner workings of Bitcoin, exploring many parts of this technology – wallets, transactions, some history… you name it!

For the record, I try to break everything down into bite-sized chunks, and try to make the info as simple as I possibly can for you to read. Also, I’m highly basing myself on the great book “Mastering Bitcoin”, by Andreas M. Antonopoulos. Check it out if you have any doubts on what I say next, it’s a great book, though it requires some programming knowledge to be understood!

Without further ado, let’s get started, shall we?

1 – Bitcoin is not “nerd money” – it’s a decentralized trust network

Like many of us, I’m guilty of thinking of Bitcoin as what’s sitting on my wallet. It’s so much more than that.

Let’s set a distinction right now – “bitcoins” are what you have in your wallets. “Bitcoin” (capitalized) is always used to refer to the whole underlying system, not just the currency. And the system is truly the part that stands out the most.

You see, as our dear Mr. Antonopoulos puts it, “Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem”. This ecosystem, like many economical ecosystems beforehand, focuses storing, transmitting, and transferring value between it’s users, at their behest.

That’s as far as the similarities go though. For you see, there are some big changes that set this crazy system apart.

2 – Bitcoin is entirely virtual – no physical currency at all

You all already knew this, but let it sink in – with this system, there is no physical currency. Nothing you can pocket, nothing you can directly touch, nothing that you can take in your palm and give to someone else.

This is where most uninitiated people completely lose faith in this tech – they believe something they cannot touch isn’t real and shouldn’t be trusted. However, the fact that there isn’t a physical form for this currency does not mean it has no value.

What is money? As a friend of mine once put it, it’s simply a medium to exchange value. Bitcoin, you see, simply comes up with different ways of representing this value. It does this through keys.

This key is like a stamp from you. Once put on a transaction (we’ll discuss this in the future), it tells everyone that looks at it that you were certainly behind it. These keys are unique to everyone, and they are the main mechanism by which people trade bitcoins.

The main calling card of this system though, the one that generates all the buzz, is something else entirely. And that is…

3 –Bitcoin is decentralized

All existing currencies and economic systems out in the world right now have one thing in common – a central entity calling the shots on how it works. That central entity prints the currency, and handles the regulation of said currency.

There’s none of that in Bitcoin. Everyone can get involved in Bitcoin, and they produce more Bitcoins in a process called “mining”.

This mining consists of using a computer’s processing power to solve a complicated problem. Once a problem is solved, all transactions that happened while the problem was being solved are validated. The person who validated it is then rewarded with a small fraction of all transactions, in the form of bitcoins.

Sounds confusing? It is. But the main gist of the matter here is – there is no central entity behind Bitcoin. There are people who work on it day and night, there are improvements made on it by said people. But mostly, all the progress that goes on around this system is made by everyone that participates it.

There are volumes more that can be said on this… And I will. Next time.

That wraps this up!

Hope you enjoyed this first of many posts! I know it barely grazed the surface, and that you probably knew a lot about this already, but trust me, I’ll be fleshing this out a lot more in the coming days and weeks!

In the meantime, feel free to let me know what you thought about this article in the comments below!

I’ll answer any questions and take any criticism you guys might have!

Till the next one guys! Steem on!