If you have ever wondered what Bitcoin was or if you should get involved, the purpose of this post and additional ones to follow is to break down Bitcoin and related topics into super comprehendible pieces so anyone can understand.
Let’s begin by stating that Bitcoin is a cryptocurrency. But what’s a cryptocurrency? With assistance from Adam Ludwin of Chain I might have a definition that isn’t what you are likely thinking, but I believe best describes: Cryptocurrencies are a new type of asset that enables (incentivizes) the functioning of a different, but important type of application — decentralized applications (for the time being think of decentralized applications as any app on your phone but not governed by a single company or person). In the situation of Bitcoin, the decentralized application is a global payment system that uses actual Bitcoin to fuel the speedy transfer of any amount of money (Bitcoin) between any two parties.
Yes, I know I said “Bitcoin” several times in the same sentence. To clarify, the word “Bitcoin” represents three things (part of the general confusion):
- The decentralized application that facilitates global payments
- The cryptocurrency or fuel to transfer money within this application
- And lastly, the actual type of money sent via the Bitcoin application between two people
To simply illustrate how Bitcoin works, imagine a train (a fully automated train which isn’t owned by any one company or person) that’s supposed to travel from New York City to Los Angeles carrying $1,000 between two siblings.
In this example, a few weeks earlier two siblings, Terence and Priya, had a wild night out in LA. Terence wanted to pay Priya back and preferred to simply give Priya cash and not involve friends or any company/bank. Unfortunately Terence isn’t in LA currently. Terence decided to send Priya Bitcoin. Going back to our illustration, before this train leaves with Terence’s $1,000, it needs some kind of fuel to move. It uses a little bit of Bitcoin to fuel itself. Once fueled it quickly leaves from New York and a few minutes later it arrives in LA directly at Priya’s house without any stops or toll collectors. Magic!
If you’re following closely you should be saying, no, not magic. Terence could have used Venmo or Paypal. Sure, but one key thing mentioned earlier is that Terence and Priya wanted to avoid any company or person being involved in the transaction. And because Bitcoin isn’t run by any one company or person, it’s perfect for such transactions (more about this in a later piece). This may not be important to you if you live in the US and various other Western nations, but if you live in a country where the central government is corrupt, has a track record of manipulating (ie. hyperinflation) the currency, blocking transactions of opposition parties, or simply taking citizens’ money from their banks, Bitcoin is an interesting alternative that can’t be seized by any single organization.
This application of Bitcoin along with other applications of Bitcoin have been driving Bitcoin’s popularity as the future global payment system.
Keep an eye out for my future posts on the uses of Bitcoin, how Bitcoin works, how to buy Bitcoin, and various related topics. What other topics in regards to Bitcoin are you confused about that you’d like to have simplified?
If you have any questions or feedback, feel free to leave a comment or shoot me a message on Twitter @vivekmgeorge.