Bit what??? If you’re a bit like us and still struggling to figure out what on earth bitcoin is, we’ve come across a simple explanation from Nik Custodio over at Coindesk that even a five-year-old should understand – so here’s hoping you do! Over to you Nik.
We’re sitting on a park bench. It’s a great day. I have one apple with me, I give it to you. You now have one apple and I have zero. That was simple, right?
My apple was physically put into your hand. You know it happened. I was there, you were there – you touched it.
We didn’t need a third person there to help us make the transfer. We didn’t need to pull in someone else to confirm that the apple went from me to you. The apple is yours! I can’t give you another apple because I don’t have any left. I can’t control it anymore. The apple left my possession completely. You have full control over that apple now. You can give it to your friend if you want, and then that friend can give it to their friend and so on.
So that’s what an in-person exchange looks like. I guess it’s really the same, whether I’m giving you a banana, a book, a quarter, or a dollar bill.
Now, let’s say I have one digital apple. Here, I’ll give you my digital apple. Ah! Now it gets interesting.
How do you know that digital apple which used to be mine, is now yours, and only yours? Think about it for a second. It gets more complicated, right? How do you know that I didn’t send that apple to someone else as an email attachment first? Or a friend? Or a friend of a friend?
Maybe I made a couple of copies of that digital apple on my computer. Maybe I put it up on the internet and one million people downloaded it.
As you can see, this digital exchange becomes a bit of a problem. Sending digital apples doesn’t look the same as sending physical apples.
Maybe these digital apples need to be tracked in a ledger. It’s basically a book where you track all transactions – an accounting book.
This ledger – since it’s digital – needs to live in its own world and have someone in charge of it.
Example? Just like in World of Warcraft, say Blizzard, the guys who created the online game, have a digital ledger of all the rare flaming fire swords that exist in their system.
There’s a bit of a problem though.
What if some guy over at Blizzard created more? He could just add a couple of digital apples to his balance whenever he wants!
It’s not the same as when we were on the bench that day. It was just you and me then. Going through Blizzard is like pulling in a third-party person in to all our park bench transactions. How can I just hand over my digital apple to you in the usual way? Is there any way to closely replicate our park bench transaction digitally?
What if we gave the ledger to everybody? Instead of the ledger living on a Blizzard computer, it’ll live in everybody’s computers. All the transactions that have ever happened, from all time, in digital apples, will be recorded in it.
You can’t cheat it. I can’t send you digital apples I don’t have, because then it wouldn’t sync up with everybody else in the system. It’d be a tough system to beat. Especially if it got really big.
Plus, it’s not controlled by one person, so I know there’s no one that can just decide to give themselves more digital apples. The rules of the system were already defined at the beginning.
Within the system, the exchange of a digital apple is now just like the exchange of a physical one. It’s now as good as seeing a physical apple leave my hand and drop into your pocket. Just like on the park bench, the exchange involves two people only so behaves like a physical object but is still digital – how cool!
We can now deal with 1,000 apples, or 1 million apples, or even .0000001 apples. I can send it with a click of a button, and I can still drop it in your digital pocket even if we were on other sides of the world.
And now that we seem to have it all sorted, a lot of people are arguing over it. There’s debate over some people saying the system is worth a lot; some say it’s actually worth zero. Some guy actually put a hard number on it: $1,300 per apple. Some say it’s digital gold; some say it’s a currency.
Everyone has their own opinion on it, including Nik, and so do we – we just hope this has given you a bit more understanding of what Bitcoin actually is and how it works. And if you still don’t get it? Then ahhh we don’t really know what else to do sorry – but stay away from those Bitcoin-knowing 5 year olds!